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PayPal Settles NY Probe, But Faces Others 218

Posted by timothy from the probe-away-captain dept.
Coneasfast writes "PayPal, which is owned by eBay, has admitted misleading shoppers into believing it offered credit-card-style protection and has agreed to pay $150,000 to settle charges. There are many sites out there which are dedicated to the problems of paypal, including PayPalSucks and PaypalWarning." Reader ipandithurts links to this related Reuters story, pointing out that the New York investigation isn't the only PalPal probe: "PayPal's practice of suspending users accounts while investigating suspicious transactions continues to be review by the FTC. While the rate of fraudulent PayPal transactions is less than one-half of one percent, the volume of more than $12.2 billion last year keeps Paypal caught in the middle of many disputes."
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PayPal Settles NY Probe, But Faces Others More

PayPal Settles NY Probe, But Faces Others

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  • I'm done (Score:5, Interesting)

    by mod_critical ( 699118 ) * on Monday March 08, 2004 @08:55PM (#8504646)

    People I know have told be about nightmares with PayPal, but until this post I didn't realize it was so prevalent. I just closed my account, I really dislike the idea that PayPal can simply choose at will to freeze assets in any associated account.

    • Re:I'm done (Score:5, Interesting)

      by Vancorps ( 746090 ) on Monday March 08, 2004 @08:58PM (#8504677)
      Its worth noting that they don't freeze just any account.

      I think at some point we all just need to re-evaluate what we consider a bank in the modern age. I continually fail to see how Paypal is not a bank and thus regulated by all of the same government policy.

      I've heard the arguments and they just don't make sense. On the Internet some things do need new definitions since they don't reflect world realities.

      • Re:I'm done (Score:5, Interesting)

        by LostCluster ( 625375 ) * on Monday March 08, 2004 @09:04PM (#8504722)
        Its worth noting that they don't freeze just any account.

        Of course, any fraudster is going to claim "I didn't do it!" and demand that PayPal send him his money immediately when he's found out and his account is frozen.

        • Re:I'm done (Score:3, Insightful)

          by Vancorps ( 746090 )
          In many ways it makes sense to freeze accounts while an investigation is taking place. It ensures that there won't be any undue complications.

          In the case of a dispute then they need a way to prove one side acted in the wrong. The means the burden lies on the person making the complaint. If such evidence is brought forth then they should procede with a fraud investigation. But of course, Paypal isn't a bank so the rules are very different.

          That said Paypal should in no way have the ability to freeze your a

          • I disagree... Freeze the funds in dispute, sure, but don't freeze the entire account unless it is absolutely mandatory to proceed with the investigation

          • Re:I'm done (Score:2, Insightful)

            by andy landy ( 306369 )
            A friend of mine summed it up rather nicely, "If you buy things with PayPal, you're spending money, but if you receive anything into your PayPal account, it's nothing more than magic beans".

            Yeah, sure their practices are dubious at best, but you *did* agree to the license agreement (Let's not go there).

            Transfer your money out regularly, don't keep too much in the account at any time, and vet your buyers just as they'd vet you (That's what eBay feedback is for!)

        • Re:I'm done (Score:4, Informative)

          by alonsoac ( 180192 ) * on Tuesday March 09, 2004 @12:20AM (#8506505) Homepage Journal
          My account is frozen because Paypal lacks the capability to accept credit cards from my country (I can buy at amazon or thinkgeek, just not paypal). I only learned about that problem after they had taken my initial deposit (they have no problem accepting bank wires from my country). So the money came in and it can't go out. For about a year now. Luckily it was a small amount.
      • Its worth noting that they don't freeze just any account.

        Yeah, they only freeze accounts where there's some indication of wrong doing, or if it's for a website that criticizes PayPal, or if it's a site that sells adult items, or even just has adult material for free but accepts donations.

      • Re:I'm done (Score:5, Informative)

        by CreatureComfort ( 741652 ) on Tuesday March 09, 2004 @11:41AM (#8510039)

        The reason that so many seem to be confused about PayPal not being a bank is because so few people actually understand what a bank really is, or why they are regulated. Most people seem to believe that you give the bank your money, the bank puts it in a vault someplace, and when you want it back, they take it back out of the vault and give it to you. This is essentially what PayPal does, but it is not at all what a bank does. The reason that Paypal is not a bank, and not covered under current banking laws is two-fold.

