UOKiK Decision: PLN 106 million fine, AUP clause declared abusive
The President of UOKiK, Poland's Office of Competition and Consumer Protection, issued a decision declaring that PayPal Europe uses prohibited contractual clauses. The decision specifically identified the USD 2,500 per violation penalty mechanism as an abusive clause. Under EU and Polish consumer law, abusive clauses are treated as if they were never inserted into the agreement.
What UOKiK found
After proceedings against PayPal Europe S.à r.l. et Cie, S.C.A. (the Luxembourg entity that serves all EU and EEA users), the President of UOKiK concluded that PayPal's User Agreement contained multiple prohibited provisions. The decision challenged a catalogue of 34 prohibited activities and their associated sanctions. The findings most directly relevant to AUP deduction cases are the following:
An open-ended and arbitrary sanctions catalogue. PayPal's terms allowed it to impose sanctions "at any time" and "at its discretion," including blocking a user's money "in the amount as high and for a period as long as necessary." The open-ended catalogue meant that PayPal's decisions were arbitrary and users could not foresee the sanctions that might be applied to them.
Sanctions applicable for any violation in any country. PayPal stipulated that users must not "violate any law, statute, ordinance or regulation" across financial services, consumer protection, unfair competition, and other areas. In practice, this meant that a violation of any regulation in any country entitled PayPal to apply sanctions. The violation could even be unrelated to the use of a PayPal account, leaving consumers unaware that they had done anything inconsistent with the contractual provisions.
Cumulative sanctions applied simultaneously. PayPal could impose multiple sanctions against a single user at the same time: payment of USD 2,500 or more, closure of the account without notice, and denial of future services. The sanctions were not linked to individual violations and were not calibrated to actual loss, making them disproportionate and abusive under Polish and EU consumer protection law.
UOKiK President Tomasz Chróstny, 15 July 2024
UOKiK President, Decision against PayPal Europe, PLN 106,689,453 (approximately USD 27.3 million) fine
Why this is the most significant public record available
This is not an arbitrator's preliminary finding that was later removed from the record, as in Wilkins. It is not a court sending a case to arbitration without ruling on the merits, as in Nezri. It is a regulatory decision issued in July 2024 by a governmental authority with enforcement power, finding that the USD 2,500 clause mechanism is abusive and declaring it void from the origin of the agreement. This is recent jurisprudence, not a historical footnote.
The decision covers PayPal Europe, the entity that serves all EU and EEA users. It does not cover PayPal Pte. Ltd. in Singapore directly, but the legal reasoning, that a fixed penalty clause not tied to actual loss and not linked to individual violations is disproportionate and abusive, applies across all jurisdictions that share equivalent consumer protection principles. Under Singapore law, the same clause is analysed under the penalty doctrine from Dunlop and Denka: a clause that bears no relationship to a genuine pre-estimate of loss is unenforceable as a penalty.
Why PayPal's position in Singapore is even harder to defend
In 2015, the UK Supreme Court softened the penalty doctrine in Cavendish Square Holding BV v Makdessi [2015] UKSC 67, moving toward a broader "legitimate interest" standard that gives contracting parties more room to justify fixed deductions. Singapore explicitly rejected that approach. In December 2020, a five-judge bench of the Singapore Court of Appeal in Denka Advantech Pte Ltd v Seraya Energy Pte Ltd [2020] SGCA 119 declined to follow Cavendish and affirmed the traditional Dunlop test as the operative standard in Singapore. The only legitimate interest the penalty rule is concerned with in Singapore is compensation. A clause that is not a genuine pre-estimate of loss is unenforceable, full stop. PayPal's Loss Recovery mechanism cannot pass that test. For a detailed analysis of the decision, see the Clifford Chance briefing on Denka v Seraya.
How to use this decision in your own case
The UOKiK decision covers PayPal Europe, the Luxembourg entity. It does not bind PayPal Pte. Ltd. in Singapore or PayPal, Inc. in the United States as a matter of direct legal authority. However, it is highly useful as persuasive evidence in any jurisdiction for two reasons.
