WASHINGTON - Federal and state investigators are examining whether online payment service PayPal violated consumer-protection laws in its fight against online fraud, parent company eBay Inc. (EBAY.O: Quote, Profile, Research) said on Monday.
PayPal sometimes freezes customer accounts while it investigates suspicious transactions, a practice that has generated complaints to consumer-protection authorities, the online auctioneer said in its annual report. "As a result of customer complaints, PayPal has ... received inquiries regarding its restriction and disclosure practices from the Federal Trade Commission and the attorneys general of a number of states," the report said.
"If PayPal's processes are found to violate federal or state law on consumer protection and unfair business practices, it could be subject to an enforcement action or fines." An FTC spokeswoman declined initial comment. PayPal handled more than $12.2 billion in transactions in 2003 and has 40 million customer accounts, according to the annual report. The rate of fraudulent PayPal transactions is less than one-half of one percent, eBay has said. An eBay spokesman was not immediately available for comment.
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