        Current banking laws, the world over, are generally the result of banking and savings and loan crashes and failures. These resulted in many people losing all or part of the money they had invested in the bank. The way that a bank works is that you deposit your money into an account. The bank then loans your money to someone else. When that person repays thier loan, the bank takes a portion of the interest that person paid (her cost for getting the loan) and gives a portion to you as an interest payment on your account. [Non-interest bearing or monthly fee accounts being a way for you to let them use your money for free is an entirely different rant.] Now while they are loaning out your money, you may want to actually use it to buy something. So banks use a pot of un-loaned money to give you back what you deposited when you request it. It should be obvious that there are [primarily] two glaring problems with this set-up. First, if the bank makes a loan to someone who doesn't pay it back, and the person who's money they loaned out wants to withdraw it, the bank has to get that money from the pot of un-loaned money and pay it back later from the banks portion of the interest payments from other loans. If many, many people fail to pay back thier loans this creates a major squeeze on that pot of un-loaned money, and it could run out. The second problem occurs if the first has happened, or is even rumored to possibly be happening. Since the pot of un-loaned money must be significantly smaller than the total deposits for the bank to actually make a profit, and it is in the banks best interest to keep that amount as small as possible (in other words, as much money loaned out and earning interest as possible), situations have happened where people wanted thier money, and the bank didn't actually have that much on hand. This led to runs on banks, and bank failures, and lots of people losing money.

        Thus we have banking laws. Almost all banking regulations deal with how large the pot of un-loaned money has to be that a bank is required to keep, with how a bank decides who to loan money to, and how much risk they are allowed to take, or with reporting procedures to make sure that the banks are complying with the above criteria.

        Since PayPal never loans money, and all money that is listed in your account is actually on hand for them to pay you at any point, they fall outside almost all of the regulations that banks must follow.

        The other thing that people seem to beleive, which boggles my mind, is that banks have regulations against freezing your account if they think there is suspicious activity on the account. In fact, there are no laws or regulations that say they have to give your money back in a specific time period. If they think that there is suspicious or criminal activity they can, and in some cases are required by law to freeze your account and sometimes even confiscate your money. [Al-qaeda, terrorist fund-raising organizations, drug cartels, human trafficing, other fraud, etc.] If they decide to do this, you have no recourse other than to sue them. Exactly the same as PayPal. (This is particularly U.S. centric, since banking laws vary considerably around the world.)

        In fact, if PayPal were to be placed under banking laws, the only impact that would have on them is a tremendously higher burden of federal paperwork. As long as they do not make loans, almost none of the other regulations would af
    • I do a lot of transactions on PayPal, and I can't think of any serious issues that I've had. Sure, a few chargebacks, but compared to regular credit cards the $10 fee is cheap.

    • Re:I'm done (Score:2, Interesting)

      by Bob C. Cock ( 605290 )
      I wouldn't close my paypal account just based on this. You have other payment options when buying stuff off ebay, you don't have to use paypal. If the seller only accepts paypal try to work out other payment terms or bid on the same item where the seller does accept other forms of payment. The article claims that less than .5% of all paypal transactions are fraud. That's pretty damn good considering how many transactions go through paypal in a day. If it weren't for paypal, I'd have to mail my rent che

    • Re:I'm done (Score:5, Informative)

      by Kris_J ( 10111 ) * on Monday March 08, 2004 @10:50PM (#8505581) Homepage Journal
      I gave up on PayPal when they started charging an "International transaction fee" when someone outside the US was involved in a purely US$ transaction. There's no basis for that fee.

    • Re:I'm done (Score:4, Interesting)

      by G3CK0 ( 708703 ) on Tuesday March 09, 2004 @01:58AM (#8507155)
      I am currently in a dispute with paypal. I sell classified automotive listing software http://mycars.jaredeckersley.com . I had a purchase made on 3/4/04 and sent the required login information for the download to the e-mail address of the purchasers paypal account. I did not get a response from the buyer. I did not think anything of it until the 3/7/04 when I got a notice from paypal of a reversal of payment request. The buyer sent a request for reversal of payment and at the same time, they logged into the secure download section and grabbed a copy of my software. PayPal has frozen my account until it sorts the matter out, but I am stuck in the middle. I do not qualify for seller insurance from PayPal because I sell a virtual product. On their seller protection page (https://www.paypal.com/sellerprotection), they list qualifications for protection ... but the main one that excludes virtual products is this:
      Ship tangible goods
      Since comparable widely-accepted proof-of-shipment methods are not currently available for intangible goods and services, the Seller Protection Policy does not cover digital goods and other electronically-delivered items.
      So what do I do now? The buyer never responded to my e-mail upon purchase, they did in fact download the software (server logs prove it) ... and I even have an e-mail with their admission that they downloaded the software to see what it was someone was buying on their account. Does it seem reasonable for PayPal to suspend my account? Does it seem reasonable for the buyer to have downloaded a copy of my software and claim that they just wanted to see what it was?

    • Re:I'm done (Score:3, Interesting)

      by Lumpy ( 12016 )
      as a seller I only accept paypal. Money orders and cashiers checks are EASILY counterfitted and I was passed one once.

      if you dont have paypal, you don't get to buy from me. they give me protections as a seller that nobody else can.

