PayPal tackles Australian market

From the excellent Ian Rogers banking ezine

www.thesheet.com

Paypal, the non-bank payments provider
owned by US-based online auctioneer eBay, is taking steps to begin
offering its services in Australia.

Paypal Australia registered as a
company in September. Its directors include Andew Pipolo, a former
executive with MasterCard in Australia. Pipolo also provided some
consulting services to Virgin Money during the establishment of the
Virgin Money co-branded credit card issued by Westpac.

Pipolo didn’t want to discuss Paypal’s
plans when contacted on Friday, but offered to brief this newsletter
when Paypal was ready to launch its services in Australia, so he at
least confirmed they would be doing so.

The Paypal.com website asserts at the
home page that the service is “free to use”, when of course there are
charges, which are paid by the vendors rather than the buyers of goods
and services using its payments methodology. PayPal’s merchant fees are
equal to about 3.6 per cent of payment volumes. Buyers of goods and
services also face charges for using their bank account or credit card
account.

One of the perceived tear away start
ups of the dot com era, Paypal was bought another dot com growth
company, eBay, in an all share deal in 2002.

The latest quarterly financial
statements filed by eBay show that PayPal had 56.7 million payment
accounts at the end of September 2004, up 61 per cent on the September
2003 quarter. Average quarterly growth in the number of accounts was 13
per cent over the last five quarters, wile the growth in the number of
active accounts is slightly more subdued at 46 per cent over the prior
year.

PayPal’s payment volume increased by
52 per cent over the year to US$4.6 billion in the year to September
2004, with a third of the payment volume originating outside the US.

PayPal is one of those dot com
companies that’s garnered reams of flattering publicity – there’s a
representative collection at the company’s website – and the chances
are that the company can expect plenty of free media in Australia when
it goes looking for publicity.

What about the class action lawsuit?

A former PayPal user writes:

You may be interested in the US class action
against PayPal/eBay which they have settled and
which will be finalised in January next year. Maybe they won’t be starting up here until that is finalised.

What follows is the full text of the email
from PayPal which I received in July this year, after which I have participated in the
settlement claim through the NY lawyers.

I note that no Australian Federal or State agency
was interested in following up my complaint
against PayPal, and that the US Consulate in my
state capital didn’t bother to even reply to my
complaint, even though there is much said about
internet being monitored for financial probity –
but that the ACCC phoned me and said that my
complaint would be ‘filed for future reference’.
I wonder whether it will be noted when/if PayPal
starts up here?

===========================

IF YOU OPENED A PAYPAL ACCOUNT BETWEEN OCTOBER 1999 AND JANUARY
2004, YOU MAY BE ENTITLED TO A PAYMENT FROM A CLASS ACTION SETTLEMENT.

PLEASE READ THIS NOTICE CAREFULLY.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

In re PayPal litigation

Case No. CV-02-01227-JF (PVT)

NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENT

1. WHY DID I GET THIS NOTICE?

You have been sent this Notice because the records of PayPal, Inc.
indicate you are a current or former PayPal account holder. This means
you may be eligible to receive a payment from the proposed class action
settlement in the lawsuit In re PayPal Litigation, Case No. 02 1227 JF
PVT, pending in the United States District Court for the Northern
District of California in San Jose. This Notice provides a summary of
the terms of the proposed settlement. It also explains the lawsuit,
your legal rights under the settlement, what benefits are available to
you under the settlement, and how to get them.

2. WHAT IS A CLASS ACTION?

In a class action, one or more people, called Class Representatives (in
this case Roberta Toher and Jeffrey Resnick), sue on behalf of people
who have similar claims. All of these people are members of the Class.
One court resolves the issues for all Class Members, except for those
who exclude themselves from the Class. United States District Judge
Jeremy Fogel is in charge of this class action.

