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PayPal Froze Thousands

By George Spelvin

I have been a loyal PayPal customer for three years, with no history of chargebacks. Currently, I’m doing about $10,000 to $20,000 per month in business through PayPal, so you’d think I’d be regarded as a valuable customer, right? However, at 4:17 a.m. today PayPal sent me an e-mail to let me know they that during a recent screening, they had noticed an issue regarding my account. Yesterday, a customer sent me a $6K payment for a flat-panel display via six separate transactions. He had to do it this way because they wouldn’t let him fund the full amount of his purchase in just one transaction. The gentleman is a new PayPal customer who happens to be a partner with a prestigious law firm. That fact can easily be verified by visiting the law firm’s Web site or giving the firm a call. In other words, he is not someone whom PayPal should be too worried about. Nonetheless, after reading the information on this Web site I believe that his successive payments triggered my account closure.

Almost simultaneous to receiving the e-mail from PayPal warning me that my account was under investigation, they sent a second “all clear” message to let me know that my account status had been fully restored. Obviously, a computer is making these decisions with no human intervention. Later this morning, however, when I tried to spend some of the $3K+ in my PayPal account using my PayPal Premier MasterCard, the transaction was denied. I then checked my e-mail and found a notice from PayPal stating that they had checked my credit file with Equifax and, as a result, were closing my account. Of course, they didn’t bother to give me the courtesy of a call before restricting my account, resulting in an embarrassing situation with a vendor who tried to charge my card (though they’ve never hesitated to bug me in the past about the smallest of purchases I’ve made — one for as little as three dollars at a Bi-Lo grocery store was deemed “suspect”). I acknowledge having some problems with creditors years ago, but there is nothing on my credit file that PayPal wouldn’t have known about three years ago when I opened my account. I suspect that they are using this as an excuse. I’ve never filed for bankruptcy and haven’t had any problems with my Bank of America personal and business accounts. I even offered my private banker as a reference, which PayPal declined to contact. The e-mail informed me that all the money in my account ($3,159.14, to be exact) would be frozen for the next 180 days. Since I actually ship the items I sell and all my customers to date have been quite happy with their purchases, I’m not worried about having any chargebacks against these funds. Nevertheless, they are tying up my money for no fair or good reason. How likely is it that PayPal will actually return my money, assuming there are no chargebacks against these funds? Does it matter if the buyer funded his payment from a credit card or his bank account?

When I called customer service this afternoon (402-935-2017), the first person I spoke to admitted up front that there was absolutely NOTHING she could do about their decision. That’s consistent with the e-mail notice I received from PayPal, which stated: “This limitation of your account privileges cannot be appealed.” What kind of an organization is not willing to re-consider their decision, in case they made a mistake? They must have confused Papal Infallibility (as per the Vatican) with PayPal Infallibility. The next person I spoke to (a senior agent named “Roger” in the resolutions center in Nebraska) basically gave me the same line, with the added information that because I sell electronics, that’s considered a “high risk” business. That is a pretty big segment of the economy to just write-off, with no warning to me beforehand. He also cited the fact that I’ve been receiving high-dollar payments. That is interesting, because PayPal’s fee structure is set up to reward people for doing a lot of volume (i.e., receive over $10K of payments and the transaction fee is lowered to 2.2%). I’m using their MasterCard debit card exactly as intended and to my knowledge have been following all applicable account rules and regulations, with no customer chargebacks. Apparently that’s not good enough for their statistical model!

Finally, the “senior agent” talked to his supervisor (I guess Roger wasn’t that senior, after all) in “Executive Escalations.” Though she refused to talk to me, the supervisor did authorize Roger to offer me a compromise. They are still going to close my account, but if I send them confirmation that the item I sold yesterday has been shipped, PayPal will refund my money in 45 days instead of the 180 days they initially stated. I was able to persuade Roger to put that promise in writing, via e-mail. (By the way, he became very annoyed when I mentioned the “paypalsucks.com” Web site.) Am I better off to wait to sue until AFTER my money has been refunded, so they can’t attempt to lay claim to my money as reimbursement for their legal fees? Or, if it’s unlikely they will honor their promise to make the refund, should I just go ahead and sue now in small-claims court to bring this matter to a head? One of the consistent themes I’ve noticed from comments at this site is that it’s only through filing suit that PayPal victims get positive results. Can anyone who has been down this road before offer me any advice? I intend to contact the gentleman who launched the successful small-claims court action in California, but if there are any others who have filed individual cases (as opposed to the class-action suits), I’d really appreciate hearing from them.

After my customer (the lawyer with the big-name firm) gets his shipment on Friday, I am going to see if perhaps his firm might entertain the possibility of launching a class-action suit against this company. After reading through literally hundreds of comments on this Web site, it’s apparent to me that something more needs to be done about PayPal and its unsavory business practices. The wife of one of my best friends from college happens to be the communications director for a prominent United States congressman. I am going to speak to her about this matter, to see if her boss can interest the House Commerce Committee in launching an investigation into PayPal’s deceptive and unfair practices. Based on my experience and what I’ve read concerning the pending settlement in the class-action case (as well as the allegations in the class-action suit just filed in New York), it’s clear that new legislation to regulate companies like PayPal may be required. Clearly, the fact that PayPal remains wholly unaccountable to banking regulators because “we are not a bank” — as they so eagerly will tell you — needs to be examined. But if it walks like a duck and quacks like a duck, it must be duck! For all intents and purposes, PayPal acts like a financial institution and should be so-regulated. They are going to rue the day they ever messed with me…

Posted: April 20, 2012 at 12:14 pm


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2 thoughts on “PayPal Froze Thousands
  1. Peru 4 2 on

    Paypal alway freezes money! This is how they continue to make big money. Paypal freezes thousands from thousands of paypal users. They are good for nothing more than taking money that doesn’t belong rightfully to them. And when they make you deal with their customer service to try to fix the situation you are damned to long hold times and people that do nothing. Yes, Paypal ACTS like a financial institution but they don’t behave like one and they sure as hell sould be regulated like one. we would all have a lot less headache if they were.

  2. Hillary Simpson on

    I hope a lawsuit does successfully happen! I worked with paypal for 8 months with no problem until I sold a lamp to some bozo in India. I got an email telling me to send in all this paperwork to unfreeze my funds but I ended up getting the runaround. I contacted a paypal representative but their customer service leaves something to be desired =/