      I have never bheen screwed on paypal, but I know their rules (read them before signing up and read them 2 times a year) most people that are pissed at them didn't bother to read the rules or were stupid and tried to use paypal like a bank... they are NOT a bank.

      I attribute the

  • PayPal... (Score:5, Insightful)

    by SisyphusShrugged ( 728028 ) <me@@@igerard...com> on Monday March 08, 2004 @08:56PM (#8504664) Homepage
    I really believe that the amount of effort necessary to provide PayPal with security is worth the effort. PayPal is such a useful utility, especially in conjunction with eBay.

    I can see, however, how they have been misleading, in all my uses of PayPal I assumed that there was credit-card style protection (as I was using a credit-card) and they should make it more evident at the very least that the actual protection is not on par with a normal credit card purchase over the internet.

    • Re:PayPal... (Score:5, Funny)

      by j0e_average ( 611151 ) on Monday March 08, 2004 @09:01PM (#8504698)
      Useful, yes, but I get an email at least once a day advising me that my account may have been compromised. I have to verify/provide all manner of information, such as ATM PINS, CC Numbers, DDA/Routing numbers, etc... You'd think they'd keep better track of their info! ;)

    • Re:PayPal... (Score:5, Informative)

      by TClevenger ( 252206 ) on Monday March 08, 2004 @09:07PM (#8504737)
      Not only that, but there's usually no protection at all. In my case, they determined that the other party took my money and didn't deliver, but when they went to debit their account, it was empty. Still, the seller was later able to keep using PayPal to receive payments with no penalty--no "lien" was placed on the account to pay me back.

      PayPal reserves 60 days to "investigate" the dispute before ruling--just enough time for your credit card issuer's statute of limitations for claims to run out. Avoid PayPal if you can.

      (Avoid eBay seller 'zmish' as well.)

      • Re:PayPal... (Score:2, Informative)

        by Rebel_Princess ( 717142 )
        Not true and definately not informative - you have 30 days (no more) to file a complaint with Pay Pal. They then take 10 days to make a ruling:

        Limitations: You may only file one claim per PayPal payment

        Claims must be filed within 30 days of the PayPal payment

        Does not cover cases where you are disappointed with the item you have received

        You are limited to two PayPal Buyer Protection refunds per calendar year. If this limit is exceeded, there is no guarantee for full recovery. You will be awarde

    • Re:PayPal... (Score:5, Insightful)

      by Dukael_Mikakis ( 686324 ) <[andrewfoerster] [at] [gmail.com]> on Monday March 08, 2004 @09:08PM (#8504744)
      And I'm sure that they didn't do anything to give the feel of "credit-card style" protection. I used Paypal for my ebay transactions and without problem, but I thought that it was shady as hell the whole time.

      Of course Paypal succeeded because of its partnership with ebay, and thus allowed ebay to further exalt its convenience by such a simple utility.

      However, at heart, Paypal just seems to be the well-dressed, charming schiester that you think is completely trustworthy, but you realize the whole time is just a fraud. Expensive suit, nothing to back his promises.

    • Small amount, folks (Score:3, Interesting)

      by The Tyro ( 247333 )
      I'd never use paypal to directly pay for any big-ticket items; that's why God made escrow services.

      Seriously, if it's over a hundred bucks or so (definitely if it's into the thousands), I'd seriously consider using an escrow service and paying the percentage... though dedicated fraudsters have gone so far as to set up fakes. [216.239.37.104]

      I tend to treat paypal as a convenient money order service for small-ticket items... if I lose, no big deal.

  • Clearing up a troubled past... (Score:5, Insightful)

    by LostCluster ( 625375 ) * on Monday March 08, 2004 @08:57PM (#8504671)
    PayPal started as a very fast-and-loose operation in the early days of the Internet. Money transfer seems to be so simple an idea, but it's a highly regulated industry to prevent fraud and so that large transfers of money draw the attention of law enforcement just because that can help in the locating of drug dealers and terrorists... if somebody's moving thousands of dollars for no apparent reason, it at least deserves being looked into.

    When eBay got involved, they started cleaning up some of PayPal's worst policies, but there's still a few more that need tweaking, and eBay has inherited a lot of trouble from the laws PayPal broke in the late 90s. I'm glad they're starting to settle these things...

    • Re:Clearing up a troubled past... (Score:4, Insightful)

      by Vancorps ( 746090 ) on Monday March 08, 2004 @09:02PM (#8504704)
      I suppose the question is, will Ebay cleanup Paypal? They have made it a bit more mass user friendly but there is still a ways to go.

      I think there needs to be some regulating body. There is just too much money floating around blindly.

    • Re:Clearing up a troubled past... (Score:4, Interesting)

      by Dukael_Mikakis ( 686324 ) <[andrewfoerster] [at] [gmail.com]> on Monday March 08, 2004 @09:05PM (#8504725)
      You're right, paypal is a very useful utility for sending money to and receiving money from parties that you might not entirely trust.

