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Free Lance Fund Raisers Hamper Relief Efforts

September 16, 2005
Although donating to charity probably isn't the first thing that comes to mind when you visit a sophomoric site like www.somethingawful.com, the site's owner, Rich Kyanka, nonetheless exhorted his readers to send donations through the site to the American Red Cross to aid victims of Hurricane Katrina.

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Kyanka set up a PayPal account to process donations through the site, and as of September 3, he said he had amassed $27,695.41 in donations. He said he also chipped in $3,000 of his own money for the relief effort.

However, PayPal locked the account and prevented the money from being released, citing fraud concerns.

Amanda Pires, spokesperson for PayPal, cited the incident as "not dissimilar to credit card transactions," and that "our job is to maintain the security of everyone's account. We have a whole team of people working to make sure all our transactions are authorized."

After negotiating with PayPal, Kyanka was able to get the money released and returned to the donors. Pires stated that "both parties agreed that it would be best to refund the money to the donors ... we encouraged them to give directly to the charity of their choice."

The advice from PayPal is exactly what major charities and consumer protection officials advise -- make donations directly to the charity of your choice -- like www.redcross.org -- not through a third-party.

Besides the risk of fraud or incompetence by third party solicitors, there's the issue of cost. PayPal's fees are fairly high, which is fine for commercial transactions, but charities need every penny and most credit card transaction processors grant special low fees to recognized charities.

Finally, it is illegal in most states for individuals or businesses to solicit charitable donations without a license or permit. It's one thing for a business to say that it will contribute, say, $1 from each sale to charity; it's quite another for that business to openly solicit contributions.

Local laws vary but in almost every jurisdiction some kind of governmental permit is required before one can start raking in other people's money for supposedly charitable causes.

Not to mention that the American Red Cross does not condone the use of its symbol or name without permission -- it is a copyrighted trademark and federal law specifically prohibits private fund-raisers using the American Red Cross name.

To be sure their money does the most good, consumers should always make donations by going directly to a charity's Web site -- like www.redcross.org -- -- rather than to a third-party Web sites.

There are exceptions. A few large sites, like Network for Good collect and transmit funds to charities economically and reliably.

PayPal is frequently criticized for its practice of freezing customers out of their accounts when its suspects theft or abuse.

Many of the complaints come from individuals who are regular sellers on eBay, which owns PayPal. Misty of Evergreen, NC, found herself under investigation from PayPal for reasons she didn't understand:

"On July 19th, PayPal placed a 'limited activity' status on my account. Their reasoning was that one of my buyers had reported suspicious activity," Misty said.

PayPal recently settled a class action lawsuit filed in 2002 for failing to disclose terms of usage and for denying billing credits from canceled sales. The investigation also noted complaints from consumers regarding PayPal's practice of freezing accounts.

The other side of the coin is that many eBay customers have legitimate complaints about the merchants they deal with online. PayPal must strike a balance between protecting consumers and safeguarding sellers' rights.

Scam artists, identity thieves and -- yes -- unauthorized collectors for charity prowl merchant sites like eBay, looking for anyone they can lure into handing over money quickly and easily.

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