Class Action Alleges PayPal Pay in 4 Users Not Warned of Insufficient Funds, Overdraft Fee Risks

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A proposed class action alleges PayPal has misrepresented to consumers the “real and repeated” risks of using its buy-now-pay-later Pay in 4 service. 

The 15-page case in California alleges that PayPal does not fully disclose the risk that Pay in 4 users may incur multiple insufficient funds fees or overdraft fees as a result of subsequent automated transfers from their checking accounts. The lawsuit relays that this is especially problematic to the “core constituency” of Pay in 4 users, namely cash-strapped consumers who use the service for online and in-store purchases that are to be broken up into four payment installments. 

According to the complaint, PayPal positions its Pay in 4 service as a purported point-of-sale cash solution to certain consumers, who believe they’ll be able to pay for purchases at a later date with no interest, fees or hassle. The suit charges that PayPal’s marketing of Pay in 4 is “deceptive and incomplete,” and that many users end up paying significant fees that they’ve previously been assured they won’t incur. 

“In fact, there are huge, undisclosed fees and interest associated with using the service,” the case claims, alleging PayPal “specifically targets poor consumers and those struggling to make ends meet on a week-to-week basis.” 

Moreover, the lawsuit alleges PayPal “exacerbates” the harm done through insufficient funds fees and overdraft fees by using “undisclosed processing choices” that cause users to incur even more fees than they otherwise would have. This includes “repeatedly reprocessing debits” when PayPal knows a user’s checking account is already negative, the suit claims. 

The plaintiff, a Miami resident, says in the case that he incurred on a single repayment to PayPal for a small-dollar purchase three separate insufficient funds fees totaling almost $90. 

“Had Plaintiff and the Class members known of the true operation and risks of the PayPal Pay in 4 service, they would not have used the PayPal service,” the suit says. 

As the case tells it, the process of using Pay in 4 takes only a few seconds, during which consumers are never warned that they might incur substantial fees as they repay the amount of their purchase through automatic account withdrawals. PayPal’s marketing relays only that Pay in 4 offers a way to make purchases with four interest-free payments through the PayPal app, the suit stresses. 

The lawsuit looks to cover all consumers who used the PayPal Pay in 4 service and incurred an overdraft or insufficient funds fee as a result of a PayPal repayment deduction.

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