Even after PayPal settled a class-action lawsuit over its practice of freezing money exchanged in customer transactions and agreed to improve its responsiveness to consumers, buyers and sellers alike are still finding they are locked out of funds they are due, often without explanation or redress.
ConsumerAffairs.com continues to regularly receive complaints from PayPal users, who allege that PayPal froze funds due to sellers after transactions have been completed.
Many readers have complained about the difficulty they have in reaching PayPal's customer service and help lines to address the problem.
Bill from Lake Havasu, Arizona, said he sold an item on PayPal's parent company eBay to a buyer after he had verified their address, only to have PayPal freeze the funds and return them to the buyer without explanation.
"I went to my PayPal account to find that they reversed their payment to me and gave it back to the purchaser, who already has the item, " Bill said. "That was verified by UPS. They still have not given me a reason for their actions. All I know is that my account is in negative balance, and they should not have taken that money back."
Buyers' Problems
Buyers using PayPal have expressed similar concerns. Minh-Huyen from Brooklyn, New York won a bid for an Apple laptop on eBay and paid the seller, but never received the item.
After investigating the seller and finding they had high negative ratings and many complaints against them, Minh-Huyen asked PayPal to intervene and return the money.
"PayPal investigated and said they were only able to retrieve $175.00 from him," Minh-Huyen said. "I repeatedly wrote to PayPal to ask for an update on this case and have gotten statements such as 'We cannot disclose information about this seller'."
Minh-Huyen was able to get her money back from the bank, but her PayPal account has a negative balance and PayPal is sending collection agencies after her for the missing funds.
"It's perverse, considering they should really be going after the scammer, not the victim," she said.
One longtime PayPal user recently lost $1,025 after selling a van through eBay. The transaction was completed and the buyer picked up the van and drove it away, but the seller's funds were frozen and then lost due to what PayPal called a "fraud investigation."
The angry seller was told he would need a subpoena to get any information.
"The biggest problem for me is that they are brilliant at evading answers to me as a customer," the seller said. "They won't tell me who reported what kind of fraud, whether police are involved, and whether there is any documentation."
The seller asked to not be identified because of PayPal's dominance in the online sales market. "They are a monopoly, and it is true that many eBay buyers won't consider a seller who does not accept PayPal," he said.
PayPal Responds
PayPal spokesperson Sarah Gorman told ConsumerAffairs.com that the company was prohibited from sharing details on individual cases due to its privacy policy, but she was willing to speak in general terms about the company's fraud detection and prevention procedures.
"PayPal catches a lot of fraud before it occurs," Gorman said. "If an account is taken over by a fraudster, we can usually take care of it within minutes."
But if any sign of fraud gets past the company's detection, PayPal freezes the transaction and investigates, no matter the extenuating circumstances.
Gorman noted that sellers on PayPal are responsible for cases of chargebacks on credit cards as per company policy. Under PayPal's user agreement, reports of unauthorized transactions require a written follow-up to any initial contact, without which lost money may not be recredited.
Gorman also said that the company offers numerous means to get in contact with both company representatives and other shoppers, including an opt-in notification system of policy changes that can send messages via e-mail or phone.
"There's a 'Contact Us' link to our online customer service center and phone number at the bottom of every page," Gorman said.
Buyers on PayPal are covered by a Protection Policy for qualifying items bought on eBay, and Gorman noted that PayPal would soon be rolling out a similar Sellers' Protection Plan.
"If there's a red flag in any sales transaction, we'll send an alert to the seller warning them that they should not proceed until we've investigated," Gorman said. PayPal would cover sellers for losses up to $5,000, including any shortfalls of funds lost in cases of fraud.
Cold Comfort
But PayPal's many customer service options and fraud protection policies are cold comfort to the buyers and sellers who have lost thousands of dollars with no explanation or real options to pursue.
PayPal provides services similar to a bank, including using credit cards to pay for services and its recently introduced "PayPal Pay Later" deferred-payment system, funded by credit from GE Money Bank.
But it has aggressively resisted being regulated as a bank, which means customers and shoppers are obligated to play by its terms when using the service.
Jewell from Jessup, Georgia lost $249 to a PayPal "investigation" after selling merchandise and confirming its receipt.
"They decided thirty days later that the transaction 'did not look right to them'," she said. "Mind you that I have had over seven years of selling and buying using paypal even prior to their being bought by ebay and never had a problem.All I can get out of them is that it looks fraudulent.
"They decide whether you get paid or they keep your money in their limbo or money hell until they have made sufficient money off of it."
What You Can Do
For anyone who regularly buys or sells online, PayPal is close to being essential. Millions of consumers use it regularly without problems. But when problems do occur, it can be maddening to get them straightened out.
Here are a few tips to reduce the possibility of running into trouble:
• Is this trip necessary? Consider the risks before buying or selling anything on eBay or other online auction services.
• Read the privacy and user agreement policies of any online payment or auction service thoroughly before committing to selling or buying products through them. While services like PayPal offer convenience and ease of use, they can be risky. Be sure you understand the terms of service thoroughly and don't be afraid to contact the company to get more information.
• Document every aspect of every transaction thoroughly. If you're buying goods online, verify the seller's reputation as thoroughly as possible, through feedback ratings, documented address, etc. If you're selling, make sure that you have multiple points of contact for your buyer, such as a home address, phone number, and e-mail address in case there are any errors or fraud concerns. Keep written and electronic copies of every step in the transaction handy at all times.
• File complaints. If you are unable to resolve a dispute with PayPal or a similar service, you can file complaints with numerous agencies, including the Federal Trade Commission, the Better Business Bureau, your state or local consumer protection division, and your state Attorney General. Of course, you should also file a complaint with ConsumerAffairs.com.
• Consider alternatives to PayPal. While PayPal is still the 800-pound gorilla in the online merchant market, it has been facing competition from the likes of Google Checkout, the search giant's new online payment service. Amazon.com recently launched a new Flexible Payment System. When looking to buy an item online, find out what payment options the seller uses, and do price and shopping comparisons among the three services to find out which one can offer the best deal. If the seller refuses to use anything but PayPal, keep looking -- that item may turn up elsewhere.