      Unless, of course, the untrusted utility is paypal itself, as appears to be the case.
      • Truthfully, PayPal isn't that good at insulating you from people you don't trust. As demonstrated too many times, somebody can input into their PayPal account with a credit card, send the money to you, then initiate a chargeback to the credit card which strips the money out of your account.
        • Actually, if you follow their Seller Protection Policy [paypal.com], they will eat the chargeback.

          NOTE (a little caveat): If it's over $250, don't use USPS. You need online signature tracking, which is a pain, but it _is_ documented in the policy. If you want someone to cover the chargebacks for you, you should at least read the policy.

          For merchants with a Merchant Account, guess what? When there is a chargeback, they take the money out too. Plus, you have to wait 2 weeks to a month to get it in the first place.

    • Re:Clearing up a troubled past... (Score:4, Insightful)

      by BrookHarty ( 9119 ) on Monday March 08, 2004 @09:05PM (#8504731) Journal
      if somebody's moving thousands of dollars for no apparent reason, it at least deserves being looked into.

      Why? If I wanted to sell a Computer system on Ebay, it could easily go for a few thousand. Note everyone is selling cookie jars.

      This is just as bad as the Police taking your money "Because it could be drug money" if you have over 10 thousand dollars. People still deal with cash and money transfers daily.

    • NO, doesnt deserve looking into (Score:5, Insightful)

      by nurb432 ( 527695 ) on Monday March 08, 2004 @09:09PM (#8504759) Homepage Journal
      Just because i spent a lot of money in cash is not a good reason to violate my right to privacy.

      No I'm not blind to the fact its taking place, but that doesn't make it any less wrong.

      Private law abiding citizens should not be investigated on a whim by the 'authorities' .. Period.

    • Re:Clearing up a troubled past... (Score:4, Insightful)

      by Zak3056 ( 69287 ) on Monday March 08, 2004 @09:18PM (#8504810) Journal
      if somebody's moving thousands of dollars for no apparent reason, it at least deserves being looked into.

      I disagree COMPLETELY. If your are not the subject of an investigation, or not sending/receiving money from someone who is, I think what you do with YOUR MONEY is no business of the government's.

      • I disagree COMPLETELY. If your are not the subject of an investigation, or not sending/receiving money from someone who is, I think what you do with YOUR MONEY is no business of the government's.

        Have you done your taxes yet?
        • Have you done your taxes yet?

          Yup. By the way, if someone were being looked at for tax evasion, they would fall under the category of "subject of an investigation," right? Then the nice treasury agent could get a warrant and look at their financials all he wanted to.

          Drug dealer and terrorist are just scary words to get people to support the gutting of that pesky 4th amendment.

  • Oh no3z they friezed my account!!!11one (Score:3, Interesting)

    by Brandon One ( 760352 ) on Monday March 08, 2004 @08:59PM (#8504686)
    How about terrorists using PayPal to transfer money? The feds don't have the right to monitor those kinds of transactions as it is a private bussiness.

  • Paypal is a great concept... (Score:5, Informative)

    by Anonymous Coward on Monday March 08, 2004 @09:00PM (#8504691)
    Unfortunately, if anything goes wrong, you are automatically guilty until proven innocent.

    I have been using paypal for a number of years and only had one issue with them. A guy lost a part for a record player I sold him, then tried to demand his money back claiming I never sent the part with the item ( i did ). He simply reversed charges on his cc and paypal did the same to me, tanking my account to -$1200. I had over 100 transactions with paypal -- this guy?? 0! and I was the one who was guilty.

    • Such is the danger with credit cards... CC transactions can be reversed, cash doesn't allow that.

    • Re:Paypal is a great concept... (Score:2, Funny)

      by Anonymous Coward
      A $1200 record player part? Was this a magic record player?
    • You can stop any charge by contacting the issuing bank. They then reverse the charges to the seller. Your recourse at this point is to sue him for the money. Since it's small dollar it'll be small claims and this not expensive to file. I'm not saying it's a good situation for you, but it is the law with credit cards, it is rather biased in favour of the consumer.

      By the way, you'll be glad it is if you are ever on the other end of the stick. I got my car fixed at a Pep Boys to the tune of $650. Drove it out
    • that was NOT paypal, bhut the credit card company...

      nice to see you put the blame where it belonged.

      I'm thinking that paypal should disallow people to accept credit card payments until they sign a agreement that educates them.

      I.E. if you are NOT a company and understand the credit card proceedure AND how to use paypal seller protection. (you DID send the item only to a verified address?) then you should never take a credit card payment. credit cards are fickle, the asshat holding it can screw with you d

  • Fees (Score:4, Funny)

    by Fat Jedi Kid ( 745321 ) on Monday March 08, 2004 @09:01PM (#8504694)
    I wonder what service they are going to use to pay the fine? I suggest: NoCheques!

