PayPal faces lawsuit for freezing customer accounts and funds(engadget.com)
engadget.com
PayPal faces lawsuit for freezing customer accounts and funds
https://www.engadget.com/paypal-lawsuit-freezing-customer-accounts-funds-073128563.html
311 comments
> Lena Evans, one of the plaintiffs who'd been a PayPal user for 22 years, said the website seized $26,984 from her account six months after it got frozen without ever telling her why.
Wait, what? They're actually taking the money? I thought the article was just being careless with the terms "frozen" and "seized".
On what power are they doing so? It's understandable when the relevant authorities (be it a tax authority, or a financial supervisory authority, or a court, or whatever) seize money, but they are not an authority.
Furthermore, if the money in question actually were illicit, then by what fantasy argument would they be allowed to keep it themselves rather than having to hand it over to the goverment? The entire point is that the money is dirty and nobody may keep it.
Wait, what? They're actually taking the money? I thought the article was just being careless with the terms "frozen" and "seized".
On what power are they doing so? It's understandable when the relevant authorities (be it a tax authority, or a financial supervisory authority, or a court, or whatever) seize money, but they are not an authority.
Furthermore, if the money in question actually were illicit, then by what fantasy argument would they be allowed to keep it themselves rather than having to hand it over to the goverment? The entire point is that the money is dirty and nobody may keep it.
Link to actual lawsuit: https://aupdamages.com/wp-content/uploads/2022/01/PayPal_Fil...
(I had to Google this and find it in a Reddit thread, so it's not directly from the court's website. If anyone can find that it'd help)
(I had to Google this and find it in a Reddit thread, so it's not directly from the court's website. If anyone can find that it'd help)
The problem is that usually anti-money laundering laws give the operator and the compliance officer an infinite protection even on a suspected money laundering. As long as the compliance process is followed, no matter how stupid the process is, there is no legal basis to go after account freezer and the company is protected. Thus, the company has no incentive to be reasonable with account freezes.
Very good news, especially the potential class action.
Something that I find very interesting is how the individual lawsuits will end. I remember (but can't find) a David vs Goliath case from some time ago, where a user brought Google to the small claims court. He won the case in that venue, but subsequently lost when Google followed up an brought a huge amount of documentation and won. The guy's conclusion was that Google knows _a lot_ of stuff and can leverage it; I think that the events could play similarly, here.
Something that I find very interesting is how the individual lawsuits will end. I remember (but can't find) a David vs Goliath case from some time ago, where a user brought Google to the small claims court. He won the case in that venue, but subsequently lost when Google followed up an brought a huge amount of documentation and won. The guy's conclusion was that Google knows _a lot_ of stuff and can leverage it; I think that the events could play similarly, here.
Recently I've been suspended from an "online bank". It's a traumatic experience, especially if you need the money held in that account.
Fortunately the amount I had there was not that big but the abusive procedure is trumatic. I can't imagine how someone would feel like to have all his rent money blocked in an online bank.
Basically you are told that unless you provide whatever documentation they want you loose the access to your own funds. Of course providing them documentation is no guarantee they will lift the restrictions. The support is via email only. The boarding and verification process it's really just a bite and switch scheme. I don't know how someone would feel safe to keep money in such a bank after they put your account/transactions on hold for days.
I start to like the "crypto currency" concept of owning your money more and more.
Fortunately the amount I had there was not that big but the abusive procedure is trumatic. I can't imagine how someone would feel like to have all his rent money blocked in an online bank.
Basically you are told that unless you provide whatever documentation they want you loose the access to your own funds. Of course providing them documentation is no guarantee they will lift the restrictions. The support is via email only. The boarding and verification process it's really just a bite and switch scheme. I don't know how someone would feel safe to keep money in such a bank after they put your account/transactions on hold for days.
I start to like the "crypto currency" concept of owning your money more and more.
When I worked at PayPal, some of the execs would say "we don't make money by giving it back to people". These were the execs that worked directly with Theil and Musk and I'm sure they're long gone, but it was definitely Theil and Musk who pushed for these types of policies right from the start (well Musk agreed when he showed up, he wasn't a founder of PayPal despite what he wants you to believe).
