German PayPal ruling draws online shoppers' protection into question

Source: Xinhua| 2017-11-23 21:35:26|Editor: Lifang
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BERLIN, Nov. 23 (Xinhua) -- A verdict by the German Federal Supreme Court on Wednesday has dealt a heavy blow to the business model of PayPal in what is considered to be a potential landmark case for digital commerce.

The Karlsruhe-based court ruled that the existing purchase protection scheme offered by PayPal was too excessive to be lawful. The judges hereby sided with plaintiffs who had brought legal action against the U.S. online payment services provider cases.

So far, buyers who use PayPal in digital commerce transactions have benefited from far-reaching financial protection in situations in which merchandise is not delivered, or fails to meet advertised standards. The company automatically reimburses buyers in full and withdraws the corresponding funds from the registered bank accounts of sellers.

The guarantee applies to sales made in Germany, as well as in other countries. In this fashion, Paypal was able to list a straightforward means of obtaining refunds for buyers as a key selling point of its services.

The Federal Supreme Court's re-assessment of two related lawsuits on Wednesday has now drawn the generous purchase protection scheme into question however.

In the first case, a company purchased an iPhone online with PayPal. The buyer claimed that the uninsured package with the device was never delivered and was hence fully refunded. In turn, the seller successfully sued the buyer for payment on the grounds that commercial buyers must shoulder the risk if goods are lost in postal delivery under German civil law. Following an appeal, the Federal Supreme Court upheld this earlier ruling.

In the second case, a buyer bought a metal band saw on the internet using PayPal's services and later successfully demanded to be reimbursed because the product was faulty. Initially, a lower-level court refused the seller's case when they launched a lawsuit in response. The federal judges have overturned this ruling.

While the Federal Supreme Court did not reject the automatic reimbursement mechanism itself, it emphasized that this process did not amount to a legal settlement of commercial disputes between buyers and sellers. As a consequence, the PayPal purchase protection scheme in no way inhibited sellers from subsequently trying to sue buyers for payment.

Nevertheless, PayPal spokesperson Sabrina Winter told press that the ruling went to the heart of the company's business model.

"The verdict reached today by the Federal Supreme Court surprised us very much," she said, added that the company would wait to hear the judges' justification before deciding on next steps.

PayPal is a corporate spin-off of the digital market place Ebay which has become one of the largest online payment services providers in the world with nearly 19 million customers. Yet rather than just being confined to the U.S. company, Wednesday's ruling is likely to send ripples across the wider world of e-commerce. Notably, several rival payments providers offer similar purchase protection schemes to their customers.

The newspaper "Tagesspiegel" estimated that the ruling could affect more than 113 million people in the first instance. German media also cited the e-commerce lawyer Christian Solmecke who expressed his view that the verdict would have to be applied to other online payment services providers as well. Solmecke further predicted that the legal case would have a "massive impact" on PayPal.

Consumer protection groups similarly described the decision as a significant set-back for PayPal. In its current form, the purchase protection scheme offered to customers was "basically worthless", Heike Schulze of the German National Association of Consumer Advice Center (VZBZ) said.

By contrast, the Federal Supreme Court sought to downplay the implications of its ruling. According to a statement by the judges, buyers were still "significantly" advantaged in online transactions.

Presiding Judge Karin Milger noted that the "onus remained on sellers" to take legal action if they wanted to retrieve alleged inappropriate refunds.

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