  • PayPalDamon (Score:5, Informative)

    by rsmith-mac ( 639075 ) on Monday March 08, 2004 @09:01PM (#8504697)
    Just on a small side-note while we're on the subject of PayPal, PayPalDamon [anandtech.com], the CSR hired to specifically work on online relations, has quit as of last week. For those who don't visit any of the forums where PPD visited, PPD was PayPal's public face for those forums, offering PPD as a first contact for forum-goers who encountered any sort of problem(ripoffs, technical issues, etc), and generally kept the geek user base in touch with what was going on at PayPal. At this point, there are no annouced plans to replace him, and he will be missed.

  • forced upgrade (Score:5, Interesting)

    by Roger Keith Barrett ( 712843 ) on Monday March 08, 2004 @09:02PM (#8504706)
    My big problem with paypal... forced upgrades.

    I have a big problem with the fact that after using paypal to pay some set dollar amount that the account is suspended until I give them a checking account number. I don't want to give them this information... I just want to use the service to pay for something. I don't want to use it for a checking account or anything like that. And you can't use a credit card for more than account... so basically if you don't want to send them information that credit card becomes useless. If I was a regular user with just one e-mail address, there would be no way around this at all, even with other credit cards.

    Their practices leave a hell of a lot be desired... give us your info or we'll make you jump through hoops or just not service you at all. Gee.. I wonder if they sell or use that info in questionable ways.. ya think?

    • Re:forced upgrade (Score:5, Informative)

      by way2trivial ( 601132 ) on Monday March 08, 2004 @09:16PM (#8504797) Homepage Journal
      give them a bank account that refuses to allow paypal withdrawals..

      Case in point- netbank, a real fdic insured bank- open an account with very little money, and list it with paypal.. they will make the required pair of deposits into netbank, and you can report the amounts-- netbank REFUSES to allow paypal to withdraw from their account holders.... voila- problem solved (works for me)
      I only put money into netbank with paypal

      • Thank you! Too bad there is no referral program, as I now have a NetBank [netbank.com] account.

        Thanks for the tip! Paypal is a necessary evil, but this helps a lot.

      • Re:forced upgrade (Score:3, Interesting)

        by jjo ( 62046 )
        Really? I looked at their website, and it appears that they do allow ACH (automated clearinghouse) withdrawals. Do they refuse PayPal withdrawals for all their customers, or do you have to ask for PayPal protection specially?

    • The problem is fraud (Score:5, Informative)

      by Sycraft-fu ( 314770 ) on Monday March 08, 2004 @09:24PM (#8504852)
      Criminals LOVE to rip people off electronically using credit cards since they believe, rightly so, that it isn't likely to get back to them. Happened to my parents, someone got a hold of their CC info somehow and bought $1000 worth of shit at Gamestop. The bank noticed this (Gamestop is a popular place for stolen CCs), noticed it was way outside of their normal spending, and instantly froze the card and called them.

      Now the problem is, if someone commits a fradulant transaction, the seller is basically SOL if they shipped the goods. The person who's card was stolen isn't liable as per CC law, so the chargeback goes to the seller. Not a huge problem if you are a large merchant, you send it over to accounts receavable, legal, and your loss prevention group. If they find the guy, you sue him for what you lost. A much bigger deal for joe average who does not have these resources.

      So, to try and protect sellers and convince them that PayPal is safe to use, they do things like this. Once PayPal has you bank info and has confirmed it, they can say with a much greater degree of confidence that you are who you claim to be. It's still not certian, of course, but much harder than just ripping off someone's CC#.

      Ya, it's a pain for those of us that obey the law, but it's a necessary evil of online transactions. I jump through a lot of hoops for my buyers, I'm verified with PayPal and eBay, and I'm indipendantly verified by Equifax. It was a pain, but it helps put people at ease that I'm not going to rip them off.

      • Re:The problem is fraud (Score:4, Interesting)

        by angle_slam ( 623817 ) on Monday March 08, 2004 @10:44PM (#8505519)
        "The bank noticed this (Gamestop is a popular place for stolen CCs), noticed it was way outside of their normal spending, and instantly froze the card and called them."

        There's a trade-off to be taken into consideration before credit card companies freeze your card. If you are legitimately using your credit card in an "abnormal" manner, you can be stuck with a frozen card. This has happened to me twice. The day after I received a new AMEX card, I went out of state on business travel. Naturally, AMEX thought it was suspicious that a card mailed to AZ on a Monday was being used in CA on a Thursday. It took me a long time to convince them that I was on the level.

        Later, after not using my AMEX card for months, I charged a lot of money in CA. Next thing you know, my card is being declined and I can't even fill up my gas tank anymore.

