The San Jose, Calif.-based PayPal is paying out a total of $25 million to settle charges from the CFPB that state it illegally enrolled customers in its credit payment plan.

The CFPB filed a complaint and proposed a consent order Tuesday in federal court against PayPal for illegally signing up consumers for its online credit product, PayPal Credit, formerly known as Bill Me Later.

The agency alleged that PayPal deceptively promoted product benefits that it failed to honor, signed consumers up for credit without their permission, required them to use PayPal Credit instead of their preferred payment method and mishandled billing disputes. Under the proposed order, PayPal would pay $15 million in consumer redress and a $10 million penalty, plus, it would be required to improve its disclosures and procedures.

“PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained,” CFPB Director Richard Cordray said. “Online shopping has become a way of life for many Americans and it's important that they are treated fairly. The CFPB's action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase.”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive or abusive practices.

Since 2008, PayPal has offered PayPal Credit to consumers across the country who make purchases from thousands of online merchants, including eBay. The CFPB alleged that many consumers who were attempting to enroll in a regular PayPal account or make an online purchase were signed up for the credit product without their knowledge. The company also failed to post payments properly, lost payment checks and mishandled billing disputes that consumers brought against merchants or PayPal, according to the CFPB.

Specifically, the CFPB has alleged that PayPal deceptively advertised promotional benefits; abusively charged consumers deferred interest; enrolled consumers in PayPal Credit without their knowledge or consent; made consumers use PayPal Credit for purchases instead of their preferred payment method; engaged in illegal billing practices and mishandled consumer disputes about payments.

“PayPal Credit takes consumer protection very seriously,” PayPal said in a statement. “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. ”

The settlement, which was submitted in a U.S. court in Maryland, will require judicial approval before it takes effect. The CFPB noted that the order “is not a finding or ruling that the company has actually violated the law.”