3. WHAT IS THIS LAWSUIT ABOUT?

In early 2002, Plaintiffs Roberta Toher and Jeffrey Resnick filed
separate lawsuits against PayPal, Inc. These two cases were later
consolidated into one lawsuit in the United States District Court for
the Northern District of California, San Jose Division, entitled In re
PayPal Litigation, Case No. CV 02 01227-JF (PVT). The lawsuit alleges
that PayPal violated the federal Electronic Fund Transfer Act (“EFTA”),
15 U.S.C. ßß 1693 et seq., including provisions requiring PayPal to
supply customers with information about dispute resolution procedures
and to follow certain procedures when investigating complaints of
unauthorized or incorrect electronic fund transfers. For example, the
lawsuit claims that PayPal did not provide account statements in the
manner required by the EFTA. The lawsuit further alleges that PayPal
has placed inappropriate restrictions or other limits on customers’
accounts and engaged in other improper practices. Based on these
practices, the lawsuit asserts claims under California state law for
conversion, money had and received, negligence, and violations of
consumer protection statutes.

PayPal does not believe that it did anything wrong. In fact, PayPal
disputes that the EFTA, originally passed in 1978, applies to its
business. PayPal denies any and all liability for the claims alleged in
the lawsuit. The Court did not decide in favor of the Plaintiffs or
PayPal. Instead, beginning in the fall of 2003, the parties began a
series of settlement negotiation sessions mediated by United States
Magistrate Judge Edward Infante. Eventually, in November 2003, both
sides agreed to a settlement in principle. By settling their claims,
both parties avoided the uncertainty and cost of a trial. The
settlement provides money and other benefits to the Class. On June 11,
2004, the parties entered into a formal, written Settlement Agreement,
which is on file with the Court and available on the Internet at
https://www.paypal.com/settlement/. By entering into the Settlement
Agreement, PayPal is not admitting an y wrongdoing. PayPal continues to
believe that it did not do anything wrong. The Representative
Plaintiffs and the attorneys appointed by the Court to represent the
Class believe that the settlement is fair to Class Members. By this
notice, the Court is not expressing any view on the merits of the
lawsuit.

4. HOW DO I KNOW IF I AM PART OF THE SETTLEMENT?

On July 12, 2004, Judge Fogel entered an order granting preliminary
approval of the settlement and certifying the following class for
purposes of the settlement: All Persons who opened a PayPal account
during the period from October 1, 1999 through January 31, 2004.
Excluded from the class are any judicial officer to whom the lawsuit is
assigned; PayPal and any of its affiliates; any current or former
employee, officer, or director of PayPal; anyone who resides in
Austria, Belgium, Denmark, Germany, Greece, Finland, France, Ireland,
Italy, Luxembourg, Portugal, Spain, Sweden, The Netherlands, or United
Kingdom; and all persons who timely and validly request exclusion from
the class pursuant to this notice.

Thus, if you opened a PayPal account between October 1, 1999 and
January 31, 2004, and are not one of the excluded persons listed above,
you are a member of the class.

5. WHO REPRESENTS ME IN THIS CASE?

To represent the class, the Court has appointed Plaintiffs Roberta
Toher and Jeffrey Resnick as Representative Plaintiffs and their
counsel of record as Class Counsel. The Court has also appointed the
following attorneys and law firms as Co-Lead Counsel:

A. J. De Bartolomeo
Girard Gibbs & De Bartolomeo LLP
601 California Street, Suite 1400
San Francisco, California 94108

Robert C. Finkel
Wolf Popper LLP
845 Third Avenue
New York, New York 10022

6. WHAT DOES THE SETTLEMENT PROVIDE?

A. Injunctive Relief

The settlement requires that PayPal consent to the entry of an order,
called an injunction, that mandates various changes to PayPal’s
business practices. PayPal has already implemented these changes. The
injunction includes PayPal’s agreement to comply with certain notice
and error resolution procedures of the EFTA, and to follow certain
procedures for limiting accounts and responding to and returning funds
to customers whose accounts have been limited. A copy of this
injunction can be found as Exhibit D to the Settlement Agreement,
entitled “Form of Injunctive Order.”

