PayPal shareholders sue over controls amid new probes

A pedestrian walks past the PayPal logo at an office building in Berlin
A pedestrian walks past the PayPal logo at an office building in Berlin, Germany, March 5, 2019. REUTERS/Fabrizio Bensch
  • Shareholder accuses fintech giant of hidden compliance failures
  • Lawsuit comes after PayPal disclosed new CFPB and SEC probes

(Reuters) - A PayPal Holdings Inc shareholder sued in federal court on Friday, claiming the fintech juggernaut concealed lackluster compliance efforts that prompted government investigations.

The proposed class action filed in San Francisco seeks damages for a 6% decline in PayPal's share price on July 29 after the company disclosed in a quarterly filing that it was cooperating with probes of its PayPal Credit and debit card businesses.

The company had also released an outlook for the rest of the year that was lower than analysts expected, driven by e-commerce platform eBay Inc's ongoing move to a different payment processor.

A PayPal spokesperson said on Monday that the company believes the claims have no merit and will vigorously against them.

PayPal shareholder Huei-Ting Kang's lawsuit said the company misled investors since 2017 in annual statements, saying it closely monitors regulatory developments "to design compliant solutions for our customers."

Kang alleges those statements were exposed as misleading when PayPal said the Consumer Financial Protection Bureau was investigating how the company markets PayPal Credit via merchants that provide educational services.

PayPal also disclosed the Securities and Exchange Commission was looking into whether the bank that issues its branded debit cards followed regulations governing interchange fees, and how PayPal reports the marketing fees it earns from the business.

The Bancorp Bank, which issues PayPal debit cards, has also disclosed SEC subpoenas seeking information on its debit card issuing practices.

Interchange fees, which can be 2% or more of each transaction and go to the financial institutions behind the transactions, are a sore spot for merchants and have drawn regulatory scrutiny.

The U.S. Department of Justice opened a probe into Visa Inc's debit practices earlier this year.

The case is Kang v. PayPal Holdings Inc, U.S. District Court, Northern District of California, No. 21-06468.

For Kang: Jennifer Pafiti of Pomerantz

(NOTE: This story has been updated with comment from PayPal.)

Read more:

Gloomy outlook dulls PayPal's quarterly profit beat

U.S. Justice Department probing Visa over debit practices

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Jody Godoy reports on banking and securities law. Reach her at