PayPal Hit with Class Action Over Alleged Refusal to Refund Money Lost Due to Venmo Fraud

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PayPal faces a proposed class action over its alleged refusal to reimburse Venmo users who’ve lost money due to fraud.

The 26-page case out of California says that PayPal, who owns Venmo, falsely touts the money transfer service as a safe way for consumers to send and receive funds. In truth, PayPal allegedly fails to outline in its marketing materials the “huge, undisclosed security risks” associated with using Venmo, which, according to the complaint, suffers from a “massive fraud problem.” 

In particular, the suit says PayPal “misrepresents and omits” the fact that Venmo users have virtually no recourse to recoup money lost as a result of fraud. According to the complaint, the “unique, misrepresented, and undisclosed architecture” behind Venmo means that any money transferred through the service for any reason is gone forever. 

“Indeed, unlike virtually every other payment method commonly used by American consumers—debit cards, credit cards, and checks—there is no protection for accountholders who are victims of fraud, and virtually no recourse for accountholders attempting to recoup losses due to fraud,” the filing reads. 

Worse, PayPal, the case claims, “misrepresents and omits” the truth about its “secret policy” against reimbursing Venmo accountholders for fraud-related losses, even when those losses are timely reported. 

“As a result, users like Plaintiff sign up for and use the Venmo service without the benefit of accurate information regarding that service, and later end up with huge, unreimbursed losses due to fraud,” the suit says. “Such users never would have signed up for Venmo in the first place if they had known the risks of signing up for and using the service.” 

The lawsuit, citing research from Javelin Strategy & Research, states that nearly 18 million consumers were defrauded through scams involving person-to-person payment apps such as Venmo in 2020 alone. Financial institutions such as PayPal, the filing argues, know full well that they have a widespread fraud problem yet have failed to take reasonable steps to warn consumers of the risks. 

Per the case, PayPal is legally required to cover unauthorized fraudulent transactions under the federal Electronic Funds Transfer Act. 

The lawsuit looks to cover consumers nationwide who incurred unreimbursed losses due to fraud on Venmo. 

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