PayPal facing $25-million sanction for illegal credit sign-ups

Federal regulators are proposing that PayPal Inc. pay $25 million to resolve allegations that it illegally signed up customers for its online credit product, used misleading advertising and mishandled billing disputes.

The Consumer Financial Protection Bureau announced Tuesday its proposed consent order against the digital payments processor. If the order is approved by a federal judge in Maryland, PayPal would refund $15 million to customers and pay a $10 million fine.

PayPal, based in San Jose, California, is a division of eBay Inc. The two companies plan to separate.

The CFPB says that PayPal signed up customers without their permission for the online credit product, formerly known as Bill Me Later and now called PayPal Credit. PayPal also failed to post payments properly and lost payment checks, the agency said.

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