On May 20, PayPal entered into an Assurance of Voluntary Compliance (AVC) with the Texas Attorney General over allegations that it failed to clearly explain how the personal information belonging to users of its Venmo mobile payment application would be used and with whom it would be shared.

The AVC stems from Texas Attorney General Ken Paxton’s investigation into potential violations of the Texas Deceptive Trade Practices Act by Venmo, a popular money transfer app and social network that allows users to electronically pay others by using linked bank accounts or credit cards that PayPal acquired in December 2013.

According to a press release issued by Paxton, his office’s Consumer Protection Division found a number of issues regarding the safety and security of the Venmo app.  Investigators allege that Venmo used consumers’ phone contacts without clearly disclosing how the contacts would be used, did not clearly disclose how consumers’ transactions and interactions with other users would be shared, and misrepresented that communications from Venmo were actually from particular Venmo users.

In order to resolve the regulators’ claims, PayPal has agreed to improve the disclosures that the Venmo app presents to consumers regarding privacy and security, and to work to ensure that consumers understand the safeguards available on the app, who will be able to view their transaction data, and who is sending them communications.

PayPal will also be required to make sure that the disclosures it makes about the app’s security features are “true and correct” and to “clearly and conspicuously” disclose the audience setting for any transaction at the time it is submitted as well as any optional security features an app user may take advantage of, according to the settlement.  Specifically, PayPal must stop accessing Venmo users’ contact lists without first clearly disclosing the type of information that will be accessed, the specific ways in which it will use the data, and how to use and disable the Autofriend feature within 90 days.
PayPal will pay $135,000 to the state of Texas and $40,000 for reimbursement of attorneys’ fees to the Texas Attorney General.