First, the legal reasoning is universal. The finding that a fixed penalty clause not calibrated to actual loss and not linked to individual violations is disproportionate and abusive is not a peculiarity of Polish consumer law. It maps directly onto the penalty doctrine under Singapore law (Dunlop, Denka), the liquidated damages test under U.S. law (Restatement Second of Contracts), and the unfair terms analysis under UK and EU law (Cavendish Square, Directive 93/13/EEC). When you cite UOKiK to a regulator or ombudsman in another jurisdiction, you are not asking them to apply Polish law: you are showing them that a competent authority in another jurisdiction already examined this exact clause and found it legally defective.
Second, it is admissible as context in regulatory complaints. The framing is significantly stronger than a purely individual complaint: it positions your case as part of a documented pattern of regulatory concern across jurisdictions, which is exactly what a regulator needs to justify supervisory action. Below is how to frame the citation in the three main jurisdictions.
Cite this decision to MAS in Singapore to demonstrate a pattern of unfair dealing already sanctioned in a Tier-1 jurisdiction; to the CFPB in the United States to show that a foreign regulator reached the same conclusion about the same clause that operates in U.S. agreements; and to the Financial Ombudsman Service in the UK as corroborating evidence that the mechanism is structurally defective, not a case-by-case anomaly.
The retroactive implication
The UOKiK decision explicitly states that abusive clauses are treated as if they were never inserted into the agreement. This has a direct implication for past seizures: if the clause never legally existed as a matter of contract law, the funds taken under it were taken without valid contractual basis. PayPal eliminated the clause in 2023 without acknowledging this consequence and without establishing any publicly documented refund program for users whose funds had already been seized under it. The clause is gone. The money it was used to take is not.
PayPal removed the clause. The practice did not.
Under pressure from regulatory proceedings including the UOKiK case, public backlash, and internal legal reassessment, PayPal began removing the USD 2,500 per violation clause from its User Agreements across different regions between late 2022 and 2023. The international version was formally deleted effective July 17, 2023. When asked by Business Insider in May 2024, a PayPal spokesperson confirmed that the policy had been dropped "about a year ago," consistent with the July 2023 date.
What the spokesperson did not mention is what PayPal did not do: it issued no publicly documented refund program, no remediation process, and no compensation to any of the users whose balances had been seized under the clause before its removal. The policy was quietly eliminated. The users it had been applied to were left with nothing.
The elimination was cosmetic. The transaction label changed from "AUP damages" and "damages caused by Acceptable Use Policy violation" to "Loss Recovery." The mechanism is identical: a unilateral balance sweep with no itemised calculation, no proof of actual loss, and no disclosed methodology. PayPal removed the explicit USD 2,500 figure from its agreements, but the practice of emptying customer accounts without proof of damages continues today. This Reddit thread from March 2026 documents the same pattern active under the "Loss Recovery" label. The name changed. The account sweeps did not.
The full UOKiK press release, published on 15 July 2024, is available at uokik.gov.pl. It includes the full text of the President's findings, the list of challenged provisions, and the official quote on abusive clauses being treated as never inserted.
Wilkins v. PayPal (2021-2023)
In February 2023, an arbitrator found that the liquidated damages provision in PayPal's User Agreement was "a penalty and cannot be enforced." Rather than defend the AUP clause on the merits, PayPal chose to withdraw its own counterclaim. The clause was never formally struck down, but PayPal refused to defend it when directly confronted by a neutral decision-maker.
What happened
Wilkins used PayPal to collect payments for "The COVID Blog." PayPal limited the account in August 2021 for alleged AUP violations involving COVID-related content and the sale of pine needle products. After the limitation, PayPal continued receiving payments on his behalf and sent 96 notification emails without his consent.
Wilkins initiated the arbitration, claiming breach of contract and violations of California and Nevada anti-spam statutes. He requested USD 136,500 in statutory damages for the 96 unsolicited emails. This case is structurally different from Evans and Nezri: there is no documented deduction of funds Wilkins already held. His claim was about the account limitation and the spam emails, not about a balance PayPal seized. It is worth noting that after the limitation, PayPal continued receiving incoming payments directed to Wilkins and retaining them in the limited account; what ultimately happened to those funds is not specified in the public record.
PayPal responded with a counterclaim, citing its liquidated-damages clause and demanding USD 2,500 per sale for a total of USD 380,000. That counterclaim is what makes the case important: it was a live, concrete attempt to enforce the AUP penalty machinery in arbitration, and it forced the arbitrator to look at the clause directly. The USD 380,000 figure is also worth noting in its own right: it is a common litigation tactic by well-resourced defendants to assert a counterclaim so large that the opposing party, facing potential liability that dwarfs their own claim, is pressured to abandon the case entirely. Here it did not work.
