CFPB Probing PayPal Loan Unit Over Debt Collection and Other Issues

eBay Inc. (NASDAQ: EBAY), parent company of online payment acceptance platform PayPal, disclosed in an SEC filing Friday that it was informed of an investigation by the Consumer Financial Protection Bureau (CFPB) focusing on the practices of PayPal’s Bill Me Later short term loan unit.

In its quarterly earnings report, eBay disclosed that, “On August 7, 2013, we received Civil Investigative Demands (CIDs) from the [CFPB]  requesting that we provide testimony and produce documents relating to the acquisition, management, and operation of the Bill Me Later business, including its products and services, advertising, loan origination, customer acquisition, servicing, debt collection, and complaints handling practices.”

Bill Me Later is a financial product that allows consumers to open a revolving credit account for purchases to be paid over time. eBay’s PayPal unit acquired the company in November 2008. Bill Me Later allows consumers to fund purchases in payments stretched over six months. If the balance is not paid after that time, a 19.99 percent APR kicks in.

Bill Me Later is used by a number of large online retailers, such as Wal-Mart and Apple. The loans are funded by Utah-based bank Comenity Capital Bank.

Although the CFPB has not commented on the investigation, it is speculated that the regulator is looking into whether the loans comprise terms similar to payday loans. eBay said in its filing that it is cooperating with the Bureau in connection with the investigative demands.

eBay also noted that its PayPal unit will be under increased scrutiny from the CFPB due to new Reg E requirements, writing, “In January 2012, the [CFPB] finalized new rules under Regulation E, mandated by the Dodd-Frank Act, which will require PayPal, starting in late October 2013, to provide additional disclosures, error resolution rights and cancellation rights to U.S. consumers who make international remittance payments. These requirements could increase our costs of processing international payments and adversely affect our business.”

insideARM.com Publisher Stephanie Eidelman wrote a rather interesting piece on our experience with PayPal a few years ago. It’s worth a read.