B. Monetary Relief

Under the settlement, PayPal will pay $9.25 million into a settlement
fund, to be held in an interest-bearing account. The fund will be used
(1) to make payments to class members who submit valid claims before
the claims deadline; (2) to pay certain costs of giving notice to the
Class and of settlement administration, as approved by the Court; and
(3) to pay attorneys’ fees and expenses to Class Counsel in the amount
awarded by the Court. Class Counsel have proposed that, after deduction
of notice and administrative costs and Class Counsel’s attorneys’ fees
and expenses, the balance of the fund (“Net Settlement Fund”) be
applied in accordance with a written plan of allocation. (The following
explanation is qualified in its entirety by reference to the Plan of
Allocation attached to the Settlement Agreement as Exhibit C, a copy of
which is on file with the Court and available on the Internet at
https://www.paypal .com/settlement/.)

1. Certain Definitions

Certain capitalized words are used in this part of the Notice to
describe the way in which the Net Settlement Fund will be allocated.
These capitalized words have the following meanings:

(a) “Released Persons” means PayPal and its past and present partners,
affiliates, predecessors, successors, assigns, parents, subsidiaries,
officers, directors, attorneys, and employees.

(b)”Fund Claimants” are class members who submit timely, valid claims
in accordance with the procedures described in this notice.

(c)”Dispute Resolution Claimants” are Fund Claimants who contend that, prior to February 1, 2004, they:

(i) experienced or reported to PayPal an unauthorized or incorrect
electronic transfer to or from their PayPal account including, without
limitation, electronic transfers initiated by (a) the Fund Claimant;
(b) PayPal in connection with, among other things, chargebacks,
refunds, buyer complaints, PayPal’s Seller Protection Policy, Buyer
Complaint Process and/or Buyer Protection Policy; or (c) any third
party;

(ii) had access to their PayPal account improperly, incorrectly or erroneously limited or restricted, in whole or in part;

(iii) made a request for information in connection with PayPal’s
restriction or limitation of the Fund Claimant’s PayPal account or
regarding an incorrect or unauthorized electronic transfer to which
PayPal did not respond at all or did not respond to the Fund Claimant’s
satisfaction.

(d) “Statutory Damage Fund Claimants” are all Fund Claimants who are not Dispute Resolution Claimants.

2. Statutory Damage Fund Claimants

The plan of allocation designates $1 million of the Net Settlement Fund
to a “Statutory Damage Fund,” to be distributed equally among all Fund
Claimants who are not Dispute Resolution Claimants. This means that if
you are a member of the Class and do not fall within the definition of
a “Dispute Resolution Claimant,” as set out above, you can make a claim
for a payment from the Statutory Damage Fund. The Statutory Damage Fund
provides compensation for potential statutory damages under the
Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. ßß 1693 et seq.
Statutory damages under the EFTA are limited by law to no more than
$500,000 for any class of individuals claiming “the same failure to
comply.” Plaintiffs’ counsel contended in the litigation and for
purposes of settlement that PayPal was potentially liable for multiple
failures to comply, a position PayPal vigorously opposed.

The Statutory Damage Fund Claim Form requires you to provide certain
identifying information and sign a statement under penalty of perjury
authenticating your claim, which may be subject to verification by
PayPal’s records. To make a claim for payment from this fund, please
complete and submit the Statutory Damage Fund Claim Form available on
the Internet at https://www.paypal.com/settlement/ in accordance with
the instructions on the form.

3. Dispute Resolution Claimants

The balance of the Net Settlement Fund will be allocated for
distribution to Dispute Resolution Claimants. If you fall within the
definition of a “Dispute Resolution Claimant,” as set out above, you
have the right to make a Dispute Resolution Claim. You can choose to
submit either the Short Claim Form or the Long Claim Form available on
the Internet at https://www.paypal.com/settlement/. If the Court awards
attorneys’ fees and costs in the amount requested, Class Counsel
estimate that there will be approximately $4.3 million to pay the
claims of Dispute Resolution Claimants. Half of the money allocated to
Dispute Resolution Claimants will be allocated to pay Short Form
Claimants (the “Short Form Fund”). The other half will be allocated to
pay Long Form Claimants (the “Long Form Fund”).

