II. Current existing solution for solving the problem on the PayPal
1) Transaction Problem
In transaction problem, PayPal user can solve the problem that occur from the erroneous or fraud in both internally system (self-policing system) and legal solution. In Self-policing system, PayPal provide self-policing mechanism to deal with fraud and erroneous on their website. The mechanism is complaint process. PayPal user can complain directly to the PayPal website in event of fraud occurs with them. For example if he/she receive spoofing e-mail in their inbox. PayPal user can report this e-mail by forward this spoof-a-mail to PayPal for internal investigation of those origin of its.84 Moreover, PayPal also offer wide range of protection in case of fraudulent practice occurred in the transaction for example both buyer and seller can file complaint form direct to PayPal website for investigation.85 After investigation, if those complaints were proof to be a fraudulent practice, PayPal will suspend any suspicious transaction that involves any fraudulent or erroneous in practice. For example PayPal will restrict the account if this account has suspicious activity such as using by unauthorized person or fraudulent occur in the transaction between seller and buyer.
In legal solution, PayPal user can recover from_ damage and loss by using consumer protection right. In UK, PayPal user can provoke the right in Consumer Credit Act 1974 on the respect of unauthorized using of their account. The protection varies differently range of protection. In PayPal user who using credit card, the user can use the consumer right according to Section 75 of Consumer Credit Act 1974. This section provides the right that the credit card user may claim damages against creditor in respect of breach of contract and misrepresentation in supply agreement. In other words, PayPal user can claim against PayPal, whose status can be assume to be creditor according to section 75 of Consumer Credit Act 197486 in fraudulent activity occurred in PayPal transaction. In addition, credit card user may limit liability on the transaction if the transaction has not done by the credit card user according to section 83 and 84 of Consumer Credit Act. These sections provide that the credit card user may liable only first 50 pound if the transaction is not in the card holder possession.87 Lastly, the credit card user may claim in 'Chargeback' right with the credit card issuer against loss or damage which is result from fraud and erroneous or identity theft according to E-commerce Directive.88
While credit card user has much range in legal solution, the user whose set-up PayPal account with debit card or bank account does not have so much choice for protecting themselves against fraud and erroneous transaction. For example this kind of user cannot use the benefit of section 75 of Consumer Credit Act in protect themselves against fraud and misrepresentation transaction because there are no existing debtor-creditor-supplier agreement in the context of debit card.89 Also, the 50 pound limit liability rule under section 83, 84 also does not apply to this kind of PayPal user because There is no use of a credit facility by another person.90 The only claim for this kind of user Is, PayPal on Banking Code in forgery rule which is provide more vulnerable right in protection against fraud and erroneous in PayPal transaction.91
2) Customer Fund Protection Problem
The situation may be worse for this kind of problem in the PayPal. That is because, in this problem, there are no existing of solution that the PayPal user can claim against their damage from this problem. As can be seen, there are no. regulatory treatment in this kind of problem. Also, the PayPal assert in their service agreement that the money in account does not the deposit in meaning of the law. As can be seen, PayPal state clearly in user agreement that;
"(i) PayPal is not the band and the Service is a payment processing service rather than a banking service, and (ii) PayPal is not acting as a trustee, fiduciary or escrow with respect to your fund.”92
From this point, the user cannot claim against contractual breach against PayPal if there are impede of withdrawal right or does not contribute enough protection in customer fund. Therefore, it can be argued that there is no solution at all in this kind of problem nowadays.
III Criticism on current problem and solution In using PayPal as Payment intermediary
As outlined above, there are manifold self-policing and legal remedies in prevent occurrence of fraud and erroneous in PayPal transaction. However, the question still arising about whether existing solution is capable to cope with incidence of the fraud and any erroneous in PayPal transaction. This section will criticized how appropriate of existing solution.
1) Too much power for PayPal In self regulate transaction
While the self-policing was thought to be a best way for PayPal transaction in cope with the problem on fraud and erroneous in PayPal, the PayPal user may affect somehow to authoritative power of PayPal in their internal policing system concerned user agreement. In other words, the user agreement sometime give too much power for PayPal in regulate fraud and erroneous transactions which may constitute the critical problem to PayPal user. The first problem is concerned PayPal frequently frozen PayPal user's account if PayPal suspects that fraud and erroneous play a part in transaction, even if the amount in doubt is a fraction of total amount in an account or inadequate prove in fraud of the user in the transaction. Of course, this result loss and damage to PayPal user in which PayPal user cannot activate any business transaction via PayPal and also cannot withdraw their money until PayPal clear the transaction.93 These damages can be seen in case of Combe v PayPal.94 In this case, PayPal was alleged by PayPal user that PayPal had Frozen funds in their account. PayPal defend the case by claim that PayPal has right under their user agreement in authorizing frozen the account. However, in this case, the result seems to be positive to PayPal user. The court in this case decided that PayPal user agreement was inherently unfair. Therefore, the court allots injunctive relief to the PayPal user whose account was frozen by PayPal. This case was a good example in this kind of problem and this warned directly to PayPal in regulate their internal rule. For instance, PayPal change their term of agreement.95
Another problem in self policing system is that PayPal user agreement may impede consumer protection right such as 'Chargeback right' in credit card system. Because of PayPal scared in losing substantial amount of their profit from chargeback right of PayPal participant. For example in 2001, $5.8 million was charged back to PayPal due to customer who disputed purchases with their credit card companies.96 This leads to current unfair term of user agreement in PayPal's fraud protection scheme. In other words, PayPal user can be forced to waive their consumer rights in PayPal's fraud protection scheme. A good example can be seen in PayPal buyer complaint policy, the term of user agreement state that;
"you can choose to pursue the Buyer Complaint process or your credit cardchargeback right; However, you cannot pursuer both at the same time."
This means that once PayPal user uses complaint process. They cannot claim against their consumer right anymore. In other words, PayPal users will breach user agreement between them and PayPal if PayPal users use complaint process. From this point, it can be argued that PayPal self-policing may obstruct consumer right of PayPal's user. |
