PayPal Faces Class Action Lawsuit Over Anti-Steering Regulations

In a significant legal development, consumer rights firm Hagens Berman is currently leading a class action lawsuit against PayPal. The lawsuit alleges that PayPal's anti-steering regulations unfairly stifle competition from platforms like Stripe and Shopify, ultimately leading to overcharges for consumers who use PayPal or Venmo for online purchases.

The crux of the complaint lies in PayPal's merchant agreements, which mandate that all retailers must sign up to accept payments through their platform. According to the claim, this practice ultimately drives up consumer prices, as it eliminates the ability for merchants to offer discounts or incentives for customers to use alternative, potentially cheaper, payment methods.

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The lawsuit, filed in the U.S. District Court for the Northern District of California, contends that merchants are effectively barred from informing customers about potentially more cost-effective payment options. Additionally, they are restricted from accepting various payment methods until the checkout stage.

The attorneys argue that without PayPal's anti-steering provisions, a merchant could offer a lower price for products when using alternative payment methods, effectively saving consumers money. The restrictions, they assert, keep consumers in the dark about potential cost savings.

Describing PayPal's anti-steering measures as "draconian" and "illegally anticompetitive," the attorneys draw parallels to the legal action taken against Visa and Mastercard in 2010. The lawsuit also highlights PayPal's substantial revenue from fees, which amounted to about $27 billion in 2022.

With over 400 million users worldwide, including a staggering 75% of Americans, PayPal's reach is extensive. Nearly one million U.S. e-commerce websites currently accept PayPal, and the platform handles an impressive 41 million transactions daily.

Hagens Berman's managing partner and co-founder, Steve Berman, asserted that if consumers were privy to the true pricing disparities between PayPal and its competitors, they would likely opt for more cost-effective alternatives. This development has raised questions about PayPal's consumer-friendly image, considering its reputation for user-friendly services.

In response, PayPal emphasized its commitment to prioritizing customer interests and taking its responsibilities seriously. As the lawsuit unfolds, it may potentially have far-reaching implications for the fintech giant and could reshape the competitive landscape of online payment platforms.