The key moment
On February 23, 2023, the arbitrator granted PayPal summary judgment on Wilkins's own claims. Wilkins's case was about the account limitation (breach of contract) and the 96 unsolicited notification emails (anti-spam statutes). He never argued the AUP clause or raised the penalty issue; those subjects entered the case only through PayPal's own counterclaim. The arbitrator ruled against both his breach of contract and anti-spam claims. In the same order, the arbitrator found that the liquidated damages provision in PayPal's User Agreement was "a penalty and cannot be enforced." He dismissed PayPal's USD 380,000 counterclaim with prejudice.
Why it did not hold
PayPal pointed out it had not moved for summary judgment on its own counterclaim, then voluntarily dismissed the counterclaim with prejudice. The arbitrator issued an amended order on March 31, 2023 that removed the merits language and simply recorded the dismissal. The federal court later treated that amended order as the final award and declined to restore the deleted sentence.
Wilkins lost on his own claims (anti-spam statutory damages and account limitation breach of contract), which had nothing to do with the AUP clause. What survived: PayPal did not collect its USD 380,000 counterclaim. The deeper problem is structural: the penalty issue entered the case through PayPal's own counterclaim, which left PayPal free to make it disappear by withdrawing that demand. A claimant who builds their own case around a direct challenge to the clause, seeking declaratory relief or restitution on that basis, would have been much harder to neutralize.
Bottom line
When forced to confront the liquidated-damages clause directly, the first written reaction from the arbitrator was that it was an unenforceable penalty. That finding did not survive procedurally. But the fact that it appeared at all, and that PayPal chose to retreat rather than defend the clause, is the most significant data point in the public U.S. record on this question.
DRN-4342271: PayPal could not justify its actions
PayPal applied a reserve of GBP 565,000 to a business account. When the Financial Ombudsman Service asked PayPal to substantiate its position with evidence, PayPal did not answer the questions directly and did not submit supporting evidence. The Ombudsman ruled that PayPal had not justified its actions and ordered payment of 8% simple interest on GBP 75,630.59 plus GBP 200 for inconvenience.
What happened
In August 2022, PayPal blocked a company's account (referred to as "C") and raised questions about its business model. After completing a review, PayPal decided the business was high risk and applied a reserve of GBP 565,000. PayPal's final response cited risk protection and its review findings. C complained and referred the matter to the Financial Ombudsman Service.
What the Ombudsman found
The Ombudsman asked PayPal to provide call notes and call recordings to support its assessment that C's business was high risk. PayPal did not provide either. In the Ombudsman's words: "PayPal replied, repeating the contents of its review notes, but it didn't directly answer my questions or submit any further evidence in support of its position."
Financial Ombudsman Service, Decision DRN-4342271
The Ombudsman upheld the complaint and ordered PayPal to pay 8% simple interest per annum on GBP 75,630.59 for the period the funds were withheld, plus GBP 200 in recognition of the inconvenience caused. PayPal's strategy of repeating its internal review notes without responding to direct questions from the neutral forum did not hold up.
Why this matters
This decision is not about the AUP penalty clause directly. But it establishes a pattern that applies equally to AUP deduction cases: when PayPal is required to justify its actions to an independent neutral forum and chooses not to engage directly with the evidence requests, it loses. The same dynamic applies to any case where PayPal takes funds and is then asked by a regulator or ombudsman to show its work. No proof of actual loss, no justification for retention.
The full decision is publicly available at financial-ombudsman.org.uk (DRN-4342271).
DRN-1898614: AUP violation, funds held beyond 180 days, no reason given
PayPal closed V's account citing AUP breach, retained approximately GBP 7,000 for significantly longer than 180 days, and declined to give the Ombudsman any reason for the extended hold. Ordered to pay 8% simple interest for the excess period plus GBP 150 for inconvenience.
No proof of damages. No explanation for the hold.
Financial Ombudsman Service, Decision DRN-1898614
PayPal's terms allow holding funds beyond 180 days if required. The Ombudsman found PayPal could not demonstrate any need to do so. No proof of actual loss, no reason given. Full decision: financial-ombudsman.org.uk (DRN-1898614).
