Six Reasons to Be Cautious when Using PayPal

In my previous article, I talked about PayPal’s recent conflict with Regretsy.com and how the smug actions of one representative attracted a great deal of negative publicity for the online transaction service. Bad press aside, this is a prime example of how it may be unwise to allow one company — in this case, PayPal — the power to freeze your cash flow seemingly on a whim at the behest of some fine-printed “company policy” or another.

Of course, PayPal resolved the conflict and returned the frozen funds to Regretsy after the story spread like wildfire across the Internet, but this does not mean that PayPal (or some power-abusing PayPal representative in the middle of a bad day) would not pull a stunt like this again.

After my article was published, my law student friend (whom I quoted in the article) took a look at PayPal’s User Agreement and got my attention with six things people should be wary of when using PayPal:

  • According to Article 10.3 in the User Agreement, PayPal has sole discretion to decide if you have violated anything. That basically means, if [the company] claim[s] you have broken a rule, disputing it really won’t help you if [it doesn't] feel like giving you the chance.
  • PayPal can block your account for 180 days (at [its] sole discretion). In an instant, you could find yourself without access to your PayPal account, which could also mean you are left without a means to afford necessities.
  • PayPal can close your account at any time. The consequences of this are, of course, a bit more intense than #2. If PayPal is your means of living and the gateway through which you receive your regular income, you could find yourself in a dangerous position in a short amount of time.
  • At PayPal’s discretion, [it] can charge you $2,500 for violating any of [its] rules, or any part of [its] agreements with you. That is like getting fined a ticket for breaking some weird law from the 1800s you never knew about.
  • If PayPal believes you are a risk, [it] can lock your account. [The] worst part is, risk isn’t defined in [its] agreement, so you have to be wary of every step you take.
  • If you have a dispute with PayPal and improperly file it, [PayPal] can claim $1,000. Scary to think that while trying to reclaim lost money, you could possibly lose even more.

6 Reasons to Be Cautious when Using PayPalI have said it before: I avoid PayPal as much as I can. I use debit cards to pay for things online straight from my checking account. In the real world, I use cash (of course). The only time I use PayPal is when a person who wants to send me money has no other option but to send it via PayPal.

The most important thing to remember is that your money is never safe with PayPal. Whenever you get paid, transfer it to a bank or withdraw it as soon as possible. While most people believe PayPal is a federally regulated bank just like Chase or ING, it really isn’t. The fate of your money is entirely up to PayPal.

What should you use when you need to receive money from someone? There’s always Google Checkout (and the complimentary Google Wallet) or Skrill (formerly Moneybookers). Newcomer Venmo also looks promising with its zero-fee approach. And of course, let’s not forget you can still send checks via snail mail; it still works, guys and gals.

How do you spend and receive money online? Do you use PayPal? Did you use PayPal?

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  • http://drupal.txwikinger.me.uk/ Ralph Janke

    Terms and Conditions are not necessarily always enforceable in a court of law. Certainly, in depends a little on the jurisdiction, however, it is a common principle  in common law that the negotiation power of the parties and what is reasonable or customary plays a big role in this.

    However, sure, paypal’s virtual monopolistic situation is a big problem and should certainly be put under regulatory scrutiny.

    • Steven

      thanks for the info.  For purchases I use Paypal for small change stuff, keeping a balance of $100-$200 or so .. so risk to me is small.  They do keep a decent record, and I do not end up using multiple cc cards.

      One alternative is if you have a true no-fee bank acct, without “overdraft protection”. That is your net purchase card, and you xfer money to it as necessary. Similar is a credit card with a small balance, keeping concerns less.

      It would be nice if there was some solid competition in the Paypal arena, e.g. in the credit card industry, an oligarchy of sorts, at least Visa, Mastercard, Amex and Discover are actually competitors at times. A good USA merchant purchase system should take those, Paypal and the new hoped-for best competition, and your own debit card.  If there was true competition for this specialized niche, abuses would go down.

