11 Customers Sue EBay Over Pay System
Eleven customers have filed a suit against online auctioneer EBay Inc. and its pay-system affiliate, PayPal Inc., alleging they schemed with an electronics merchant to encourage use of the payment system but frequently denied refunds when products weren’t delivered as promised.
The suit, which seeks class-action status, accuses San Jose-based EBay, closely held PayPal and Essex Technology Group, a Nashville-based supplier of closeout electronics, of breach of contract, fraudulent inducement and violations of the Racketeer Influenced and Corrupt Organizations Act.
The suit takes issue with the rights PayPal accorded customers to dispute charges to their accounts once they had made online purchases on the system.
Essex products are carried on EBay’s auction site. Charging that Essex products “failed to satisfy the quality standards” it advertised, the suit says PayPal customers found they forfeited charge-back rights normally afforded by credit card companies, despite promises in PayPal’s user agreement.
Moreover, the suit alleges that those using bank accounts to buy products sacrificed even more rights.
Decisions about charge-back disputes were generally at PayPal’s discretion and frequently in Essex’s favor, the suit says.
Amanda Pires, a PayPal spokeswoman, declined to comment on the litigation. But she said in general the company’s buyer-protection policy covered customers “no matter how you fund your purchase,” whether by credit card or bank account.
“We evaluate every dispute between buyers and sellers,” she said. After encouraging them to “work it out between themselves,” the company will step in and mitigate, she added.
“If we find a lot of claims against a particular seller, we’ll investigate that,” she said, and may rescind some selling rights.
EBay said it would not comment on pending litigation. Calls to Essex were not returned.
The suit, filed last month in New York Supreme Court, comes a year after a deal was reached with New York Atty. Gen. Eliot Spitzer in which PayPal agreed to better disclose the rights of customers when a seller fails to deliver merchandise. The firm paid $150,000 in penalties and costs to settle that dispute.
Spitzer’s investigation found that PayPal’s user agreement misrepresented certain terms and conditions.
Marina Trubitsky, an attorney representing the class-action customers, said her suit was based on findings in Spitzer’s probe, plus more recent claims that PayPal protects buyers who make payments from their bank accounts on the system.
Shares of EBay slipped $1.03 to $36.14 on Nasdaq.
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Associated Press was used in compiling this report.