a. Short Form Claimants

The Short Claim Form requires you to provide certain identifying
information and sign a statement under penalty of perjury, which may be
verified using PayPal’s records, that you experienced an unauthorized
or incorrect electronic transfer or an account limitation or denial of
access to your account. If you make a timely, valid claim using the
Short Claim Form, you will receive a payment of $50, unless the amount
needed to pay all of the Short Form claims exceeds the Short Form Fund.
In that case, the Short Form Fund will be divided equally among all
Short Form Claimants. If the amount needed to pay all of the Short Form
claims is less than the amount of the Short Form Fund, the money left
over will be added to the Long Form Fund.

b. Long Form Claimants

The Long Claim Form requires you to provide certain identifying
information; give the details of the account restriction(s) and/or
unauthorized electronic fund transfer(s) you experienced; state the
amount of your claim, and sign a statement, under penalty of perjury,
which may be subject to verification by PayPal’s records, that you
actually suffered the claimed damages. You should also provide any
documentation you have that will support your claim, as explained in
more detail on the Long Form.

If you make a timely, valid claim using the Long Claim Form, an
independent, court-approved claims administrator will evaluate your
claim and determine the amount you should receive. In making this
determination, the claims administrator will take into account the
amount of damages you claim; the nature of your complaint; the quality
of the supporting documentation you provide; your recoverable damages;
the probability that you would be successful on your complaint; and
such other factors that the claims administrator considers relevant. If
the amount needed to pay all of the Long Form claims is less than the
amount of the Long Form Fund, the money left over will be added to the
Short Form Fund.

c. Balance after payment of Long Form and Short Form Claimants

If there are sufficient funds to pay all Short Form and Long Form
Claimants in full in accordance with the written plan of allocation,
any remaining funds will be divided equally among all Dispute
Resolution Claimants to supplement their recoveries.

7. HOW DO I MAKE A CLAIM AND GET A PAYMENT?

To make a claim for payment, please complete one of the claim forms
(Statutory Damage Claim Form, Short Claim Form, or Long Claim Form)
available on the Internet at https://www.paypal.com/settlement/. To
make a valid claim, you will need to (1) fill out the claim form
electronically and (2) print the signature page of your claim form,
sign it and return it by mail to the address provided on the claim
form. You must complete the claims procedure no later than October 23,
2004. Your payment will be transferred electronically to your PayPal
account. If you do not have a current, unrestricted PayPal account or
you indicate on the claim form that you prefer to receive a check,
payment will be made in the form of a check, sent by first class mail
to the address provided on the claim form. If you are paid by check, a
$1.00 charge will be deducted from your payment to cover the cost of
issuin g and mailing the check. The claims administrator will not issue
checks for less than $1.00. Such amounts will instead be reallocated to
those claimants who are entitled to receive distributions.

8. WHAT AM I GIVING UP IF I PARTICIPATE IN THE SETTLEMENT?

If you do not exclude yourself from the class and the settlement is
granted final approval, the judgment entered upon approval of the
settlement will dismiss the lawsuit with prejudice, and will release
any and all claims, demands, rights, liabilities, and causes of action
of every nature and description whatsoever, known or unknown, matured
or unmatured, at law or in equity, existing under federal or state law,
that were or could have been asserted in the Litigation against the
Released Persons, including without limitation, claims under the
Electronic Fund Transfer Act, California Business and Professions Code
ßß 17200 et seq.; the California Consumers Legal Remedies Act, Cal.
Civ. Code ßß 1750 et seq.; and for PayPal’s alleged conversion, breach
of the User Agreement or other contract, money had and received, unjust
enrichment, and negligence under California law or any other state or
federal law arising out of, among other things, PayPal’ s restriction
or limitation of accounts; PayPal’s dispute resolution policies,
practices and procedures; PayPal’s debit of accounts following the
receipt of chargebacks, buyer complaints, reports of unauthorized
access or in connection with its Seller Protection Policy, Buyer
Complaint Process or Buyer Protection Policy; PayPal’s alleged
conversion of funds; and PayPal’s compliance with the Electronic Fund
Transfer Act, 15 U.S.C. ßß 1693 et seq., or any similar legislation
arising under the laws of any state. You will be permanently barred
from bringing any such claims that arose prior to February 1, 2004.
With regard to accounts that were limited prior to February 1, 2004,
however, you will not be releasing claims to recover any balance that
remained in the account 180 days after the account was initially
limited.