DRN-3479960: Permanent AUP limitation, complaints ignored for months
In May 2020, PayPal placed a permanent limitation on Mr F's account citing an AUP violation and retained his funds. He sent two formal written complaints in November 2020. PayPal did not respond to either. His funds were only released after FOS intervention. Complaint upheld, GBP 50 compensation ordered.
No communication. No justification for the silence.
Financial Ombudsman Service, Decision DRN-3479960
PayPal's failure to respond to two formal written complaints was itself a ground for upholding the complaint. Users are entitled to know why their funds are withheld. Silence is not a response. Full decision: financial-ombudsman.org.uk (DRN-3479960).
Evans et al. v. PayPal, Inc. (2022-2023)
N.D. Cal. 5:22-cv-00248 · Filed January 13, 2022 · Dismissed to arbitration June 2, 2022 · Affirmed by the Ninth Circuit September 18, 2023
Three PayPal users lost a combined $241,000+ to AUP deductions documented in PayPal's own written correspondence. The factual record was the strongest of any public PayPal AUP case. None of it was ever used: a class action filing structure guaranteed the case would end at the arbitration question, and it did. The merits of the deductions were never examined.
What happened
Three plaintiffs (Lena Evans, Roni Shemtov, and Shbadan Akylbekov) each had their accounts frozen and, after 180 days, swept with a memo reading "PayPal's damages caused by Acceptable Use Policy violation." Evans lost $26,984. Shemtov lost over $42,000. Akylbekov lost $172,206. PayPal's letter to Akylbekov's wife stated explicitly that the funds were taken "for its liquidated damages arising from those AUP violations pursuant to the User Agreement."
The plaintiffs filed as a class action in federal court. The court dismissed and compelled arbitration on June 2, 2022. The Ninth Circuit affirmed on September 18, 2023. The case never reached the merits.
What went wrong
1. Filing as a class action
This was the structural mistake that made everything else irrelevant. PayPal's User Agreement contains an explicit class-action waiver and mandatory arbitration clause. Filing as a class action in federal court does not get around those provisions; it guarantees that PayPal's first motion will be to compel individual arbitration and dismiss class claims. The Ninth Circuit affirmed that outcome unanimously on September 18, 2023. Not a single judge found a reason to let the case proceed.
2. Overloaded complaint
The complaint contained nine separate claims: conversion, civil RICO, EFTA violations, breach of written contract, breach of fiduciary duty, California UCL, unjust enrichment, declaratory relief, and accounting. Civil RICO treated each fund seizure as a wire fraud predicate act and demanded treble damages, which is one of the most reliable ways to damage credibility with a federal judge in a commercial dispute. All nine claims reduce to a single question: can PayPal keep money it says represents AUP damages without proving any actual loss? Piling on theories obscures that question, creates multiple routes to dismissal on unrelated grounds, and signals that no one identified the core argument worth fighting on.
Bottom line
The factual record in Evans was the strongest of any public PayPal AUP case: real deductions, documented in writing, with PayPal's own letter naming the AUP as the source. None of it was ever used. The legal structure guaranteed the case would end at the arbitration question, and it did. The court and the Ninth Circuit produced nothing on the merits.
What the record does not contain is any finding that PayPal's AUP deductions were valid. It contains a finding that PayPal's arbitration clause and class waiver are enforceable. Those are different things, and the distinction matters: the merits question remains entirely open.
Nezri v. PayPal, Inc. (2022)
C.D. Cal. CV 22-2112 DSF · Filed February 10, 2022 · Motion to compel arbitration granted June 13, 2022
PayPal seized 131,564.25 euros from Gary Nezri after alleged AUP violations. That amount is not an even multiple of $2,500 and cannot be derived from PayPal's per-violation formula, a concrete mathematical impossibility that exposes the arbitrary nature of the deduction. The court did not reject the penalty-clause argument; it redirected it to arbitration, exactly where it belongs. It was never tested there.
What happened
In May 2021, PayPal permanently limited Gary Nezri's account for alleged AUP violations. After a 180-day hold, on November 26, 2021, PayPal withdrew 131,564.25 euros (approximately $150,000 USD) without notice or explanation.
