2) Inadequacy of legal protection to PayPal user
The problem on legal protection to PayPal user is that the existing law does not compatible with this new payment intermediary. A good example can be seen in the meaning of section 75 of Consumer Credit Act. This section provides creditor in liability on claim against breach of contract or misrepresentation. The problem in this point is about status of PayPal in the transaction whether PayPal act only as agent of credit card Company in the transaction ar PayPal act as creditor in this transaction. If PayPal act as credit card Company in the transaction, the transaction, of course, will protect under section 75 of Consumer Credit Act and PayPal user can sue the credit card issuer. However, in practical, PayPal indeed pay money to both seller and buyer. PayPal may be argued to act as creditor. If PayPal act as creditor in the transaction, there are, of course, difficulty in using term of section 75 of Consumer Credit Act will be raised. The difficulty is that there are no existing credit agreement between PayPal and user and the supplier.97 This is because, PayPal user does not actually use credit card in this transaction. The-only transaction occurs between PayPal and user. The supplier does not involve in credit card transaction. Therefore, in PayPal transaction, there is lack of significant element of section 75 of Consumer Credit Act. This section cannot apply to PayPal transaction. In other words, PayPal user is not able to receive legal protection under section 75 of Consumer Credit Act.
Moreover, if the PayPal serve as creditor, it might be difficult for PayPal user claims on any consumer protection right such as chargeback right or 50 pound limit liability rule. This is because there are no direct transaction between credit card issuer and PayPal user. Of course, it is difficult for PayPal user to in proving unauthorized transaction in their credit card. This shows that even credit card user, whose might own a better legal protection than debit card or account user, still face legal argument on their protection.
3) Unstable in legal status of PayPal
The heart problem for lack of adequacy legal protection to PayPal user on user fund account is concerned about difficulty on the legal status of PayPal business. Until now, there are no legal recognition in status of PayPal in doing their business. The business method is likely to be close to PayPal business method is `Bank'. This is because characteristic of PayPal seems to likely to be a bank for instance, PayPal offer service in money transfer ands also PayPal user can keep the money in the PayPal account. Of course, with this circumstance, this raised the difficulty and complexity question, face to the regulatory officer all over the world in the status of PayPal about whether PayPal is a `Bank' in meaning of the law. If the PayPal is a `Bank', it will be easy for regulatory officer in apply banking regulation to PayPal in protect legal right of PayPal user. A first benefit is that, with bank regulation, bank regulation can protect PayPal user's fund in case of insolvency occurred with the PayPal. This is because bank provider have to comply strict regulation on capital required in case of insolvency. For example, Bank provider are required to hold a certain share depend on the level of deposit for insure and deposit."98 And also `Bank' provider is subject to reporting requirements and periodic examination by supervisory authorities such as Financial Service Authorities. Moreover, another benefit is about protection right of PayPal user over their fund. This is, because, bank provider have to comply strict regulation in deposit taking. For example Bank provider have to provide interest for their customer fund99 and Bank cannot detain customer's fund unless there are special circumstance such as recommendation from FSA.100
However, PayPal, indeed, is not recognized as a `Bank' in front of the officer around the world. For example in the US, the Federal Deposit Insurance Corporation (FDIC) issue advisory letter that PayPal business is not considered as a bank or saving association. The reason state in advisory letter is that;
"PayPal does hot accept deposit as defined by federal law, - which requires institution a banking charter: PayPal does not have banking charter. Therefore, PayPal is not a bank.?101
Therefore, this letter will affect that Federal Banking regulation in the United States does not apply to PayPal as they are bank.”
Across Atlantic to the United Kingdom position, the question arises to the UK. regulator also about whether PayPal is a bank in the United Kingdom. In the UK position, currently, PayPal also is not considered as a bank. This is because, in the UK, the financial institution must, be authorized by governmental body such as FSA in doing financial service as a bank.102 In other words, an institution is prohibited to operate if they do not receive authorization from the authority. In practical, PayPal does not receive any prohibition for operating. their business from FSA. This may imply that PayPal also is not considered by FSA in operating their business as a bank. With this regulator position, there may be impossible to apply relevance regulation in order to protecting PayPal user's right in their account.
Chapter 4 : The future solution
Above Section in this paper demonstrated that there are now a number of solutions which current have been used for solving the occurrence problem in C2C transaction. However, from the criticism above section, these numbers of solution may not be enough to solve the problem in C2C transaction. As can be seen, there are failure . PayPal is internal control system or an inapplicable law. This raises the lastest question for this per that whether there are any better suggest solution in solving C2C transaction problem. Here, this chapter will exhibit some suggestion to improve existing solution and solve the problem in C2C transaction.
I. improve Verified system by issue code of conduct to industry
The common problem on every internet transaction is about the user identity in the transaction. It can argue that user identity problem is origin of fraud on the transaction and also spread virus of fraud and erroneous to digital transaction. In addition, the identification problem may obstruct the legal solution in internet transaction. C2C transaction also cannot keep away from this identity problem. However, as shown above section, online auction industry still pays a little attention to the identity problem. The online auction industry only slight involves on registering process and hand over entire responsibility to the participant. A good example is that, in eBay, the participant can easily open the transaction within eBay community with only register with the eBay. The only measure to ensure identity of participant is e-mail of participant. In addition, this is the same registering process in favorite C2C payment intermediary like PayPal. Of course, e-mail verification can argue to be the most vulnerable method for identification. Because of, it can easily forge and no precise of information. The C2C industry throws away responsibility by handling to their participant. The verification in C2C transaction nowadays is participant business. Those C2C industry does not get involve in this problem. With this circumstance, of course, this cannot create effective verification process in this C2C transaction. A first problem in create effective verification process is that it is not possible for fraudster to get involve in verification process because he/she will hide their identity as much as he/she can. Another problem is that even the good participant may lack of incentive to get to verification process. This is, because, verification means cost to them. For instance, the cost for getting verified for eBay is 3 pound.103 The cost is not only about amount of money but also the risk of personal and financial information will be taken by hacker or data miner. Therefore, the suggestion is that the government or involvement authority should get involve in this problem by issuing the code of conduct to the industry in order to improve effective of verification process and take responsibility back to the C2C transaction service provider. The code of conduct may issue various form of measure for example in respect of responsibility, the C2C may be fined for any fault of identity that occur in their system. Of course, this will encourage the online auction or payment intermediary in restrict to identity of user account. The further suggestion is that in respect of improve verification process, this may encourage the industry in order to establish central certificate authority' for user in C2C transaction. All users in C2C transaction have to register and get verified by this `central certificate authority' or third party website whose website has certified by government authority before enter to service in C2C transaction. In my opinion, these measures may improve the efficiency of current verification process. |