In summary, if you do not exclude yourself, you will not be able to
sue, continue to sue, or be part of another lawsuit against PayPal
relating to the legal issues in this case. You will be bound by all
proceedings, orders, and judgments entered in connection with the
settlement, whether favorable or unfavorable, and will be represented
by the Representative Plaintiffs and Class Counsel for purposes of the
settlement. If you do not exclude yourself from the class, and the
settlement is granted final approval, your claims against PayPal and
its affiliates will be released as described above. If you are a class
member, you may, if you wish, appear in this lawsuit through your own
attorney at your own expense. You need not do so to participate in the
settlement, however.

9.WHAT IF I WANT TO EXCLUDE MYSELF (OPT-OUT) FROM THE SETTLEMENT?

If you do not want to remain a member of the class and participate in
the settlement, then you must mail or deliver (email is not considered
adequate), such that it is RECEIVED on or before September 7, 2004, (1)
an original written, signed request for exclusion to Co-Lead Counsel at
the following address:

Co Lead Counsel:

PayPal Class Action Settlement
A. J. De Bartolomeo
Girard Gibbs & De Bartolomeo LLP
601 California Street, Suite 1400
San Francisco, California 94108

and (2) a copy of the written signed request to PayPal’s counsel at the following address:

PayPal’s counsel:

PayPal Class Action Settlement
Morgan Lewis & Bockius LLP
One Market
Spear Street Tower
San Francisco, California 94105

This request for exclusion must contain your name and address; be
signed by you; and include the reference “In re PayPal Litigation, Case
No. CV-02-1227-JF (PVT).”

If you exclude yourself from the class, you will not participate in the
settlement and cannot receive any payment from the settlement. Your
claims will not be released.

10. HOW WILL THE LAWYERS FOR THE CLASS BE PAID?

From the inception of the litigation in early
2002 to the present, Class Counsel have not received any payment for
their services in prosecuting the case, nor have they been reimbursed
for any out-of-pocket expenses. If the Court approves the proposed
settlement, Class Counsel will make a motion to the Court for an award
of attorneys’ fees of up to $3,332,500 and reimbursement of expenses of
up to $135,000, to be paid from the $9.25 million settlement fund.
Class Counsel will also seek reimbursement from the settlement fund on
behalf of certain of the named plaintiffs in the litigation for
reimbursement of their expenses related to their service as class
representatives in the litigation, in an aggregate amount not to exceed
$15,000. The motion will be heard at the settlement hearing described
below in Section 11.

Class Counsel’s motion for an award of attorneys’ fees and
reimbursement of expenses is based on various factors that include the
benefits obtained for the class through litigation. These benefits
include the $9.25 million cash settlement and PayPal’s agreement to the
injunctive relief requirements. In addition, certain changes to
PayPal’s business practices are attributable in part to this
litigation, including PayPal’s decision to undertake to return to its
customers approximately $5.1 million in those accounts to which access
was limited for 180 days or more; modifications to PayPal’s arbitration
provision in its User Agreement and its replacement with a clause that

limits PayPal’s ability to compel arbitration where the total amount of
the award sought is $10,000 or greater; and various other changes in
PayPal’s business practices during the pendency of the litigation.

Class Counsel submitted their proposed request for attorneys’ fees to
the Magistrate Judge who had previously presided over discovery and
settlement discussions. Class Counsel’s request for attorneys’ fees is
equal to the amount recommended by the Magistrate Judge.

11. WHEN AND HOW WILL THE COURT DECIDE WHETHER TO APPROVE THE SETTLEMENT?

The Court will hold a hearing on September 24, 2004, at 9:00 a.m.,
before the Honorable Jeremy Fogel, United States District Judge, United
States District Court for the Northern District of California,
Courtroom 3, 5th Floor, 280 South First Street, San Jose, California
95113. The purpose of the hearing will be to determine (a) whether the
proposed settlement should be approved as fair, reasonable, and
adequate; (b) whether the application by Class Counsel for an award of
attorneys’ fees and expenses should be granted; and (c) whether the
lawsuit and class members’ claims should be dismissed with prejudice
pursuant to the settlement. The Court reserves the right to adjourn or
continue the hearing without further notice to the class.

