WASHINGTON, December 6, 2011 ― If you have shopped on the Internet, you have probably dealt with PayPal, the internet payment service giant. If you have shopped on the Internet more than once, you probably have a PayPal horror story. PayPal is famous for freezing funds, confiscating money, closing accounts without notice, charging fraud and numerous issues. In spite of all this, the site remains the most used and largest online commerce site on the internet.
Recently, Regretsy, a site that pokes fun at horrible crafting, ran a campaign to help needy children during the holiday season. Regretsy readers are amazing when the site calls out for help, and this toy drive was no different.
The campaign was supposed to run like this: Helen, the site owner, vetted families for need. Once she verified their need, she created a list of items for the family and put out a call for monetary donations on her site. When readers funded the list, she would go out and buy the items and send them to the families in need. Awesome idea, right?
Everything was going swimmingly; Helen had the families and put up the button on her site for donations. It was fully funded within hours. Helen began the process of buying the items needed for the families, unaware that PayPal was about to play the Grinch to her Santa Claus.
PayPal’s main function is to facilitate transactions by individual users, usually through a button placed on an individual’s website. Once a user clicks that button, PayPal then conducts the monetary transaction – taking money from one user (the buyer), giving it to another user (the seller) while keeping a fee for themselves. To use the PayPal service, you can select one of several PayPal buttons. Users can choose “Add to Cart”, “Buy Now”, or “Donate.”
Helen, rightly deducing that hers was a donation situation, used the “Donate” button. Within 24 hours of collecting the money, PayPal contacted Helen informing her that she had used the wrong button and that she needed to refund all the money she collected. They sent her this notice:
“PayPal permits the donation button to be used by verified non-profit organizations. PayPal also permits donations to the accounts of individuals or organizations that are authorized to fundraise on behalf of verified non-profit organizations.
It appears that your PayPal account belongs to a corporation, and not a non-profit organization. Please refund the donations that you have collected.”[source]
Mistakes happen. Since PayPal told Helen that the “Donate” button could only be used by non-profits, she chalked it up to user error and began to refund the money. Of course, PayPal gets to keep their fee. That doesn’t get refunded.
Then Helen did something amazing (and if you have ever tried to contact PayPal, you know how truly miraculous this is); she got someone from PayPal on the phone. Remember that part where they told her the Donate button could only be used by verified non-profits? Turns out that is not true. Here is a portion of her conversation with PayPal:
PAYPAL: Only a nonprofit can use the Donate button.
ME: That’s false. It says right in the PDF of instructions for the Donate button that it can be used for “worthy causes.”
PAYPAL: I haven’t seen that PDF. And what you’re doing is not a worthy cause, it’s charity.
ME: What’s the difference?
PAYPAL: You can use the donate button to raise money for a sick cat, but not poor people.
And for good measure, the threw in some threats;
PAYPAL: You aren’t going to be able to get around this. It’s too late, we know what you’re trying to do and we’re not going to let you do it.[source]
Then they froze Helen’s personal account, which contained sales from a recent published book sold on the site.
Sadly, these stories are common. Zivity, a site that sells adult photos, had been a PayPal customer for four years. Over the Thanksgiving weekend, PayPal told the site owner that her site was permanently limited. They said “after a recent review of your account activity, it has been determined that you are in violation of PayPal’s Acceptable Use Policy”. The issue seemed to be whether Zivity was in the business of adult-oriented materials. While there is debate on whether the photos on Zivity are porn or art (the website describes the photos as glamour, pinup, and art nudes), the bigger issues is how something that was acceptable for four years became verboten almost overnight. Zivity got their account restored, but only after TechCrunch and a local NBC station ran a story on the account closure.
There are literally thousands of stories on the web where PayPal has closed accounts and taken customer’s money from their PayPal accounts and their checking accounts; usually they do so citing a violation of Terms of Service or charges of fraud. If this happens, the customer is left with little recourse to recover their funds or fight the charges against them.
The problem seems to lie in PayPal’s classification. Since PayPal does not hold deposits, it is not a bank and does not fall under any regulation that would normally govern a bank’s behaviors. [source] Despite PayPal’s horrible reputation, there was little recourse if you wanted to sell something on the internet. PayPal has been the only game in town for a long time. However, that may be changing with the advent of Google Wallet.
Sadly, that will be too late for the kids who were to receive donations from Helen and her readers. Remember that next time you want to donate. Donate to sick cats? Perfectly acceptable. Donate to kids in need? Well, PayPal knows what you are doing and will stop you.
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