the adviser logo

PayPal used ‘unfair’ term in SME contracts, finds court

by Reporter11 minute read

PayPal Australia used an “unfair term” in its standard form contracts with small-business customers, the Federal Court has found.

Online payments fintech and working capital provider PayPal Australia has been found to have used an unfair contract term in its standard form contracts with small-business customers.

Last year, the Australia Securities & Investments Commission (ASIC) commenced proceedings against PayPal Australia Pty Limited (PayPal) alleging that its standard form contracts with small-business customers contain an unfair contract term.

The case focused on a term that allegedly permitted PayPal to retain fees it had overcharged or wrongly charged if the small business did not notify the company of the error within 60 days of the fee appearing in their account statement.


The term informed small businesses that, if they did not alert PayPal to discrepancies within 60 days, they “accept such information as accurate, and PayPal shall have no obligation to make corrections, unless otherwise required by applicable law”.

Following a hearing on Wednesday (4 July), the Federal Court found the “Fee Earner Term” in PayPal’s combined financial services guide and product disclosure statement was unfair to the over 600,000 small businesses that held accounts between September 2021 and November 2023.

Justice Mark Moshinsky found small businesses were not in a position to manage the risk of incorrect charging and were often unable to see how money was calculated, “in circumstances where the account statements did not describe the various fees”.

However, ASIC did not uncover any loss or damage in its investigation and PayPal said it was not aware of any instances where a small business suffered loss or damage as a result of the Fee Error Term.

Nevertheless, in his order, Justice Moshinsky said the Fee Term Error was an “unfair term” within the meaning of the ASIC Act and voided it “ab initio” or from the beginning.

The financial services company also agreed the term was unfair and had voluntarily removed it from contracts in November 2023.

PayPal has now been “restrained from applying or relying upon or enforcing the Fee Term Error” in its small-business contracts.

The court ordered PayPal to pay ASIC’s costs of the proceedings.

Shortly after the judgment, a PayPal Australia spokesperson said: “PayPal Australia takes our responsibility to our customers very seriously and we have been working in full cooperation with ASIC on this matter.”

ASIC deputy chair Sarah Court welcomed the finding, saying that the regulator was “dedicated to protecting consumers and small businesses from unfair contract terms” and ensuring financial service providers like PayPal “use fair contract terms”.

“[This] decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated, and that ASIC will take decisive action where appropriate,” Court said.

The judgment comes as ASIC comes under close scrutiny for its efficacy, with an excoriating report released by the Senate economic references committee last week suggesting that the regulator was overstretched, failing to meet its core function and needed overhauling.

In the last three financial years, for example, the report found that ASIC commenced an average of 117 investigations per year, initiating 75 new civil actions and 52 new criminal actions in 2021–22, and having only referred 41 cases to the Commonwealth Department of Prosecutions (CDPP).

As such, 11 recommendations have been put forward to improve the financial services regulator’s abilities, including separating its functions between a companies regulator and a separate financial conduct authority, and reviewing its funding structure, among other changes.

[Related: Labor’s bill to ban unfair contract terms welcomed]

paylpayl office ta pfpomz


You need to be a member to post comments. Become a member for free today!
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more