You may attend the hearing if you wish, but are not required to do so to participate in the settlement.

If the settlement is not approved by the Court, the lawsuit will
proceed. If there are further actions taken in the case that affect
your rights, you will receive notice as determined by the Court.

12. CAN I COMMENT ON THE SETTLEMENT?

If you decide to remain in the class, and you wish to comment in
support of or in opposition to the settlement or Class Counsel’s motion
for attorneys’ fees and expenses, you may do so by mailing or
delivering your written (non-email) comments, such that they are
RECEIVED on or before September 3, 2004, as follows: (1) the original
must be sent to the Court at the following address:

Clerk of the Court

United States District Court for the Northern District of California
280 South First Street
San Jose, California 95113

and (2) copies must be sent to Co Lead Counsel and PayPal’s counsel at the addresses listed in Section 9, above.

Your written comments must contain your name and address; be signed by
you; and include the reference In re PayPal Litigation, Case No.
CV-02-1227-JF (PVT). If you wish to appear and present your comments
orally at the hearing, your written comments must contain a notice that
you intend to appear and be heard, a statement of the position you
intend to present at the hearing, and any supporting arguments.

If you do not comply with the foregoing procedures and deadlines for
submitting written comments or appearing at the hearing, you will not
be entitled to be heard at the hearing; contest or appeal from approval
of the settlement or any award of attorneys’ fees or expenses; or
contest or appeal from any other orders or judgments of the Court
entered in connection with the settlement.

13. HOW CAN I GET MORE INFORMATION ABOUT THE SETTLEMENT?

You can get more information by writing Plaintiffs’ Co-Lead Counsel electronically or by first class mail at:

[email protected]

Girard Gibbs & De Bartolomeo LLP
601 California Street, Suite 1400
San Francisco, California 94108

Wolf Popper LLP
845 Third Avenue
New York, NY 10022

This notice is a summary and does not describe all details of the
settlement. For full details of the matters discussed in this notice,
you may wish to review the Settlement Agreement dated June 11, 2004 and
on file with the Court or visit https://www.paypal.com/settlement/.
Complete copies of the Settlement Agreement and all other pleadings and
papers filed in the lawsuit are also available for inspection and
copying during regular business hours, at the Office of the Clerk of
the Court, United States District Court for the Northern District of
California, 280 South First Street, San Jose, California 95113.

PLEASE DO NOT TELEPHONE THE COURT REGARDING THIS NOTICE.

DATED: July 12, 2004

BY ORDER OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

This PayPal notification was sent to DETAILS MASKED FOR PRIVACY To
modify your notification preferences, go to
https://www.paypal.com/PREFS-NOTI and log in to your account. PayPal
will not sell or rent any of your personally identifiable information
to third parties. For more information about the security of your
information, read our Privacy Policy at https://www.paypal.com/privacy.
Replies to this email will not be processed. Copyright© 2004 PayPal,
Inc. All rights reserved. Designated trademarks and brands are the
property of their respective owners. PayPal is located at 2211 N. First
St., San Jose, CA 95131.

================================================

Final paragraph of claim form from the office of the NY firm handling the action:

============================================

“Assuming the settlement is approved and no appeals are taken, we
estimate that you will receive your payment sometime in January 2005.
Claims cannot be paid until after all of the following happens: (1) the
claims period ends, (2) the Court orders final approval of the
Settlement, and (3) the time has passed for anyone to appeal the
settlement. The Court’s final approval of the settlement is ordered
only after the Court reviews the Settlement, reviews the class members’
comments to the Settlement, and holds a hearing in open court on the
Settlement. The Court has scheduled the final approval hearing for
September 24, 2004 at 9:00 a.m.

If the Court grants final approval on or about September 24, 2004, and
there are no appeals from the Court’s order granting final approval,
Plaintiffs’ Counsel expect that the payments will be sent out by the
end of January 2005. ”

=============================================