PayPal used an unfair term in its standard contracts with Australian small businesses over a more than two-year period, the Federal Court has determined.
The term allowed PayPal to keep fees that it had erroneously charged if the small business involved didn't notify PayPal of the mistake within 60 days.
It had been in its standard small business contracts for over two years - from September 21, 2021 until November 7, 2023.
The Australian Securities and Investment Commission (ASIC) took PayPal to court over what it deemed the unfair term in September last year.
PayPal agreed the term was unfair and consented to the court's declaration.
The financial technology company had already voluntarily removed the clause from its contracts on November 8 last year, two months after court proceedings began.
As of June 30 last year, there are over 600,000 small businesses with PayPal business accounts.
The Federal Court has now declared the term void from the start of the contracts and ordered that PayPal be restrained from applying, relying on, or enforcing, the term in its contracts with small businesses.
In making the judgement, Justice Mark Moshinsky found that, unlike PayPal, small businesses were not in a position where they were able to manage the risk of incorrect charging or overcharging.
He also found that, as well as only having 60 days to notify PayPal of any errors, the account statements provided did not clearly detail the types of fees and manner in which they were calculated in a way that was easily reconcilable, making it difficult for small business owners to identify any errors.
PayPal had told the court that it was not aware of any instances where a customer had suffered any losses due to the fee error term in question.
"ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms," ASIC Deputy Chair Sarah Court said in a statement today.
"Today's decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated."
The court also ordered PayPal to pay ASIC's litigation costs.