      Steven

  • http://twitter.com/Freedomwalker77 Kim Lavigne

    Thanks this is great info!

  • Jordan Jo

    I got my Paypal account locked, but when I was dealing with all the reps I felt stuck and had no where to turn. Your only option is to file a BBB complaint or get a a lawyer and $50 bucks couldn’t justify a lawyer. 

  • http://twitter.com/thisisspain Steve Hall

    Scary stuff. Thanks for highlighting

  • http://twitter.com/azmushko Alex Zmushka

    Very useful info. Thank you!

  • Sylvia Webb

    This really needs to go viral. There are so many people who think PayPal is great. They are worse than any bank. The article here is just one example. There are thousands daily that we never hear about. 

  • Chrischan

    What a company. Would rather not use it, but there’s no choice fo rme.

  • http://www.digitalfilipino.com Janette Toral

    Hope more payment options will be as globally available such as Paypal.

  • Richard Townsend

    Pretty nasty implications, thanks for the heads up. Ric

  • http://www.mikebowler.net mbowlersr

    Thanks Chris, Interesting read. Appreciate the information.  

  • http://twitter.com/sweatyghost Sweaty Ghost™ √

    So true! Had money frozen for no reason, I was saving my eBay money in my Paypal account, like a savings account.One day I sold something for $50 and Paypal decided to freeze my whole account, I had over $600 dollars in the account, Far be it not a million bucks but it was mine. It took dozens of calls, at least 5 faxes of my ID and 6 weeks to get my money. Now I get money, I transfer money!

  • http://twitter.com/MediumTedora Tedora

    As I was living in Paraguay, I wanted use Moneybookers because they had
    Paraguay in their country list.

    Paypal doesn’t work with Paraguay, so I didn’t even tried it. I had many mails to wrrite. answer, send a lot documents they wanted, some of them many times beacuse the foto copie was not good enough,  incl. my Telefon Bill with my name, Rent contract, Passport details, Phone Calls to UK etc.  etc.. and endless mail changes with but after a few clients payed, Moneybookers just closed my account, so that clients got to read:

    “This account ist closed”

    I did not get a mail about, I just heard it from my clients.   I also didn’t get any answer for my questions why they first ask of my personal documents, accept and want me also translate my terms and conditions to english even I am working with german clients but close my account.

    So they still have my money and I wasted a lot of time to support them what else they needed for a business account.

    I think that kind companies are very similar, so I do not use them as priority.

    Thanks for this article, very useful!

    Tedora

  • tekman

    I’ve used paypal for years and have NEVER had anything questioned…I have a debit card from them, and I use them for newegg purchases, ebay purchases, most anything purchased electronically online and I have always been FURTHER PROTECTED through their security and so far…Nobody has Hacked them whatsoever….in comparison…let’s take a look at how MasterCard and Visa prevented a legitimate business with well established accounts from accepting ANY payments legal or not..The website and it’s owners were treated like scum and criminals for exposing ILLEGAL transactions at the Highest levels of MANY GOVERNMENTS all around the GLOBE>>>yes Julian Assange and the WikiLeaks fiasco…I guess it depends on who is writing the rules NOW DOESN’T it!!!

    The good ol rumor mill is aworking overtime as usual…one instance of bad does not make evil out of anything…mistakes occur, people have bad days…we allow for all sorts of things…so to rail against one instance where there’s no pattern of abuse or misconduct is irresponsible and slanderous…the internet unfortunately allows all voices to be heard without any respect to those being maligned and with no research as to validation into accusations FIRST…

    Small minded people exist in all walks of life…I am tired of having to hear and read what they ALL have to say ALL the time…so I’m now dumping my account with the gnomester CHRIS PIRILLO whom I have used since the late 1990′s…

    YOU SHOULD NO BETTER CHRIS!!!  Look before leaping…it usually winds up hurting a lot less!