I've been battling dumb Paypal problems both on the end user and the merchant side so often that I'll never again use it if at all possible, especially in shops. It's just not worth the time and effort to try and trick them into doing their job.
“using PayPal to buy and sell clothing on eBay, to exchange money for a poker league she owns and for a non-profit that helps women with various needs. “
I can see one of those things causing an issue (poker league)
We use PayPal for membership fees for our nonprofit. This year they’re limiting us to 2000 a month transfer out which is annoying to us, but we’re small enough to get by.
I can see one of those things causing an issue (poker league)
We use PayPal for membership fees for our nonprofit. This year they’re limiting us to 2000 a month transfer out which is annoying to us, but we’re small enough to get by.
We are Europe's largest site for RFID and pentesting hardware (lab401.com)
We are in the exactly the same situation. PayPal has conducted a personalised, manually executed war of attrition against our company and shareholders.
Eight months ago, PayPal froze our account, seizing 15kEU. They refused to give any justification for the action, despite discussions with C-level staff.
After the 180-day "withholding" period, we were informed that they would not release the funds, for undisclosed reasons.
We immediately engaged legal counsel. PayPal refused to interact with our counsel, and so a C&D was issued. Within one week of the C&D, PayPal did the following:
- Froze the account of our sister company (in Hong Kong), seizing 35k EU
- Froze the personal accounts of all shareholders of the EU and HK corps (~1,5k EU)
- Froze the business accounts of all shareholders by name search (different corporate entities, different businesses) - 5kEU
- Froze the business accounts that the shareholders held (again, different corps, different businesses) - another 5kEU
Our policy is to empty accounts on the 28th of each month. PayPal froze and seized funds in all accounts on the 27th of the month. Based on the time-stamps of the emails, and the order in which the accounts we closed, it's obvious that it was a targeted, manual process (2 - 3 minutes between closing each personal account, 15 minutes to find the next company account, 3 - 5 to close the personal accounts, and then 10 - 15 minutes for the next company accounts).
We engaged secondary legal counsel in Luxembourg (PayPal's EU headquarters). Again, PayPal refused to disclose any reason, justification or proof, replying with typo-ridden copy-pasted document from a low-level legal peon, concluding that no funds would be returned, the businesses and personal accounts were deemed 'illegal', and as such, PayPal would confiscate all funds.
All KYC was performed. All accounts had been "audited" by PayPal (when you reach the 5k, 50k, 100k+ processing tiers).
Needless to say, operationally - we have shipped 50kEU of hardware to customers, and face losses of the hardware, and costs of replacing stock. I agree with the standpoint: this is purely racketeering - an online equivalent of Civil Forfeiture.
For extra context, as the points have been raised in other comments:
- In a perfect world, no merchant would use PayPal. In our experiments, disabling PayPal cuts revenue by ~30% in our industries.
- Pentesting products could include illegal products: keyloggers, etc. We sell no such products for obvious legal and compliance reasons. All the products we sell are sold by countless other resellers that use PayPal. We have processed Visa/MC with Stripe for over 6 years with no problems (legal, chargeback, etc)
- We empty accounts regularly, to minimize fallout. However, you have to keep a healthy minimum in accounts when dealing with large volume, or accounts get limited automatically (presumably to avoid merchants pulling cash to avoid chargebacks / refunds)
- We have already 'invested' over 20k in legal fees. I justify this cost in (perhaps falsely) believing that we could establish some case law that could benefit other merchants.
It's unfortunate that we cannot join the class action in the US, or we'd be into it. With that said, if anyone merchant in the EU has similar issues, it could be interesting to investigate if a similar action can be mounted in the EU. Feel free to reach out: simon at sn dot cm (not a typo).
We are in the exactly the same situation. PayPal has conducted a personalised, manually executed war of attrition against our company and shareholders.
Eight months ago, PayPal froze our account, seizing 15kEU. They refused to give any justification for the action, despite discussions with C-level staff.
After the 180-day "withholding" period, we were informed that they would not release the funds, for undisclosed reasons.
