Regulation
In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sàrl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, the Commission de Surveillance du Secteur Financier (CSSF) (note that all of the company's European accounts were transferred to PayPal's bank in Luxembourg on July 2, 2007.) Prior to this move, PayPal had been registered in the UK as PayPal (Europe) Ltd, an entity which was licensed as an Electronic Money Issuer with the UK's Financial Services Authority (FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg.
In the US, although PayPal has an extensive User Agreement, PayPal is not directly regulated by the U.S. federal government, because it serves as a payment intermediary. PayPal is regulated as a money transmitter, 31 C.F.R. 1010.100(ff)(5). PayPal is also subject to state regulation, but state laws vary, as do their definitions of banks, narrow banks, money services businesses and money transmitters. The most analogous regulatory source of law for PayPal transactions comes from P2P payments using credit and debit cards. Ordinarily, a credit card transaction, specifically the relationship between the issuing bank and the cardholder, is governed by the Truth in Lending Act (TILA) 15 U.S.C. §§ 1601-1667f as implemented by Regulation Z, 12 C.F.R. 226, (TILA/Z). TILA/Z requires specific procedures for billing errors, dispute resolution and limits cardholder liability for unauthorized charges. Similarly, the legal relationship between a debit cardholder and the issuing bank is regulated by the Electronic Funds Transfer Act (EFTA) 15 U.S.C. §§ 1693-1693r, as implemented by Regulation E, 12 C.F.R. 205, (EFTA/E). EFTA/E is directed at consumer protection and provides strict error resolution procedures. However, because PayPal is a payment intermediary and not otherwise regulated directly, TILA/Z and EFTA/E do not operate exactly as written once the credit/debit card transaction occurs via PayPal. Basically, unless a PayPal transaction is funded with a credit card, the consumer has no recourse in the event of fraud by the seller.
In India, as of January 27, 2010, PayPal has no cross-border money transfer authorization. In The New York Times article "India’s Central Bank Stops Some PayPal Services", Reserve Bank of India spokesman Alpana Killawalla stated: "Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act, PayPal does not have our authorization." PayPal is not listed in the "Certificates of Authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India".
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