PayPal has been fined $25m (16m) for luring customers to sign up to its PayPal Credit service.
The US Consumer Financial Protection Bureau (CFPB) said the online payments company lured the public into using its service by offering promotional rates and forcing them to use the service, even if they wanted to use another payment option.
PayPal Credit is similar to a credit card or finance scheme, allowing users to spread out payments over a number of months rather than paying upfront for products and services. However, those who opt to use the scheme are required to pay fines if they are unable to meet deadlines for payments.
The CFPB said PayPal also signed customers up to the service without their permission and did not honour the promotional rates it initially offered. Additionally, the company did not post payments properly, lost payment cheques and did not handle payment disputes correctly.
PayPal denied the claims, but offered to pay $15m back to disgruntled customers alongside $10m in penalties.
CFPB director Richard Cordray said: "Tens of thousands of consumers who were attempting to enrol in a regular PayPal account or make an online purchase were signed up for the credit product without realising it.
"Online shopping has become a way of life...and it's important that [consumers] are treated fairly. The CFPB's action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase."
The CFPB first took action against PayPal in 2013 and has said the case highlights the problems authorities are experiencing with new digital methods of payment, because they fall outside of the scope of traditional regulation.
A PayPal spokesperson said: "PayPal Credit takes consumer protection very seriously. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws."