We immediately engaged legal counsel. PayPal refused to interact with our counsel, and so a C&D was issued. Within one week of the C&D, PayPal did the following:
- Froze the account of our sister company (in Hong Kong), seizing 35k EU
- Froze the personal accounts of all shareholders of the EU and HK corps (~1,5k EU)
- Froze the business accounts of all shareholders by name search (different corporate entities, different businesses) - 5kEU
- Froze the business accounts that the shareholders held (again, different corps, different businesses) - another 5kEU
Our policy is to empty accounts on the 28th of each month. PayPal froze and seized funds in all accounts on the 27th of the month. Based on the time-stamps of the emails, and the order in which the accounts we closed, it's obvious that it was a targeted, manual process (2 - 3 minutes between closing each personal account, 15 minutes to find the next company account, 3 - 5 to close the personal accounts, and then 10 - 15 minutes for the next company accounts).
We engaged secondary legal counsel in Luxembourg (PayPal's EU headquarters). Again, PayPal refused to disclose any reason, justification or proof, replying with typo-ridden copy-pasted document from a low-level legal peon, concluding that no funds would be returned, the businesses and personal accounts were deemed 'illegal', and as such, PayPal would confiscate all funds.
All KYC was performed. All accounts had been "audited" by PayPal (when you reach the 5k, 50k, 100k+ processing tiers).
Needless to say, operationally - we have shipped 50kEU of hardware to customers, and face losses of the hardware, and costs of replacing stock. I agree with the standpoint: this is purely racketeering - an online equivalent of Civil Forfeiture.
For extra context, as the points have been raised in other comments:
- In a perfect world, no merchant would use PayPal. In our experiments, disabling PayPal cuts revenue by ~30% in our industries.
- Pentesting products could include illegal products: keyloggers, etc. We sell no such products for obvious legal and compliance reasons. All the products we sell are sold by countless other resellers that use PayPal. We have processed Visa/MC with Stripe for over 6 years with no problems (legal, chargeback, etc)
- We empty accounts regularly, to minimize fallout. However, you have to keep a healthy minimum in accounts when dealing with large volume, or accounts get limited automatically (presumably to avoid merchants pulling cash to avoid chargebacks / refunds)
- We have already 'invested' over 20k in legal fees. I justify this cost in (perhaps falsely) believing that we could establish some case law that could benefit other merchants.
It's unfortunate that we cannot join the class action in the US, or we'd be into it. With that said, if anyone merchant in the EU has similar issues, it could be interesting to investigate if a similar action can be mounted in the EU. Feel free to reach out: simon at sn dot cm (not a typo).
I'm happy that this is happening. Small buisness owners, Twitch streamers etc. can get their PayPal account locked pretty easily for "suspicious" activity (i.e chargebacks or a few thousand dollars). Then PayPal locks their account for 180 days with little to no recourse. The big Twitch streamers register an LLC which PayPals gives more leniency to AFAIU.
This has been happening to folks for ages. I'm looking forward to understanding why Paypal thinks it can steal from it's customers without facing repercussions. I wouldn't do anything serious with Paypal for this exact reason.
I've heard about their ‘freeze and seize’ business model in mid-late 2000s, so it's been going on for almost fifteen years already, maybe more.
Meanwhile Paypal's early top execs are icons of US business and techbros. This Musk is probably a really solid guy, what's not to like!
Meanwhile Paypal's early top execs are icons of US business and techbros. This Musk is probably a really solid guy, what's not to like!
Hearing the stories in this thread makes me wonder if anyone has ever tried to get a decree that PayPal owes them the money, and if PayPal refuses to pay show up to confiscate their property.
I know things like this have happened to banks[1]. That would probably get them to start paying attention.
[1]: https://abcnews.go.com/Business/bank-america-florida-foreclo...
I know things like this have happened to banks[1]. That would probably get them to start paying attention.
[1]: https://abcnews.go.com/Business/bank-america-florida-foreclo...
Great to see this! Not to the same scale as seizure but using buymeacoffee.com for OSS donations PayPal would lock my account every month or two until I uploaded a bunch of documents (which were always the same docs each time). Each time it was a little uncertain if I'd be able to get my money out or not. Meanwhile PayPal would happily continue to receive money in my name that I didn't have access to.