  • Rob Lee

    I use PayPal. And I absolutely agree it isn’t wise to keep all your eggs in one basket.

  • https://noctslackv1.wordpress.com/ V. T. Eric Layton

    I’ve never had any issues at all with PayPal. I use it for personal and business.

    I notice you recommend Google products. Have you read any of their TOS lately? Do you really think their altruistic nature will protect you from them? Do you have a Google AdSense account? Don’t f*ck up. You will NEVER EVER be granted any kind of hearing or second chance.

    Google is a business just like any other. The prime directive is to fleece YOU to enrich themselves.

    Luck!

  • Anonymous

    I may consider leaving PayPal now and getting a bank account

  • charlie

    Used Pay Pal for many years never a problem any issues that came up were settled quickly

  • http://twitter.com/ScottAllen Scott Allen

    I’ve had issues with PayPal, but always got them resolved quickly and courteously, and most of the time, if anything, it was them being overly protective of me.

    Thing is… what other alternative do you have if you have poor credit? Merchant accounts require a fairly decent personal credit score. Not to mention they’re considerably more expensive than PayPal if you do a small number of transactions.

  • http://www.jbspartners.com Jim Spencer

    Interesting to read about the PayPal TOS. I generally “withdraw” my funds from PayPal right away. It makes the book keeping simpler for me. I appreciate the advice to withdraw, but I wonder if PayPal could not only freeze my money in PayPal or charge a penalty and take money from my PayPal account, but could they also dip into my bank account to do the same? Does this make the withdrawal less of a safety step?

  • http://twitter.com/BewitchedSalem bewitched in salem

     I have used Paypal for years, full well knowing the risks.  I thankfully have not had a problem yet. 
    There is always a first though, so I do not keep to high of a balance.

  • http://empireavenue.com/me1ody Melody

    There is no perfect solution.  We all just have to educate ourselves about the companies with whom we do business and try to make the best decisions that we can.  Sometimes that may mean using Paypal, sometimes not.  I would not choose to leave any large sums of money there for very long if I were being paid that way, but if I were running a small business over the net I’m not sure I would completely swear off of Paypal either.  I’d just have to manage my account carefully and try to make sure that I caught any problems before they got out of hand.  I’ve known people who did not do that and it ended up costing them a LOT of money and damaging their online reputations as well.  Paypal is in it for Paypal and it’s foolish to think otherwise.  

  • http://empireavenue.com/me1ody Melody

    There is no perfect solution.  We all just have to educate ourselves about the companies with whom we do business and try to make the best decisions that we can.  Sometimes that may mean using Paypal, sometimes not.  I would not choose to leave any large sums of money there for very long if I were being paid that way, but if I were running a small business over the net I’m not sure I would completely swear off of Paypal either.  I’d just have to manage my account carefully and try to make sure that I caught any problems before they got out of hand.  I’ve known people who did not do that and it ended up costing them a LOT of money and damaging their online reputations as well.  Paypal is in it for Paypal and it’s foolish to think otherwise.  

  • http://twitter.com/xyzaspeaks Xy-Za Yape

    so true so true. I Lost $1000+ in paypal. I have made disputes but then, what did I get? a Closed account. 

  • http://twitter.com/xyzaspeaks Xy-Za Yape

    so true so true. I Lost $1000+ in paypal. I have made disputes but then, what did I get? a Closed account. 

