PhotoDonating to charity can be a wonderful gesture, but when consumers make contributions, they expect their money to be used in a certain way. When it’s not, the backlash can be great.

That’s something that PayPal may be learning after a class action suit was filed against the company in federal court on Tuesday. Lead plaintiffs Friends for Health: Supporting the North Shore Health Center and Terry Kass allege that the company diverted charitable donations away from certain charities and gave it instead to charities that had registered PayPal accounts.

“The money donated by PayPal’s customers through the giving platform will only be delivered to their chosen charities if, and only if, those charities have already set up a business account with PayPal and a separate account with PayPal Giving Fund,” the lawsuit stated. “If they don’t have both of these accounts, or don’t set both of them up, they will never receive the donation, despite being listed on the PayPal Giving website.”

Depriving chosen charities

Paypal began processing and distributing donations back in 2013 after creating the PayPal Giving Fund, allowing users to donate money to their favorite charities by selecting from a list on PayPal’s website.

However, the plaintiffs say that the system is flawed. Their suit alleges that charities that are listed on the site are not always registered with the company, and donations made to unregistered charities are not processed. The donor and charity are not told about the contribution, the suit states, and unprocessed money is then distributed to organizations of PayPal’s choosing.

“Tens of thousands of generous individuals after placing their trust in PayPal, have made donations, that, unbeknownst to them, have never reached their chosen charity. Likewise, thousands of charities have been deprived of much needed funds they never knew were even intended for them,” the suit claims.

Only fractions go to intended charities

Plaintiff Terry Kass said she made charitable donations to 13 different charities totaling $3,250 using the platform. However, only a small fraction of her donations ended up making it to their intended destination.

“As such, instead of delivering a combined $3,250 to thirteen different charities, defendants only delivered a combined $100, or 3% of her donation, to those three charities. The remaining $3,150 – which Kass donated to ten local-level charities – was withheld from the intended organizations,” the complaint reads.

The suit states that these actions go against PayPal’s claims that 100% of donated money would go to selected charities. The plaintiffs are seeking actual, treble, and statutory damages for alleged violations of the Lanham Act and the District of Columbia Consumer Protection Procedures Act, according to Courthouse News. They are also demanding that PayPal provide a complete accounting of all funds that were donated to charities.

In response, PayPal said in a statement that the company has fostered “positive change and significant social impact by connecting donors and charities,” and that it is fully prepared to defend itself.

The suit is being handled by Benjamin Richman of Edelson PC in Chicago.


Editor's note:  This story is about a class-action lawsuit. If you are among the class of consumers described in the suit, you may eventually be eligible to participate in whatever compensation the court awards, if any. Unlike what many people think, you do not "join" a class action -- you are either in the class covered by the action or you are not. 

Often, consumers included in an award do not need to take any action, as the defendant is required to contact them directly. In other cases, the court and the attorneys who brought the case will issue instructions when the case is settled.

Please note that under our Privacy Policy, we cannot provide you with the names of other consumers who may be similarly affected. 

Please see our Class Action Guide for more information. 

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