That took way way too long... How is it possible that this happens only now and not shortly after PayPal launched?
I refuse to use paypal for any nontrivial amounts of money for this exact reason. I once had $10k frozen for no reason at all. I really needed that money back then. Was an absolute nightmare and took weeks to unfreeze.
The only thing I now trust for "quick" payments of larger amounts of money is bank wire.
Cryptocurrencies don't exactly solve this problem since you need to convert back to the fiat currency and you then have exchange rate volatility + withdrawal delays (and crypto exchanges also are notorious for freezing withdrawals).
The only thing I now trust for "quick" payments of larger amounts of money is bank wire.
Cryptocurrencies don't exactly solve this problem since you need to convert back to the fiat currency and you then have exchange rate volatility + withdrawal delays (and crypto exchanges also are notorious for freezing withdrawals).
PayPal refuses to let heirs access, or even know if there is a balance on accounts after people die, regardless of death certificates. I wonder how much money is being held by this tactic?
Thing that amazes me is that people leave huge amounts of money in their PayPal instead of withdrawing it regularly. Why not just withdraw it, and then PayPal has nothing to seize!
This is devastating to those users affected by this, but I believe that the blame doesn't lie solely with PayPal. Unfortunately there are many laws they must comply with that delegate enforcement to private companies like PayPal rather than where is belongs - the government.
From the article: PayPal allegedly sent his wife a letter that says she "violated PayPal's User Agreement and Acceptable Use Policy (AUP) by accepting payments for the sale of injectable fillers not approved by the FDA."
If PayPal DOESN'T freeze the account and hold the money, they can get in far larger trouble with the government. Why should PayPal be involved in this enforcement at all? If the FDA doesn't like what this seller is doing, let the FDA themselves go after the seller and leave PayPal out of it. But the law doesn't work that way.
I had $10k's in an account with BofA that was frozen and nearly killed the closing on a house I was buying at the time. Because they had a mailbox address on file for me, rather than my home address. It was horrible for me, but that's what the says that they had to do, and if they didn't the could end up in trouble with the feds facing huge penalties.
Let's try to empathize with all parties and think rationally about the incentives and constraints that they face.
From the article: PayPal allegedly sent his wife a letter that says she "violated PayPal's User Agreement and Acceptable Use Policy (AUP) by accepting payments for the sale of injectable fillers not approved by the FDA."
If PayPal DOESN'T freeze the account and hold the money, they can get in far larger trouble with the government. Why should PayPal be involved in this enforcement at all? If the FDA doesn't like what this seller is doing, let the FDA themselves go after the seller and leave PayPal out of it. But the law doesn't work that way.
I had $10k's in an account with BofA that was frozen and nearly killed the closing on a house I was buying at the time. Because they had a mailbox address on file for me, rather than my home address. It was horrible for me, but that's what the says that they had to do, and if they didn't the could end up in trouble with the feds facing huge penalties.
Let's try to empathize with all parties and think rationally about the incentives and constraints that they face.
In my (quite extensive) experience with the company, one should only ever use PayPal as an extremely temporary means to accept payment for clients who can’t pay any other way, and then immediately withdraw the funds to a real bank account.
The company absolutely cannot be trusted, and will do everything in their power to take your money and not give it back. I do not know a single person who uses PayPal regularly for a business who doesn’t absolutely hate the company, because they do this type of thing so regularly.
Recently, when you log into a business account, there is a giant alert that looks like an important warning, that actually says you’re “eligible for a business loan”. You have to dismiss it every single time with the little non-default no thankyou button. And then beg them to give you access to your own money, because apparently you can’t be trusted.
I for one would love to see a lawsuit like this land.
The company absolutely cannot be trusted, and will do everything in their power to take your money and not give it back. I do not know a single person who uses PayPal regularly for a business who doesn’t absolutely hate the company, because they do this type of thing so regularly.
Recently, when you log into a business account, there is a giant alert that looks like an important warning, that actually says you’re “eligible for a business loan”. You have to dismiss it every single time with the little non-default no thankyou button. And then beg them to give you access to your own money, because apparently you can’t be trusted.