  • http://www.facebook.com/people/Gaye-Crispin/100001209325985 Gaye Crispin

    That’s scary …

  • Mrbill66

    Paypal suspended my account saying I had too many credit cards on my account.  I use a Citibank feature called ‘Virtual Account Numbers’ which allows me to use a different card number for every transaction (where I control the maximum charge amount.. a feature that insulates me from fraud and merchant mistakes).
    So after 5 years of using these car numbers, suddenly Paypal decided I might be a fraud of some sort so they froze my account for 4 months.  I begged, pleaded, offered up my first born.. you name it.  After a few months, they responded and made me grovel, allocute, and promise to never do it again.  It was sad but this is standard operating procedure with Paypal.  They’re like the Chinese Communist Party.  You may conduct business but do something that displeases a an agent or investigator.. BANG.. a bullet in the head and the bill to your family.  Ok, maybe not that bad but I really had to make myself believe I was a PDC (Paypal designated criminal) so that I might have hope of one day conducting Paypal-facilitated business.

    They may not be a monopoly in name but in practice they rule us however they see fit, I suppose.

  • http://callHART.com/crazy call HART crazy

    Fortunately, I trust Paypal 100% and prefer to live in denial. It helps when all my funds going in each month go out for expenses. If I were to start having a serious positive cash flow, I would be transferring to my bank account, and definitely not keeping it there (except a nice cushion).

    I know someone (i.r.l.) who does major ebay sales and relies on the paypal debit card for everything … gas debit, grocery food debit, etc. I suppose that’s also one way to get it out and not “hoard” paypal earnings.

  • Tag64

    ok no pay pal

  • Anonymous

    I wonder how many other EULA have similar statements, but no one ever bothers to read them anyway…

    I doubt anyone would be using PayPal if such terms were well known in advance. Who would agree to be fined for $2500 at the whim of someone else? On top of that, they have access to an account of yours and can just take the money when they want!

    I’m removing my account today. I can’t afford for PayPal to decide to charge me money for no reason.

  • Joe

    I just started reading about WePay, as an alternative to PayPal. The fees seem better than PayPal.

  • Gordo

    Of course for every bad story there are a thousand people that have had no problem.  I like PayPal because I don’t want to go spreading a Visa or Mastercard number around the internet.  In the past, one of the merchants I dealt with leaked, or somehow lost control of my CC number.  I found out about it when my card was refused because the bank saw unusual purchases.  It took several weeks of back and forth conversation between the bank and I before everything was cleared up and all of my funds returned – not to mention the need for a new card, new PIN, etc.  I don’t want to have to go through that again.

    If you looked at any bank or other monetary institution I’m sure you would find at least one person with a horror story about how badly they were treated, or how much money they lost.  I agree that some of the items above make me a bit nervous and need to be looked into, but (call me a idealist) unless I hear of a LOT more problems, I’ll stick with PayPal.

  • http://twitter.com/tec4_cleveland Janet Aldrich

    I don’t have any preference for PayPal, but I like Ebay and most vendors require it. However, I don’t keep any money there.

  • Anonymous

    I have a question that hopefully someone here will be able to answer. I represent a small community nonprofit organization. I’m looking for a safe way to be able to accept donations online. Any ideas?

  • http://twitter.com/dumbledore27 Dumbledore27

    I do not, and have not, used PayPal.

  • http://www.3travelholics.com Travelholic

    This is just BAD publicity for Paypal. I say that because reading the Paypal TOS, I couldn’t see any reason why my money isn’t safe with them at all. In fact, my Paypal $ is in a very safe and secure place. Aside from that, I have been a Paypal user for 5 years now. I have two Paypal accounts, but never encountered any problem with them. It is the most secure way for me of doing my online transactions– paying and receiving payments from my advertisers. 

    So Paypal users– don’t fret. As long as you’ve not violated any Paypal TOS, you are GOOD.

  • Anonymous

    Hlaf of those terms and conditions are illegal in Europe. Maybe banking law is different in the US but you could ask the Europena Competition Comissioner. Especially if Paypal is preventing Americans from trading or having economic relationships with Europeans.

  • William Whetstone

    Years ago I had a fraudulent charge on my Paypal account that was some overseas gold merchant that cost me $1000.  I challenged the charge and Paypal corrected my account but I have had nothing but lockouts ever since.  They keep demanding that I change my password and I have but my account stays inaccessible.  It is too much hassle and I do not use Paypal for that reason.

