PayPal - Criticism and Litigation

Criticism and Litigation

In 2003, PayPal voluntarily ceased serving as a payment intermediary between gambling websites and their online customers. At the time of this cessation they were the largest payment processor for online gambling transactions. In 2010, PayPal resumed accepting such transactions, but only in those countries where online gambling is legal, and only for sites which are properly licensed to operate in said jurisdictions.

In September 2005, Richard Kyanka, owner of the website Something Awful, set up an account to collect donations for Hurricane Katrina to be given to the Red Cross. Owing to the high rate at which donations were made, the account was automatically frozen, and Kyanka criticized the time and difficulty involved in getting PayPal's customer service to unfreeze the account. In response to the concerns of Something Awful members over the charity used by PayPal, United Way, Kyanka finally opted to have the money refunded to the donors so that they could donate directly to their charities of choice, though PayPal did not refund exchange and handling fees for international donors.

In March 2008, Australian current affairs show Today Tonight aired a segment criticizing PayPal, with regard to safety, freezing accounts and customer service.

Several PayPal gripe sites and blog posts have been created complaining of problems such as the freezing of accounts of eCommerce stores if they experience rapid growth, preventing them from being able to pay suppliers and fulfill orders. One such site, Paypalsucks.com, ranked third on a Forbes Magazine listing of "Top Corporate Hate Web Sites" in 2005 based on "hostility" and "entertainment value" of web forum postings and other criteria.

In June 2008, the Australian Competition and Consumer Commission found that, "The evidence available does not support the view that PayPal is the most secure method of payment, or offers the best service for all transactions."

In February 2010, PayPal stopped or reversed all "personal" transactions in or out of India without prior notice. Funds already transferred and transactions that had previously been "completed" were reversed leaving many vendor accounts over-drafted. Companies, contractors and service providers throughout India were left in debt to PayPal for services they had already provided when PayPal, without warning or consent, returned funds vendors had already received and withdrawn.

In March 2010, PayPal froze donations to Cryptome, seizing over $5300 of in-transit donations. PayPal refused to inform Cryptome of the reason for this action, claiming that to disclose why the donations had been confiscated would violate Cryptome's own privacy. A week later, PayPal offered an apology, which was rejected by Cryptome founder John Young as "insulting and unacceptable".

In September 2010, PayPal froze the account of Markus Persson, developer of independent video game Minecraft. Persson stated publicly that he had not received a clear explanation for why the account was frozen, and that PayPal was threatening to keep the money if they found anything wrong. His account contained around €600,000.

In December 2010, PayPal permanently restricted an account used to raise funds for WikiLeaks citing it was in violation of the PayPal Acceptable Use Policy. At a conference in Paris, a PayPal VP, in response to an attendee's question, stated the account was restricted after PayPal was allegedly pressured by the U.S. State Department. Afterwards, PayPal reiterated the decision was based on violation of PayPal's Acceptable Use Policy. This was followed by cyber attack on the paypal.com website and a boycott of PayPal, in which some users closed their PayPal account in protest.

In November 2011, PayPal moved all shipping to eBay. This move also forced businesses with multiple users to use only their administrative passwords for all employees, which opens the door to potential account fraud by merchant employees. As a result of this shipping change, many PayPal merchants already frustrated with PayPal fraud protection moved their shipping from PayPal/eBay to other online shippers such as Stamps.com

In December 2011, PayPal froze funds in an account held by April Winchell, the owner of Regretsy, used for charitable giving, requiring the account holder to refund the donations collected but keeping the fees charged. Following some public outcry the account was reinstated, PayPal apologized and donated to her cause.

As of December 2011, PayPal is embroiled in a controversy over their policy of holding 30% of vendor transactions for 90 days, which PayPal argues is intended to make funds available to customers in the event that a transaction is found to be fraudulent; to provide PayPal the funds to refund the seller. But PayPal has refused to provide information regarding the reasons particular sellers have been identified to have funds reserved. There is also criticism about the perceived arbitrariness of the 90-day waiting period, when customers have only 45 days to file a claim against a seller, and complaints about the fact that PayPal has not paid interest on the funds held back. Many sellers have surmised that the policy is due to a desire on the part of PayPal to use their funds for investing. There is a class action suit pending regarding the practice.

By 2012, PayPal had garnered a reputation for being "slow and bureaucratic", which has prompted internal reorganization, including layoffs, to "speed innovation".