PayPal agrees to launch a new Small Business Initiative that excludes criteria based on race, national origin, or other protected characteristics after federal investigation.
The U.S. Department of Justice (DOJ) recently announced a settlement with PayPal over a venture capital investment program that officials said unlawfully favored companies based on race and national origin. Under the settlement terms, PayPal will create a new, unbias program for small businesses and provide roughly $30 million in financial benefits through waived transaction fees.
Federal officials said the case centered on PayPal’s Economic Opportunity Fund, which the company rolled out during COVID, in 2020. The program was created during a period when many large companies announced new diversity efforts and financial support programs for minority-owned businesses. According to the Department of Justice, PayPal’s program gave preference to businesses owned by Black and minority entrepreneurs when distributing investment support.
The government said the program violated the Equal Credit Opportunity Act, a federal law that bans discrimination in lending and financial decisions based on race, color, religion, national origin, sex, age, marital status, or other protected categories. Officials stated that while businesses are allowed to support underserved communities in many ways, financial programs tied directly to race or national origin can violate federal law if they exclude other qualified applicants.
As part of the settlement, PayPal did not admit to any wrongdoing but agreed to end the previous program structure and launch a new, broader small business initiative that didn’t include the race-based requirements. The new program focuses instead on businesses that are veteran-owned or connected to farming, manufacturing, or technology industries.
Under the agreement, PayPal will waive processing fees on up to $1 billion worth of transactions for eligible businesses. Federal officials estimated the total value of those waived fees at around $30 million. The company will also appoint a new director to oversee the program and who will be responsible for studying the needs of American small businesses to decide how future support should be provided to them. The settlement also requires PayPal employees to receive training on the Equal Credit Opportunity Act, and the company must provide annual reports to the government outlining how the program is operating.
Acting Attorney General Todd Blanche said the administration plans to continue taking action against corporate diversity programs it believes violate federal anti-discrimination laws. Blanche said companies across the country are being warned that operating race-based business programs could lead to legal action from the government. In recent years, many businesses, colleges, and government agencies created DEI programs intended to increase opportunities for underrepresented groups. Supporters of those efforts have argued that they help address long-standing barriers to resource accessibility. Opponents, however, have argued that these programs can unfairly exclude other groups and may violate anti-discrimination laws.
The Justice Department said PayPal’s earlier program was not tied to fixing a specific case of proven discrimination. However, officials argued that race-based preferences without that connection still raise legal concerns under existing lending laws. The outcome of this case may influence how other corporations structure their financial assistance programs moving forward. PayPal’s new program is expected to continue supporting small businesses, just with a new, fairer approach.
Sources:
Justice Department Secures $30M Settlement with PayPal Over Unlawful DEI Investment Program
PayPal pays $30 million to settle DOJ probe over ‘DEI’ investment program
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