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Class Action against PayPal to Prevent Unauthorized Conversion

/ By Itzhak Dannon /

An application for certification of a class action against the corporate multi-national PayPal Pte, Ltd., (a subsidiary of eBay Inc.) was filed with the Lod District Court.  The company (incorporated in Singapore) in effect serves as a conduit for the transfer funds between buyers and sellers who execute a business deal through the Internet.

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פטיש LAW

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The application states that PayPal services operate as follows: A buyer, looking to make a deal over the internet deposits in his PayPal account certain amount of money in a given currency.  When a transaction is made in a different currency than that deposited by the buyer, PayPal then converts the currency to that of the transaction (for example, when the transaction has in dollars PayPal converted a euro deposit by the buyer into dollars).

PayPal, the pleadings aver, transfers the money (whether in the currency deposited or the converted one) to the seller’s PayPal account after deducting its commission for this service.  The seller then withdraws the funds accumulated in his PayPal account using the procedures listed in his agreement with PayPal, including a transfer to his bank account. However, when an Israeli account-holder wants to transfer money, which is on deposit in his PayPal account in foreign currency to his local bank account, PayPal automatically converts the foreign currency into shekels.

According to the applicant, Raz Klinghoffer, the agreement contains no terms or conditions that such withdrawal can only be had in shekels, as opposed to withdrawal in the original currency deposited in his PayPal account.  Indeed, PayPal, according to plaintiff, explicitly admits this allegation.  The applicant believes that such conduct constitutes a violation of his agreement with PayPal and is contrary to the reasonable expectations of any of PayPal’s account-holders, i.e., that they will be able to withdraw their funds in the same currency in which it was on deposit with PayPal.

Moreover, plaintiff argues, that is only one side of the coin.  He claims that PayPal charges an additional fee for the forced, unauthorized conversion, a conversion fee of 2.5% of the sum withdrawn, which is apparently the incentive of PayPal to act in such manner, even though it is not authorized by the agreement.

The application maintains that according to the agreement there is only one circumstance where PayPal is permitted to collect conversion fee: when a transaction between buyer and seller requires currency conversion.  For instance, when a seller offers a deal in dollars and the buyer deposits funds in his PayPal account in shekels. In this case, in order to complete the transaction, PayPal converts the shekels into dollars and may charge a commission for it, all of which is in accord with the terms of the agreement.

Therefore, the application contends, performing unnecessary, utterly unjustified acts that affect its account-holders’ funds in clear preference of its interest – where it increase its monetary reward – over the interests of the account-holders, violated PayPal’s fiduciary duty to its account-holders, a duty which, by law and equity, it owes them.

The Court is asked to declare that PayPal is not entitled to collect a fee for any forced conversion it has performed where its account-holders sought to withdraw foreign currency from their accounts.  Additionally, plaintiff asks the court to compel PayPal to pay restitution to its account-holders, whose number he estimated at about 70, 000, which equals the monetary value of all forced conversion fees charged.  In the aggregate the application estimates the amount to be NIS21 million ($5, 880, 000) based on an estimated average damage of NIS300 ($84) per account-holder.



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