  • Keep a low balance (Score:3, Funny)

    by poppageek ( 115260 ) on Monday March 08, 2004 @09:02PM (#8504707)
    I use Paypal for the CDs I sell on eBay but I never let the balance get over $100 before I take it out. Well ok, I spend it.
  • both regarding to customer rights and to the company obligations.
    I think the Feds should be spending more time investigating Paypal's practices.

  • Not necessarily good, but necessary? (Score:5, Interesting)

    by sjb2016 ( 514986 ) on Monday March 08, 2004 @09:06PM (#8504735)
    I don't agree that PayPal should be freezing accounts so liberally, but they do need some better control and tracking. Last year about this time I had a transfer in my account from somebody I didn't know. The amount? $2,000. I could have withdrawn the money immediately and let PayPal figure it out. Instead, I e-mailed both the sender and PayPal. Neither e-mailed me back, but the money was gone in 5 or 6 days. I wasn't peeved with the mistake, they happen in real banks too, but I was peeved that I e-mailed PayPal about something that could have gotten ugly had I been cut from a lesser moral fabric, and they didn't even acknowledge they received the e-mail. Not even an auto response. I didn't even want a thank-you, just wanted to know it was being taken care of. But I digress
    • I didn't even want a thank-you, just wanted to know it was being taken care of.

      What do you expect? If two months down the line Paypal decides that they never fixed it on there own and that you must have withdrawn the money yourself so now you owe them the $2K, you have nothing to prove that they ever did anything about it. By not acknowledging you, they are keeping as many options open as possible.

  • Sounds just about right (Score:4, Insightful)

    by dartmouth05 ( 540493 ) * on Monday March 08, 2004 @09:08PM (#8504743)
    Perhaps the most damning evidence against Paypal is that when I change the option from pay via bank account to pay via credit card, every time, I get a Yes/No screen that specifically says that paying by bank acount transfer is as secure and safe as paying via credit card. This is not true, and this language will almost certainly end up coming back to haunt PayPal.
    • But it IS just as secure and safe (actually, more so) -- for PayPal. They have always portrayed getting "Verified" (opening up your checking account to them) as being for enhanced security, without bothering to mention that it is THEIR security that is enhanced, not yours. Similarly, my bank has recently sent out marketing materials to its credit card holders bragging about a new security "service" that they are going to generously make available to us "free of charge!" Of course, it is solely to their b
    • Those pages are there as a deterrent to using your credit card as funding source for the payment. If you pay with your paypal balance or checking balance, they don't have to pay the discount rate charge to MC/VISA -- usually 1.5 to 2 percent of the total charge. Paypal charges the seller/recipient 2.9percent so their take is much less when the transaction comes from a credit card.
      If you as a buyer want purchase protection, Paypal tries to sell it to you at a additional charge (physical goods only). The fact

  • Credit Card companies and PayPal (Score:4, Interesting)

    by powerpuffgirls ( 758362 ) on Monday March 08, 2004 @09:12PM (#8504777)
    Coming from another point of view - if you're a merchant accepting credit card, any complaints by customers will almost always result in immediate charge-back. This is actually very bad from businesses as it can take weeks to prove/disprove things.

    PayPal is under fire because it's so common nowadays that when you buy things online via some sort of money-service, you are entitled to such privilege, ie auto charge back should you complain about it.

    PayPal in this case is wrong for misleading customers, they should have come clean and stated clearly that they don't do charge back.

    Imagine if we didn't have this 'charge-back' facility in the world as we know it, and suddenly Visa charged back a merchant's account without stating it clearly in its T&C, I'm sure Visa will be in deep water too.

  • how is 0.5% insignificant? (Score:5, Insightful)

    by Anonymous Coward on Monday March 08, 2004 @09:12PM (#8504780)
    "While the rate of fraudulent PayPal transactions is less than one-half of one percent, the volume of more than $12.2 billion last year keeps Paypal caught in the middle of many disputes."

    If 1 out of every 200 transactions is fraudulent, I'd say that's a big problem, not a small problem, regardless of the total number of transactions.

    • Depends (Score:5, Insightful)

      by Sycraft-fu ( 314770 ) on Monday March 08, 2004 @09:40PM (#8504938)
      What percentage of total online credit card transactions are fradulant? If it's around .5%, then I'd say PayPal is fine, they are just like anyone else. If it's .001%, then yes, PayPal has a problem.

      Stastics are useful only in a greater context. My favourite example:

      Nearly ALL deaths due to cancer happen only in developed countries. Cancer-caused deaths in the third world are quite rare. So, clearly, there is something evil in the developed world that causes cancer, right?

