PayPal is under fire from the Consumer Financial Protection Bureau (CFPB), which wants the online payments service to pay $25 million in fines and refunds to customers who were duped into using PayPal's credit service.

The CFPB's order, which is still up for approval by a federal judge, accuses PayPal of multiple shady business practices that led to customers paying PayPal without their consent. If approved, the order could force PayPal to pay $15 million in refunds and $10 million in civil fines.

Central to the CFPB's allegations is PayPal Credit, formerly known as Bill Me Later, which automatically signs up users without their knowledge.

The CFPB says new users who are signing up to a PayPal account are automatically directed to PayPal Credit without them realizing it, only to find out later when they receive a billing statement and collection calls for unpaid amounts, including the interest and late fees incurred.

Moreover, PayPal also made existing users pay for online purchases using PayPal Credit instead of the user-selected method of payment, such as a linked credit card or bank account. The CFPB says some users were also unable to change the method from PayPal Credit to their preferred method, thus incurring late fees and interest to be paid to PayPal.

"PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained," says Richard Cordray, director of the CFPB. "Online shopping has become a way of life for many Americans and it's important that they are treated fairly."

PayPal's list of offenses continue. The CFPB alleges that PayPal deliberately ignored customer request for information or gave them inaccurate information about its limited-time deferred interest promotions, causing many customers to incur deferred interest fees which could have been easily avoided if not for PayPal's conduct.

PayPal also reportedly loses payment checks and takes up to an entire week to process checks, while failing to remove late fees and interests when customers couldn't pay because of the website's own faults.

The CFPB also says that PayPal fails to honor advertised promotions, such as the $5 or $10 credit promises it sometimes offers for certain purchases. And when customers contact the company to report these errors, customer service often fails to handle complaints properly.

"Tens of thousands" of PayPal users have experienced at least one of these issues, says the CFPB, but a PayPal source close to the matter tells CNET that the bureau's complaint affected a "very small amount" of customers, or more specifically, just 0.01 percent of all PayPal users.

PayPal agreed to pay the $25 million in refunds and fines, saying that it "takes consumer protection very seriously." Still, PayPal defended its actions, arguing that it focuses on "ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws."

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