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PayPal Breaks The Law

Writer Wishes To Remain Anonymous

PayPal breaks financial law and is reported to FSA

The Compliance Officer


Dear PayPal

I am writing with regard to the above captioned account (“the account”) and more specifically to address my concerns regarding both PayPal Europe and PayPal UK’s (“PayPal”) operation and custody of the same.  My company (withheld to protect individual) is a sole trader business and beneficial owner of the account. I am authorised to deal with this matter on behalf of the company.

In September 2004, PayPal informed my company that the account would be frozen for 180 days and thereafter PayPal would release any remaining balance to MY COMPANY. On 29 October 2004 MY COMPANY received a further communication from PayPal alleging irregular use of the account the result of which would render the account frozen for a further 180 days. Irregularity was alleged despite MY COMPANY making no withdrawals or payments on the account.

I am shocked by the stance taken by PayPal, which is entirely inappropriate. By unilaterally refusing to allow reasonable operation of the account, PayPal has breached its contractual obligations to MY COMPANY. Furthermore, PayPal UK is in breach of trust as bare trustee of the funds held in the account to which MY COMPANY are beneficially entitled.

At all material times, including when PayPal and/or their agents offered and MY COMPANY accepted the terms of the account, PayPal and/or their agents were fully aware that MY COMPANY operated a web site as a means of organising social parties and a dating club open to persons over 18 years of age (i.e. adults).

Subsequently PayPal and/or their agents accepted the business of MY COMPANY as evidenced by verification of the account to MY COMPANY. Furthermore, over a two-week period PayPal assessed the nature of the business prior to receiving any payments to the account.  During that period PayPal made no representations, either express or implied, stating that it intended to refuse or restrict the operation of the account on MY COMPANY’s behalf.

PayPal UK then processed a number of payments to the account and deducted its fees directly from monies received to the account. That again evidences PayPal UK’s acceptance of and agreement to operate the account as per the terms agreed with MY COMPANY. Further, if the business of MY COMPANY was not acceptable to PayPal then why has PayPal deducted its fees from MY COMPANY’s account. That smacks of the highest hypocrisy.

Not withstanding their acceptance of MY COMPANY’s business, PayPal now withhold funds belonging to MY COMPANY paid by customers of MY COMPANY in respect of goods and services that have been provided to MY COMPANY’s customers by MY COMPANY. Is it PayPal UK’s intention to withhold MY COMPANY’s funds so as to take the benefit of any accruing interest on these funds? I remind you that any interest accrued must be held to the account of MY COMPANY and PayPal is not entitled to any such interest.

PayPal UK’s unilateral action to freeze the account and refuse to release funds to MY COMPANY not only represents a breach of contract and a breach of trust but an illegal action that can only otherwise be justified by a freezing order or similar Court order. If PayPal have obtained such an order would you kindly provide me with a copy. I assume that no such order exists otherwise you would be bound to bring it to my attention which you have failed to do.

For the record, the operations of MY COMPANY are in no way illegal. Customers merely pre-pay for tickets to social parties arranged in good faith by MY COMPANY. The dates and locations of these parties are fixed and notified to MY COMPANY’s customers well in advance of the events. All of MY COMPANY’s customers who have attended our social gatherings have been satisfied. However, PayPal have caused economic loss and damage to the reputation of MY COMPANY not to mention inconvenience to MY COMPANY’s customers by their negligent handling of the account. Some customers have had to be refunded for a cancelled party arranged for 2 October 2004. That party had to be cancelled because PayPal suspended the payment system to the account.  As a result all MY COMPANY’s customers had to reschedule and were compensated by the provision of a complementary party resulting in substantial loss of revenue to MY COMPANY. As a result of the actions of PayPal a party in 2004 lost in excess of £**** and the next scheduled party had to make provision for members who have previously paid through PayPal.

If MY COMPANY’s product offering was unacceptable to PayPal then PayPal should have declined MY COMPANY’s business and refused to accept payments prior to trading. In that event, MY COMPANY would not have relied upon PayPal to their detriment and would have avoided financial loss.

In conclusion, PayPal and/or their agents have breached their contractual obligations and fiduciary duties owed to MY COMPANY and have been negligent in respect of the account’s operation. In the event that PayPal fail to release all the funds held in the account to which MY COMPANY are solely and beneficially entitled then MY COMPANY will have no other recourse then to formally instruct their legal advisers to commence recovery proceedings. In that event, damages may be sought in respect of business interruption of a legitimate business and enterprise without prior notice or notification by PayPal. In the interests of avoiding unnecessary legal costs in respect of the above I urge PayPal to provide MY COMPANY with a cheque in the sum of £**** plus interest and a statement of the account within the next 14 days.

PayPal (Europe) Limited is a regulated entity of the Financial Services Authority and thus falls squarely within the regime of the Financial Services and Markets Act 2000 (“the Act”). Please take this letter as a formal complaint as defined under the provisions of the Act. PayPal is required to respond to me and refer this complaint to the FSA forthwith. Kindly confirm by return post that this complaint has been referred to the FSA as per PayPal’s regulatory duties.

Should you wish to discuss any of the above then please do not hesitate to contact me by telephone or post NOT E-mail.

Yours sincerely,

The Company

[The Aftermath of PayPal entanglement]

After threats of litigation against PayPal Europe Ltd the company gave in and refunded the amount frozen in its account against the law.  A search revealed that dozens of adult companies from Bordel escorts, to adult directories and adult sex parties had active PayPal accounts months after this company dealing with networking dating parties had its accounts frozen under the obscure and imprecise wordings of the PayPal terms and conditions, the reasons PayPal gave for account suspension.  As a result of the loss of reputation, loss of cash flow and earnings from the actions of PayPal the company had to be sold prematurely.   Months of wrangling with PayPal’s board of directors and compliance department (who initially denied that they were the company responsible) cost weeks of time and failed to recoup losses and/or discretionary damages.  PayPal operate under the assumption that sums of money less than £10,000 are not legally economical to recover and if PayPal were to similarly freeze £10,000 worth of assets of 10,000 small companies for 180 days they would have £100 million to invest, if indeed any and/or all of the money were ever successfully reclaimed (without accrued interest of course).  If this were the actions of a small company it would fall into the category of a scam, but under the auspices of PayPal/Ebay where might is right it is of course merely “corporate policy”.  However if 10,000 small companies were to file a class action lawsuit the dragon would be out of business..

Posted: April 20, 2012 at 11:45 am


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