      Wrong. The reason is, of course, people in the third world die of something else before cancer ever has a chance to kill them, malaria is a huge killed, for example. Well there are almost no malaria cases in the United States, since we can easily cure it. Given our ability to cure more basic killers, you get the more advanced and difficult stuff like cancer that eventually gets someone.

      So this percentage isn't really relivant unless you can cite the larger picture of online fraud. If 10% of online transactions are fradulant and only 0.5% of PayPal ones are, then PayPal is doing a bangup job.
      • According to Visa when the place I work started accepting it, it is around .1% for North America. This is from a customer rep so nothing too scientific here.

        I've read that losses due to fraud are between $1 and $2 billion for a $200 billion dollar industry.

        If the figures are correct, it means that Paypal is 5x more prone to fraud than Visa. This scares me considering I have had two incidents with my card (once stolen and the other an online error thanks to Visa in Germany billing the wrong number.)

  • Paypal alternatives (Score:5, Informative)

    by leviramsey ( 248057 ) * on Monday March 08, 2004 @09:14PM (#8504787) Journal

    Probably the best one I've encountered is Neteller [neteller.com]. Especially if you're planning on using this to sell stuff, Neteller is much better than Paypal (weekly settlements of the amount in your account in excess of the pre-set "float" are done via check sent through FedEx, for instance).

    I'll be deploying Neteller soon for taking online payments.

    • Re:Paypal alternatives - a list of several (Score:2, Informative)

      by Anonymous Coward
      There is a universe of no-chargeback payment systems out there. Many of them also seem to have the property of being based around precious metals. The first online was e-gold [e-gold.com] in 1996. Others have arrived since then of somewhat similar flavour: e-bullion.com [e-bullion.com], pecunix.com [pecunix.com], libertydollar.org [libertydollar.org], goldmoney.com [goldmoney.com].
      A good comparison chart is here [dgcworld.com].
      BTW, I see that magnatune.com [magnatune.com] supports one of these now, but ebay is still PayPal only - no surprise.

  • Paypal founder (Score:2, Interesting)

    by Anonymous Coward
    Luke Nosek was my college roomate. Luckily he sold out before Ebay took over, and is winking over this thread while he drives around San Jose in his cute little Z3 wondering what to do next in life. Ya PayPal sucks, but for a marketing major at UIUC, he did pretty well.
    The idea originally started out as a way for roomates to "beam" money to each other using their PDA's, which at the time was early model Palm Pilots. It evolved into one of the largest online payment schemes available. Anything at this p

  • Paypal and EBAY combined = scamalicious! (Score:4, Informative)

    by Classic Novels ( 745301 ) * on Monday March 08, 2004 @09:22PM (#8504838)
    The dynamic duo of Paypal and EBay is probably the biggest source of continuous online scams around. EBay's policies for rectifying a fraudulent sale are absolutely ridiculous. We once put on a multiple item sale and a user whose account was hacked bid on all of them. We were out something like $150 on multiple transaction fees.

    Did EBay do anything when we reported it? NOPE!

    And Paypal payments are not protected despite any reassuring sounds they make. We used to sell on EBay but have stopped, in part because of the risk of getting scammed big-time and not being able to have anything done, either by Paypal or EBay.

    For those of you considering setting up shop online, DON'T EVEN CONSIDER Paypal. They don't have any security features like the physical 3 digit code on most credit cards nowadays, and their policy of freeze-account-first, ask questions later is a joke
    • BUT... like it or not Ebay is a good way to get items that are hard to buy locally or through retailers, and being so large and well known does mean they have to behave to some extent (remember when they had the server problems a couple of years back???) The problem is that there are so many people on there that REQUIRE paypal. Something needs to be done about this. Should they require at least 2 method of payments for any auction? Then need to do something...

    • Re:Paypal and EBAY combined = scamalicious! (Score:5, Informative)

      by rickbender1940 ( 727218 ) on Monday March 08, 2004 @09:35PM (#8504913)
      Tell me about it! A few days ago I bought about $100 worth of ink cartridges, in several lots of $20 (all from the same seller, the same night). But when they wouldn't ship the items OR issue me a refund, I went to launch a fraud complaint on EBay.

      Guess what? The minimum purchase for filing a fraud complaint is $25! So they didn't do anything at all! It shows that if you want to scam on EBay, just do it in chunks less than $25.

      EBay is a dishonest, crooked business

  • Customer support (Score:3, Insightful)

    by slackor ( 756603 ) on Monday March 08, 2004 @09:33PM (#8504899) Homepage
    Last year I had my account frozen because I did business with someone who did business with someone who used a stolen credit card. They freeze all accounts even remotely related to the one under investigation. Anyway it took about 3 months of faxes and phone calls to get MY money unfrozen. The worst part was trying to find a customer support phone number, they hid it behind a labyrinth of "help" pages. It seems to have improved now, only takes about 4 clicks to get to -- but that kind of information should be on the front page.

