PayPal, eBay Escape Bill Me Later Class Action Lawsuit

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A class action lawsuit accusing eBay Inc. and Pay Pal Inc.’s Bill Me Later service of illegally charging excess fees and interest has been dismissed by a federal judge.

On May 23, U.S. District Judge Clark Waddoups dismissed the proposed Bill Me Later class action lawsuit, ruling that the plaintiffs’ state-law claims are preempted by the Federal Deposit Insurance Act.

Plaintiff Kyle Sawyer sued eBay and Pay Pal in 2011, claiming that Bill Me Later violated California consumer protection laws that prohibit exorbitant credit penalties and interest rates above 10 percent per year. The Bill Me Later class action lawsuit alleges the service used a middleman to charge annual interest rates of over 100 percent per year for some consumers. The allegedly illegal fees drew two consumer class action lawsuits against the defendants, including from Sawyer.

Sawyer says he took advantage of PayPal’s subsidiary Bill Me Later to finance the purchase of computer-related products. However, the actual bank that handled the transaction was Utah-based CIT Bank, also a principal area of operations for the eBay subsidiary. Under the terms of the agreement with CIT Bank the annual interest rate was 19.99 percent if the purchase was not paid in full, as well as late fees for any missed minimum payments.

According to the May 23 decision to dismiss the Bill Me Later class action lawsuit, Judge Waddoups noted that “borrowers expressed outrage at the annualized ‘interest rates” that resulted when combining the fees on an annual basis… ranged from “more than a 70 percent interest rate” for Plaintiff to as high as 180% in one anonymous consumer complaint[.]”

As a result, Sawyer’s class action lawsuit alleged that the bank, eBay, Bill Me Later, and the other named defendants violated the California Consumer Legal Remedies Act and other state laws. The judge saw things differently, going back to case law as far back as 1864 that had been cited by the U.S. Supreme Court.

When Congress decided to establish the National Bank Act, it was just the next step in regulating loans made between entities in different states. The Supreme Court believed as much, noting “After passage of the National Bank Act of 1864, cases involving interstate loans begin to appear with some frequency in federal courts. . . . We cannot assume that Congress was oblivious to the existence of such common commercial transactions. We find it implausible to conclude, therefore, that Congress meant through its silence to exempt interstate loans from the reach of § 30.”

With that being the case, and Utah financial institutions CIT Bank and its successor WebBank being accredited by the FDIC, the state laws of California regarding interest rates, such as the Consumer Legal Remedies Act, do not apply because those of the home state of the financial institution do.

Sawyer was represented by class action attorneys Heath M. Sneddon of Anderson & Karrenberg and Jeff D. Friedman, Shana E. Scarlett and Steve W. Berman of Hagens Berman Sobol Shapiro LLP.

The eBay/PayPal Bill Me Later Class Action Lawsuit is Kyle Sawyer v. Bill Me Later, et al., Case No. 11-cv-00988, in the U.S. District Court for the District of Utah.