PayPal signage in New York. (Michael Nagle/Bloomberg News)

Consumers using PayPal to shop online were unknowingly signed up for credit lines and promised discounts and payment options they never received, according to a complaint filed in federal court by the Consumer Financial Protection Bureau (CFPB).

The agency wants PayPal pay $25 million for the actions, including $15 million in refunds for consumers and a $10 million penalty.

Some people attempting to sign up for regular PayPal accounts didn’t realize they were signed up for credit with the company, a service formerly known as “Bill me later,” until they noticed the inquiries on their credit reports or received e-mails welcoming them to their credit accounts, according to the agency.

“Many people ended up enrolled without knowing how or why, only to discover unexpectedly they actually had an account,” said CFPB Director Richard Cordray.

Once they were enrolled for the service, which allowed customers to make purchases and pay their bills later, consumers were often defaulted into using PayPal credit as their primary payment method when they shopped with PayPal. That caused them to use credit during times they intended to pay with a checking account or credit card linked to their accounts.

Some people said their purchases were charged to PayPal Credit even when they chose another payment method. Many consumers then faced late payment fees and interest charges because they didn’t know their purchases had been charged to the credit line, according to the CFPB.

Paying off the credit was often difficult, Cordray said. PayPal lost payment checks and sometimes took more than a week to process checks, consumers said. The company then failed to refund customers for late payment penalties and and interest charges they faced because of Web site issues. Many people who used the credit option never received promotions they were promised, such as credits for $5 or $10, according to the bureau.

The complaint, filed with the U.S. District Court for the District of Maryland, needs to be approved by a judge. If approved, the company would need to pay customers who were signed up for credit without knowing it, who were charged fees as a result of “inadequate disclosures and flawed customer-service practices” from PayPal.

The CFPB said customers would not need to take any other action to receive refunds. It’s not yet clear how many customers were affected.

According to the settlement, PayPal did not admit or deny the charges. The company did not directly address the allegations in a statement. “PayPal Credit takes consumer protection very seriously. We continually improve our products and enhance our communications to ensure a superior customer experience. Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws.”

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