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PayPal sued for inflating prices for online shoppers

By Nithya Bose in US business news, posted October 6, 2023

PayPal and its subsidiary, Venmo, face legal action for driving up prices for the hundreds of millions of consumers.

The class-action lawsuit claims the companies imposed rules on merchants preventing them from directing customers to more affordable payment options.

The suit accuses PayPal of employing "anti-steering" rules to suppress competition from lower-cost payment platforms.

While credit card companies have previously faced scrutiny for similar provisions, this case highlights PayPal's alleged anti-competitive practices.

The plaintiffs argue PayPal compels merchants to follow rules prohibiting them from offering discounts to incentivize customers to use cheaper payment alternatives instead of PayPal and Venmo.

These rules also prevent merchants from informing customers about potentially more cost-effective payment options.

The lawsuit alleges that consumers pay higher prices for goods and services.

Steve Berman, Managing Partner and Co-Founder of Hagens Berman, the law firm representing the plaintiffs, said: “If consumers were allowed to see behind PayPal’s pricing veil, they would see a clear and distinct difference between using PayPal and Venmo to complete their transactions and using its competitors.

“For a service named for its friendliness, PayPal is far from consumer friendly.”

"Paypal continues to put our customers first in everything that we do"

PayPal said: “PayPal continues to put our customers first in everything that we do, and we take this responsibility seriously.”

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According to its annual report, the company has 400 million active user accounts and 35 million merchant accounts as of February.

The lawsuit alleges PayPal's transaction fees are 3.5 percent higher per transaction than other platforms.

In a similar case in 2010, the Justice Department sued Visa and Mastercard over anti-steering agreements they had imposed on merchants, deeming them anticompetitive.

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The companies settled rapidly with the government, agreeing to permit merchants to offer discounts for alternative forms of payment.

Steve Berman commented in the credit card case, "We see PayPal doing precisely the same thing."

Despite a 2018 Supreme Court ruling that upheld American Express's use of anti-steering rules, Berman believes this ruling will not affect his case against PayPal.

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