“The payment services industry is undergoing pervasive and fundamental change that is virtually unregulated and even unsupervised. Huge sums are being transferred, or accumulated as transferable deposits, by totally unregulated entities.” – Bradley Crawford, Q.C. (leading banking lawyer)
Canadians commonly purchase goods and services through their PayPal accounts. Other than the contractual arrangements between PayPal and its customers, PayPal’s operations are unregulated. This is concerning considering that PayPal excludes liability in its contract:
IN NO EVENT SHALL WE, OUR PARENT, EMPLOYEES OR OUR SUPPLIERS BE LIABLE FOR LOST PROFITS OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH OUR WEB SITE, THE PAYPAL SERVICES, OR THIS AGREEMENT (HOWEVER ARISING, INCLUDING NEGLIGENCE).
In Canada, clauses that exclude liability will be upheld so long as they are clear, brought to the party’s attention, and adequate for the purpose for which they were intended. To date, there is no banking legislation or case law regarding the validity of the PayPal User Agreement in Canada. Therefore, it is possible that PayPal could be off the hook for any loss to their customers, even in the case of PayPal’s negligence.
Luckily, the Government announced in the Federal Budget Plan for 2014 that there will be a review of the entire payments sector. The Government acknowledged that “paper-based methods such as cash and cheques are increasingly being replaced by a variety of electronic payment methods, including those offered by payment service providers like PayPal and others.”
The Government’s reassessment is necessary. With the growth of online commerce, it is problematic that PayPal is not directly subject to any banking legislation.