4 ms·

Is it legal for a private company to impose a financial penalty on you without even explaining the reason?

by celiktom 4y ago

quantified 4y ago
Does their TOS allow it? I haven't seen it but I'd expect an acre of fine print in there.
- deleted 4y ago
  [deleted]
luckylion 4y ago
Yes, you can enter contracts that include penalties. Stripe has them with the card networks, you have them with stripe. The fines haven't been decided upon from what I understand, and you could fight them once they've been announced, Stripe is simply freezing their assets to cover the potential fine.
mattbee 4y ago
Not in the UK; contractual penalty clauses are illegal. You can only be held liable for damages caused by a breach of contract. I'm sure the card networks can do what they want and it'd be months before a court could catch up though.
- luckylion 4y ago
  That's interesting, so you couldn't set up a contract that said "I deliver 10 units of X every 10 days, and you pay me 100 units of money. If I fail to deliver the units, I pay you 50 units of money"?
  - mattbee 4y ago
    Only if 50 units of money is a reasonable estimate of the losses of the other party for failure to deliver. A judgment in 2015 clarified the test of a penalty clause: "[T]he true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance." via https://www.pinsentmasons.com/out-law/guides/practical-implications-penalty-clauses-english-law https://www.pinsentmasons.com/out-law/guides/practical-impli...
    - luckylion 4y ago
      But that's very vague. Sure, you can't have a $400k penalty on a $100 delivery, but online payment handling deals with incredible amounts of money, so a $400k penalty between multi-billion dollar companies doesn't seem out of all proportion. The problem in this case would be that Stripe passes on the liability for the penalties to its customers if those customers are breaking the contracts. Obviously a problem for the customer, but also not unreasonable from Stripe's perspective. If you're setting up a marketplace and want to act as a payment-provider for third parties, you're creating a very different liability environment than if you're setting up an account to sell your own products. If you start with a seller-account and then transition your product into a marketplace, someone will have to eat that additional risk, and I can't see a good argument for why Stripe would be the one.
      - mattbee 4y ago
        The recent definition isn't vague (no punishment beatings), but it is situational. So a massive number in a standard contract will be seen as punitive to anyone but a mega merchant. Particularly as it also precedes cancellation of the contract which seems like the right restitution for a merchant who is persistently miscalculating or misdeclaring transaction risk (rather than causing specific losses to the card network).

Is it legal for a private company to impose a financial penalty on you without even explaining the reason?

quantified 4y ago

Does their TOS allow it? I haven't seen it but I'd expect an acre of fine print in there.

deleted 4y ago
[deleted]

luckylion 4y ago

Yes, you can enter contracts that include penalties. Stripe has them with the card networks, you have them with stripe. The fines haven't been decided upon from what I understand, and you could fight them once they've been announced, Stripe is simply freezing their assets to cover the potential fine.

mattbee 4y ago

Not in the UK; contractual penalty clauses are illegal. You can only be held liable for damages caused by a breach of contract. I'm sure the card networks can do what they want and it'd be months before a court could catch up though.

luckylion 4y ago
That's interesting, so you couldn't set up a contract that said "I deliver 10 units of X every 10 days, and you pay me 100 units of money. If I fail to deliver the units, I pay you 50 units of money"?
- mattbee 4y ago
  Only if 50 units of money is a reasonable estimate of the losses of the other party for failure to deliver. A judgment in 2015 clarified the test of a penalty clause: "[T]he true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance." via https://www.pinsentmasons.com/out-law/guides/practical-implications-penalty-clauses-english-law https://www.pinsentmasons.com/out-law/guides/practical-impli...
  - luckylion 4y ago
    But that's very vague. Sure, you can't have a $400k penalty on a $100 delivery, but online payment handling deals with incredible amounts of money, so a $400k penalty between multi-billion dollar companies doesn't seem out of all proportion. The problem in this case would be that Stripe passes on the liability for the penalties to its customers if those customers are breaking the contracts. Obviously a problem for the customer, but also not unreasonable from Stripe's perspective. If you're setting up a marketplace and want to act as a payment-provider for third parties, you're creating a very different liability environment than if you're setting up an account to sell your own products. If you start with a seller-account and then transition your product into a marketplace, someone will have to eat that additional risk, and I can't see a good argument for why Stripe would be the one.
    - mattbee 4y ago
      The recent definition isn't vague (no punishment beatings), but it is situational. So a massive number in a standard contract will be seen as punitive to anyone but a mega merchant. Particularly as it also precedes cancellation of the contract which seems like the right restitution for a merchant who is persistently miscalculating or misdeclaring transaction risk (rather than causing specific losses to the card network).