PayPal was hit with a class-action lawsuit alleging that the payment processor stifled competition by limiting users to just their website.

Law firm Hagens-Berman filed the suit on Thursday in the Northern District of California. The lawsuit contains the allegation that PayPal's merchant agreements, which all sellers must sign before accepting payments from the platform, force consumers to pay more. This includes amendments in the agreements that bar companies from offering discounts to incentivize using other payment processors, such as Stripe or Shopify.

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"if PayPal's agreements were transparent, consumers would quickly see a price difference between PayPal and Venmo and its competitors," the attorneys said in the suit.

The plaintiffs also allege that PayPal prohibits sellers from telling customers that other payment processors are cheaper.

The suit provides the example of a situation in which consumers could pay $5.83 for Kleenex if they use PayPal or less than $5.83 if a credit card is used. Or a merchant could keep the $5.83 price but allow customers to use a coupon if they used a payment option other than PayPal or Venmo. "Either way, the price differential would result in consumers paying lower all-in prices," the lawsuit claimed.

The payment restriction rules are "draconian" and "illegally anti-competitive," the suit argues, and comparable to practices that Visa and Mastercard used to impose before the Justice Department sued them in 2010.

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The lawsuit would affect all 400 million PayPal users, including 75% of all Americans. There are also more than 35 million merchant accounts on the platform in 2022, according to company data.

PayPal did not respond to requests for comment from the Washington Examiner.