PayPal adding mandatory arbitration to user agreement, but you can (and should!) opt out

By | October 10, 2012

UPDATE: The Consumerist has posted a template you can use for your opt-out letter. Furthermore, the Consumerist article says that eBay just did the same thing as PayPal, and you need to send a letter to opt out of that one as well. There’s a link in the article to a template for the eBay letter as well. Do it!

I just received a notification from PayPal that they are adding mandatory arbitration to their user agreement:

You will, with limited exception, be required to submit claims you have against PayPal to binding and final arbitration, unless you opt out of the Agreement to Arbitrate (Section 14.3) by December 1, 2012. Unless you opt out: (1) you will only be permitted to pursue claims against PayPal on an individual basis, not as a plaintiff or class member in any class or representative action or proceeding and (2) you will only be permitted to seek relief (including monetary, injunctive, and declaratory relief) on an individual basis.

The emphasis is theirs.

Most of the time, when a service provider adds an arbitration clause to their terms of service, they tell you it’s their way or the highway, i.e., if you aren’t willing to agree to the clause, your only choice is to close your account. But PayPal is actually offering users the option of rejecting the arbitration clause while continuing to use PayPal. I don’t know why they’re doing that, but I’m glad!

You can, and should, opt out if this clause. Here’s how to do that (from here, visited October 10, 2012):

You can choose to reject this Agreement to Arbitrate (“opt out”) by mailing us a written opt-out notice (“Opt-Out Notice”).  For new PayPal users, the Opt-Out Notice must be postmarked no later than 30 Days after the date you accept the User Agreement for the first time.  If you are already a current PayPal user and previously accepted the User Agreement prior to the introduction of this Agreement to Arbitrate, the Opt-Out Notice must be postmarked no later than December 1, 2012. You must mail the Opt-Out Notice to PayPal, Inc., Attn: Litigation Department, 2211 North First Street, San Jose, CA 95131.

The Opt-Out Notice must state that you do not agree to this Agreement to Arbitrate and must include your name, address, phone number, and the email address(es) used to log in to the PayPal account(s) to which the opt-out applies. You must sign the Opt-Out Notice for it to be effective. This procedure is the only way you can opt out of the Agreement to Arbitrate. If you opt out of the Agreement to Arbitrate, all other parts of the User Agreement, including all other provisions of Section 14 (Disputes with PayPal), will continue to apply.  Opting out of this Agreement to Arbitrate has no effect on any previous, other, or future arbitration agreements that you may have with us.


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6 thoughts on “PayPal adding mandatory arbitration to user agreement, but you can (and should!) opt out

  1. Rob Henry

    It was simply easier to “opt-out” of PayPal and close my account than to send them a written letter “opting-out” of their new arbitration agreement. At least I could close the account online. I won’t use the services of a company that prevents a lawsuit against them when necessary. This isn’t just about class-action lawsuits, this also prevents individual lawsuits and it forces individuals to use PayPal’s biased arbiter.

  2. Ishil

    Funny how they don’t make it quick and easy to opt-out, for that matter, nor do they even point how how to do so at all.

  3. JD

    Here is the deal. It’s all about the $$$. PayPal wants to find out how many accounts will be affected and what those account are worth to them (annual net revenue). Once they’ve received all the opt-outs they can add them up and determine what the cost/benefit ratio is to dropping those account (by later introducing the change to their agreement again (without allowing an opt-out). This final policy change will likely scare the reticent into accepting the change. The few that refuse will no longer be able to use PayPals services which will likely be only a very small loss their bottom line.

    I for one, am opting out, but I am prepared to lose my account for that opportunity. Hey, I could be wrong. But as the author states, the damages resulting from a class-action law suit tend to get a companies attention. Little old me, filing a law suit against PayPal? LMAO not going to happen unless there was some kind of GROSS negligence which cost me personally millions of dollars in damages.

  4. Dave

    problem is you will be one of only a handful that go to the trouble to opt out. With very few members eligible for any class action lawsuit no lawyers will be interested.

    1. jik Post author

      1. If you’re right, then that’s all the more reason to share this blog posting as widely as possible to get as many people as possible to opt out.

      2. I’m not certain, but I believe that if a class-action lawsuit is filed, and the judge rules that it’s a legitimate class, s/he can invalidate the arbitration clause of the user agreement and include all affected users in the class.

      3. It’s not just about class-action lawsuits, though you’re probably right that they are what PayPal is mostly worried about. It’s also about preserving your rights to sue PayPal one-on-one if you have a dispute with them. For example, your local small-claims court is a far easier venue in which to pursue a dispute than arbitration.

      1. Llaves

        When I first saw the notice from Paypal, I was so amazed that they offered the opt-out option, I forwarded the notice to a friend who happens to be a lawyer. His perspective was that this was a clever move on their part. By coercing everyone into arbitration, their risk of having the clause thrown out is much higher than in this “reasonable” approach in which you had a choice. Of course, you did have to read the email, then log on, find the TOS, then find the section on arbitration, then find the instructions for opt-out, then actually follow through. The no doubt assumed the fraction of customers opting-out will be extremely small, and are no doubt correct.

        More simply, they are endeavoring to reduce the chance of your point 2.


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