I for one would love to see a lawsuit like this land.
Governments need to ban 'shotgun KYC', which is where they let you put funds in the account before they freeze it and make you do KYC, rather than making you do KYC directly on sign-up. You're effectively forced to give away your info or lose the funds. Sites like Paypal don't want this to happen because registrations would drop off majorly if you had to KYC on sign up.
They did this to my late wife's account.
They demanded that I prove she was dead, as if I didn't already have enough grief.
See the documentary Pain Warriors about that saga.
How do I sign up to be part of this suite?
How do I sign up to be part of this suite?
PayPal has the fraud problem. Every next payment platform who aims to become the next PayPal also suffer from it.
This has happened to me in the past. They thought something was suspicious about my account and froze it entirely.
Remember: Paypal is not a bank. That's not your money, that's theirs and they're letting you use it.
Don't keep money in paypal. transfer or spend it immediately.
Remember: Paypal is not a bank. That's not your money, that's theirs and they're letting you use it.
Don't keep money in paypal. transfer or spend it immediately.
Why doesn't this fall under the CFPB? The money is held in a bank account which ultimately belongs to the PayPal customer.
When I was in the prepaid card industry we held money for people in our bank account just like PayPal does. The bank held us to account for each of our customers. We accidentally prevented some people accessing thier finds for a few days due to a software glitch and had our asses handed to us. As we should have.
One lady was prevented from accessing her $200 for a few days and her lawyer extracted our maximum arbitration amount of $8000 from us.
When I was in the prepaid card industry we held money for people in our bank account just like PayPal does. The bank held us to account for each of our customers. We accidentally prevented some people accessing thier finds for a few days due to a software glitch and had our asses handed to us. As we should have.
One lady was prevented from accessing her $200 for a few days and her lawyer extracted our maximum arbitration amount of $8000 from us.
Tightening of mobile phone policies some years ago locked me out of few paypal accounts, also they seem to completely disregard and abandon security questions created long time ago.
Surprised it hasn't happened before.
In old news: Judge Approves $4M Deal Over Closed PayPal Accounts
https://www.courthousenews.com/judge-approves-4m-deal-closed...
http://www.courthousenews.com/wp-content/uploads/2017/03/Pay...
Some chunk of the doc:
> Judge Fogel ruled that: (1) the PayPal User Agreement affords PayPal “sole discretion” to place holds on its users’ accounts, irrespective of whether the user has engaged in restricted activities;
> and (2) PayPal has no contractual obligation to provide users with an explanation as to why their accounts may have been frozen.
> [...]
> Finally, he dismissed the unjust enrichment claim on the ground that the parties’ relationship was governed by an express contract.
> etc etc bla bla bla
https://www.courthousenews.com/judge-approves-4m-deal-closed...
http://www.courthousenews.com/wp-content/uploads/2017/03/Pay...
Some chunk of the doc:
> Judge Fogel ruled that: (1) the PayPal User Agreement affords PayPal “sole discretion” to place holds on its users’ accounts, irrespective of whether the user has engaged in restricted activities;
> and (2) PayPal has no contractual obligation to provide users with an explanation as to why their accounts may have been frozen.
> [...]
> Finally, he dismissed the unjust enrichment claim on the ground that the parties’ relationship was governed by an express contract.
> etc etc bla bla bla
The thing that's surprising to me isn't that big corporations will do their damndest to rob people blind, it's that within minutes/hours/days after reading this thread, there will be a horde of people who read this article and smugly decry crypto saying there's no use case or purpose for it.
I was searching for this issue and found this lawsuit and cannot wait to be part of it.
Dealing with Paypal during the time was borderline abusive and I felt helpless every step of the way. In 2010 when they froze my account they mailed me a physical letter with an activation code which took weeks, and when I called to confirm my account I was told that the code was incorrect...
I had very very little money in my account < $100 and I can't imagine how frustrating it would be for someone who needed paypal for their income.
I'm happy to be in a position where I can choose to never use paypal again and I hope they are punished for the way they treat their customers.