Nezri filed suit in Los Angeles Superior Court in February 2022. PayPal removed to federal court and moved to compel arbitration. The court granted the motion on June 13, 2022. The case was dismissed and sent to arbitration.
What went wrong
1. Fighting to stay out of arbitration instead of fighting on the merits inside it
Nezri's central move was to argue that the arbitration agreement was unconscionable, so the court should refuse to enforce it. Under the Federal Arbitration Act, that bar is extraordinarily high and rarely cleared. The court declined to address the liquidated-damages argument because it found the dispute belonged with the arbitrator. The penalty-clause argument was available and potentially strong. Nezri was making it in the wrong place.
2. Adding RICO claims
The Nezri complaint included civil RICO claims, treating the fund seizure as a wire fraud predicate act. As in Evans, this added nothing useful and signaled to the court that the legal theory had been inflated beyond what the facts could support. Federal courts have rejected RICO as a vehicle for commercial grievances for decades; adding it invites skepticism about the whole filing.
What the court actually said about the penalty clause
The court declined to rule on whether PayPal's liquidated-damages provision was unconscionable, not because the argument was weak, but because standard FAA procedure requires a court that finds a dispute within the scope of an arbitration agreement to send it forward without reaching the merits. The court was not endorsing PayPal's position. It was redirecting the argument to the correct forum. The record contains no finding that PayPal's AUP deductions are valid. It contains only a finding that validity is for an arbitrator to decide.
Bottom line
Nezri is the clearest illustration of the right argument in the wrong forum. The penalty-clause question was squarely presented. The court applied standard FAA procedure and sent it to arbitration, which is where that argument belongs and where it has never yet been fully tested. The case ended not because the argument was wrong, but because it was aimed at the wrong target.
For users outside the United States, the arbitration route under AAA rules does not apply. The equivalent forums are FIDReC in Singapore, the Financial Ombudsman Service in the UK, and national consumer ADR schemes in the EU. They operate under different rules but the same core question applies in all of them: can PayPal retain funds it labels "AUP damages" without proving any actual loss? That question has never been answered on the merits in any public proceeding. See the Singapore guide and UK guide for jurisdiction-specific analysis.
What a stronger case would look like
Seven cases. One European regulatory decision formally declaring the AUP penalty clause abusive. Three UK Financial Ombudsman rulings where PayPal could not justify its actions, declined to give reasons, or failed to respond to formal complaints. Three U.S. cases where the core argument was correct but the procedural approach failed. The same question runs through all of them: can PayPal retain funds labeled "AUP damages" without proving any actual loss? A European regulator and three UK Ombudsman decisions have answered it. In U.S. arbitration and court proceedings, it has not yet been answered on the merits. What the record shows is what does not work. What would work is the inverse:
- One focused argument. Not nine causes of action, not RICO, not class structure. A single direct challenge to the penalty clause as an unenforceable liquidated damages provision, with a demand for restitution of the specific amount taken.
- The correct forum from the start. In the U.S., that means arbitration under AAA consumer rules, not federal court. Outside the U.S., the equivalent is FIDReC (Singapore), the Financial Ombudsman Service (UK), or the applicable consumer ADR scheme in the EU. See the Singapore guide and UK guide.
- A claimant-driven challenge to the clause. Not relying on the other side's counterclaim to surface the issue, as happened in Wilkins. The challenge to the clause has to be part of the claimant's own case so PayPal cannot make it disappear by withdrawing its own demand.
- The mathematical argument front and center. If the deducted amount is not an even multiple of $2,500, PayPal's own formula cannot have produced it. That is not an inference; it is arithmetic. It forces PayPal to explain what it actually did, which it has never been required to do in any public proceeding.
- Cite the UOKiK Poland decision. A European governmental authority has already declared the USD 2,500 AUP clause abusive and ordered it treated as if it never existed. This decision is persuasive in any jurisdiction: in arbitration, as evidence that a neutral authority found the clause legally defective; in mediation, as leverage showing PayPal's position has been formally rejected in another forum; in a regulatory complaint to MAS, the CFPB, or the FCA, as proof of a cross-jurisdictional pattern; and in a submission to a news outlet, as documented regulatory action that a journalist can independently verify. It does not bind courts or regulators outside the EU, but no decision-maker can ignore a governmental authority that examined the exact same clause and found it abusive.