  • Colinbrunton1

    Paypal reminds me of Sauron in Lord of the Rings, its greedy eye flickers about till something interests it…  then it focusses on it and destroys it.

    Anyhow just for guidance multiple accounts ar a definite no no. Even if you do this innocently or without realizing,  it is a Permanently Limitable offence!

    I was managing a business partners paypal transactions and because ” They” could see my IP address accessing his account they linked my own account to his! Cost me a lot of wasted time trying to convince ” Them” of the honest reason for this multiple access.

    So even if I could I would never use them for business.  Paypal can roll over and go belly up and there won’t be any tears from me.   Do miss it for a buying on Ebay though Amazon makes up

    • followup

      They are devious too – the business partners I was handling web design for’s other business had gone bust and one of his creditors was Paypal so when they limited my account they would not deal with my limitation till I paid his debt – as I was ” linked” to him.

      So I paid it as it wasnt a large amount – and that confirmed in their eyes I was a risk!

      Also  Forgot to mention that they freeze all your cards on their “system”. So if you try to pay for anything on a website that is using Paypal is a merchant account it blocks it.

       Did I  forget to say I hate Paypal for making me feel like a criminal! I have a traditional merchant account which I use on my retail website and have held a bank account for 40 years.And have no criminal record.

       I agree with another comment on this post saying they are  like The Chinese Communist Party -  no offence meant to our chinese brothers for comparing them to the soulless group of dictators that are – Paypal. 

  • Colinbrunton1

    Paypal reminds me of Sauron in Lord of the Rings, its greedy eye flickers about till something interests it…  then it focusses on it and destroys it.

    Anyhow just for guidance multiple accounts ar a definite no no. Even if you do this innocently or without realizing,  it is a Permanently Limitable offence!

    I was managing a business partners paypal transactions and because ” They” could see my IP address accessing his account they linked my own account to his! Cost me a lot of wasted time trying to convince ” Them” of the honest reason for this multiple access.

    So even if I could I would never use them for business.  Paypal can roll over and go belly up and there won’t be any tears from me.   Do miss it for a buying on Ebay though Amazon makes up

  • Colinbrunton1

    Paypal reminds me of Sauron in Lord of the Rings, its greedy eye flickers about till something interests it…  then it focusses on it and destroys it.

    Anyhow just for guidance multiple accounts ar a definite no no. Even if you do this innocently or without realizing,  it is a Permanently Limitable offence!

    I was managing a business partners paypal transactions and because ” They” could see my IP address accessing his account they linked my own account to his! Cost me a lot of wasted time trying to convince ” Them” of the honest reason for this multiple access.

    So even if I could I would never use them for business.  Paypal can roll over and go belly up and there won’t be any tears from me.   Do miss it for a buying on Ebay though Amazon makes up

  • Simplify_me

    Another option is AmazonPayments, but it is a bit limited. There is always the good ol’ wire transfers too.

  • Simplify_me

    Another option is AmazonPayments, but it is a bit limited. There is always the good ol’ wire transfers too.

  • Simplify_me

    Another option is AmazonPayments, but it is a bit limited. There is always the good ol’ wire transfers too.

  • http://blog.musicposad.com Netvalar

    Well I do have personal experience with the shutting down your account at any time. Of course I always withdraw funds from my PayPal account so only lost a few cents less then a dollar.

    However I did have to quickly set-up a new E-Mail address, New PayPal account and new code to replace the old code on my site until my project was finished. I still have the new PayPal account but have reduced its usage to only if there is no other choice.

  • Charles

    Yeah they have way too much control but the truth is no one is has a viable counter product. Google wallet sucks and in truth google has too much power then paypal has already. Someday we will have a company that can emulate paypal plugins and not be so mean to people or power hungry and just want to do their job. Until then Paypal will rule.