This excerpt taken from the EBAY 10-K filed Feb 17, 2010.
Bill Me Laters operations depend on lending services provided by CIT Bank.
We acquired Bill Me Later, a company that facilitates transaction-based credit services by lending banks, in November 2008. Bill Me Later is neither a chartered financial institution nor is it licensed to make loans in any state. Accordingly, Bill Me Later must rely on CIT Bank (or another chartered financial institution) to extend credit to customers in order to offer the Bill Me Later service. When a consumer makes a purchase using the Bill Me Later service, CIT Bank extends the credit to the consumer, funds the consumer loan at the point of sale and advances funds to the merchant. Bill Me Later subsequently purchases the receivable related to the consumer loan extended by CIT Bank. Although CIT Bank continues to own each customer account, Bill Me Later owns the related receivable and is responsible for all servicing functions related to the account. Any termination or interruption of CIT Banks ability to lend could result in an interruption to the Bill Me Later service. In November 2009, CIT Group Inc., the parent company of CIT Bank, filed for bankruptcy under a prepackaged plan of reorganization, the plan was approved by the bankruptcy court in December 2009 and CIT Group Inc. emerged from bankruptcy on December 10, 2009. If CIT Group is unable to complete the restructuring plan, or if CIT Groups financial condition otherwise significantly impairs CIT Banks financial condition or operations
or if CIT Banks financial condition or operations are adversely affected for any reason, CIT Bank could be placed under Federal Deposit Insurance Corporation (FDIC) receivership. In the event of a receivership, the FDIC as receiver could potentially terminate or suspend our commercial relationship with CIT Bank. Bill Me Later has put in place a similar arrangement with another chartered financial institution, but if such a termination or suspension occurs with no or little advance notice from the FDIC, Bill Me Later would be unable to originate any new transactions until the new arrangement was implemented, which might materially and adversely affect Bill Me Laters business.
A lawsuit has been filed against Bill Me Later in the U.S. District Court for the Northern District of California, alleging that in its relationship with CIT Bank, Bill Me Later is acting as the true lender to customers in violation of various California laws, including the states usury law. We believe that these allegations are without merit and intend to defend ourselves vigorously. However, this area of law is uncertain and if the lawsuit is successful, Bill Me Later may be required to change its methods of operations, pay substantial damages and reduce some of its charges and fees, which would likely adversely affect our business.