ASIC has initiated legal action against PayPal Australia Pty Limited (PayPal), alleging that PayPal’s standard form contracts with small businesses contain an unfair contract term.
In a sign of what is to come when the new unfair contract terms regime comes into effect in November 2023, the Australian Securities and Investment Commission (ASIC) alleges that PayPal’s standard form contracts include an unfair term. The term in question requires PayPal business account holders to notify PayPal within 60 days of any fees inaccurately charged. Failure to do so otherwise results in the acceptance of those fees as accurate.
An unfair contract term is a term that:
causes a significant imbalance in the parties rights and obligations;
is not reasonably necessary to protect the legitimate interests of the party with the advantage; and
causes detriment (financial or otherwise) if it were relied on.
In effect, the term authorises PayPal to retain fees it has overcharged whilst avoiding accountability for its own errors. ASIC alleges that the term would create additional burdens on small businesses to detect and rectify the charging errors.
This case marks the latest effort by ASIC to combat unfair contract terms within the financial services sector while actively safeguarding the interests of small businesses.
Significant changes to the unfair contract terms regime are coming into effect on 10 November 2023. The laws will apply to a broader range of businesses in all industries and impose much harsher penalties.
Key takeaways
This recent action taken by ASIC serves as a key reminder to each business, whether small or large, to review the terms of their standard form contracts to ensure that they do not include unfair terms. With businesses set to face significant financial penalties, it is crucial to remember to do so before 10 November 2023. For assistance reviewing contracts and for more information about the types of contracts that could be captured under the new regime, please contact Katie Pote.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.