July 24, 2000
PayPal promotes itself as the most trusted payment service for Web auctions. And so it is, with 2.6 million registered users. PayPal simplifies the process of buying and selling online -- making it quick and easy to transfer payments from one party to another without sending checks through the mail and paying fees to credit card companies.
But consumers are finding out the hard way that, while it may be quick and easy, PayPal lacks many of the protections of banks and credit card companies.
In just the last few weeks, dozens of consumers were cheated out of $100 or more each by a scam artist selling on-existent hard drives on Yahoo! auctions. When the hard drives didn't arrive, the "successful" bidders learned there was no way they could stop payment or get their money back.
When consumers turned to PayPal for help, they got a terse statement from the company that say: "PayPal is not an escrow service, and cannot proect buyers from sellers with illegal or unsavory business practices."
In other words, tough.
When buyers pay by check, they can stop payment if a deal goes bad. And credit card users can contest a charge through the card issuer. But PayPal takes a hands-off approach, saying its job is to transfer funds. Period.
To use PayPal, consumers open an account and fund it with a check or credit card, or even with an online payment from someone else. They can then use the account to instantly pay others online.
The company does make clear in its terms of service that it is not a bank or escrow service and that it has no obligation to "ensure the quality, safety or legality of the merchandise received." Thus, it's not an escrow service -- where funds are held until the buyer receives the validates the merchandise.
Should PayPal offer more consumer protections?
Congress, the Federal Trade Commission and several state attorneys general are looking into the issue and it's likely that litigation or legislation -- or both -- will result. An FTC spokesman last week said that at the very least PayPal may have to do a better job of spelling out what it does and does not do to protect its customers.
Jill of Miami writes:
I have had nothing but trouble from Paypal.com and unfortunately for me being both a purchaser and seller on Ebay, it is very convenient for all to use. The first problem I had with Paypal was right before Christmas 2000. I made several transactions for purchases and a few days later, I received a statement from my bank showing overdrafts and overdraft fees of $450.00. This was because when making a transaction, Paypal took the money directly out of my bank account, but also put a hold for the same amount of money on my credit card (for their protection) which was my debit card. Because I used my debit card, there was a double hold for each transaction on my checking account. When I went back through Paypal to see if they had indicated that this would happen, I had to go through 4 windows in order to see that they did state that a double hold would incur. If they had written out their policies on paper, the debit card info would have been so small, I would have needed a magnifying glass to read it.
When I informed Paypal of this and to see if they could reimburse any of my overdraft fees (since I technically wasn't overdraft), they were not sympathetic at all and I had to call them everyday for two weeks before I finally got a live person in accounting who would tell me this. The second problem I had with Paypal was on 12/28/00. I had a 'gift card' which is a Visa Card with a set amount in my account. I tried to make a purchase using my gift card and when I entered it into the computer, it would not allow that credit card and cancelled the transaction. No problem except that the $50 I had in my account is now on hold with Paypal for 5 days and they won't release it, even though the transaction was null and void and was never completed.
I am very frustrated with them because although they do state on their website all of the info you need, it is hidden behind so many windows that unless you specifically know what you are looking for, it could take you forever to find it. By that I mean the debit card (or instant purchase) info vs. what they call an e-check. Also, when you go to make a payment to anyone, Paypal automatically defaults to the instant purchase (which causes the double holds when you use your debit card) and you have to go manually change which type of payment you want to make. It can be tricky if you don't know what you are doing and I think that consumers should be aware of the problems.
I don't think I have to tell anyone of the emotional stress I was caused by the $450.00 overdraft fees for holds which were not taken off my account even though the transaction amounts were taken out of my checking account immediately and paid. (I had plenty of money in my account, but not enough to cover double what I charged).