  • PayPal Problems (Score:5, Informative)

    by Hachima ( 718971 ) on Monday March 08, 2004 @09:43PM (#8504966)
    I really dislike PayPal's policies. As a seller there is no protection against digital goods. I sold something for $250 to someone. Then several days later I get an e-mail from PayPal stateing it was a stolen account and they take the funds out of my account. As a seller I have no way of knowing the account is stolen or not. The owner of the account and PayPal should be held reliable for stolen accounts. Not me as the seller.

  • Use paypal at your own risk (Score:2, Informative)

    by Anonymous Coward
    My pay-pal account was frozen with NO warning. The reason? My bank can generate a new credit card number for each internet/phone transaction which limits the amount the card is good for. Buying something worth $40.00? Make the card worth $50 (include shipping/tax) and have it expire in one month. No fraud or worries.
    Paypal "limited" my account without warning because I was using too many credit card numbers. They never told me why, I had to call the Bozos twice to get the reason why. They would not

  • My Paypal Experience (Score:5, Insightful)

    by ThousandStars ( 556222 ) on Monday March 08, 2004 @10:05PM (#8505167) Homepage
    Until my second business experience with Paypal, I had no problem with them. I provide editing services, and one client decided to reverse his credit card charge to the tune of $600 after I transferred the money to my bank accounts.

    Paypal then showed my account was "negative," which I ignored until they forwarded my account to their nasty collection agency, NCO financial systems.

    On the advice of my lawyer, I paid the agency and sued Paypal in Small Claims Court. They claim I can't do that and arbitration is mandatory, but offered to split the difference and call it a day (in other words, it's worth filing a case if you've been screwed, since settling is easier than fighting). I might go that route, but one thing I know is that I'll never use Paypal again and I recommend that my friends also don't.

    Yes, I've filed a complaint with my state attorney general and the FTC. I hope if enough people do, Paypal will have to end some of their most egregious, consumer-unfriendly business practices.

    • On the advice of my lawyer, I paid the agency and sued Paypal in Small Claims Court. They claim I can't do that

      IANAL, but personally, my response to "can't do that" would be "I just did"
      • Same here - it would likely be cheaper for PayPal to just accept the judgement by default rather than fly a representative out to your local courthouse to fight it and possibly piss off yet another state AG. I'm not sure I'd have paid the collection agency either because I'm reasonably sure they'd have no way of verifying the debt, especially if I had could prove I had already provided the services in question and was collecting money legitimately owed me.
        • While that's true, I'm not sure you'd be able to sue until/unless you had actual damages.

          I might be wrong though, not only does IANAL apply, but I'm not even American.
        • I agree with this and the grandparent post. Paypal's argument is that their user agreement prohibits me from suing them in small claims court and mandates binding arbitration for any disagreement. They also think this entitles them to recover any travel costs.

          I think that's a load of crap.

          But I'm also not a lawyer, and I'm better off working than fighting a protracted battle with Paypal. Then again, I also think what they're doing is unfair. So I try to balance standing up for principles, the value of my t

    • "one client decided to reverse his credit card charge to the tune of $600"

      How is this Paypal's fault exactly? Your client was dishonest. If you don't want to take the risk of chargebacks, then don't accept credit-card funded payments.. only payments from a paypal balance or a bank account which cannot be reversed.
      • It isn't Paypal's fault that the client is dishonest, but it is Paypal's fault that they transferred the money in my account, which I withdrew under the assumption that I had been paid. Then they retroactively debited my account. That's unfair.

        In the future, obviously, I won't use Paypal, and my original post is a warning to others.

  • Small Claims Court? (Score:3, Informative)

    by FsG ( 648587 ) on Monday March 08, 2004 @10:19PM (#8505307)
    Why is it that these people are spending their time writing horror stories, rather than taking steps to get their money back? If PayPal robbed you for something to the tune of $1000, I'd say it's more than worth the time to sue for it in small claims court; it's not that hard [tenant.net], either.

    Could someone explain to me why these people are whining online rather that suing?

  • A Software Developer's Perspective (Score:4, Informative)

    by Dan East ( 318230 ) on Monday March 08, 2004 @10:23PM (#8505343) Journal
    I have used PayPal for 3 years now as my primary method of payment from purchasers of my software (DEXplor [dexplor.com]). In fact, it is my preferred method of payment. Why? For starters, my total fee per sale ($13.95 retail) is only 6% (3.5% + $0.35). That is cheaper than anything else available to me as a small-time independent developer. Online stores (Handango, PocketGear) charge a whopping 30%. Even eSellerate (which I also highly recommend) charges 10%.

    Next, I have a PayPal Visa card that I can use to directly access the money in my PayPal account immediately after a sale, without any additional fees (even if the account is overdrawn). I find that incredibly useful. It also tends to keep my PayPal balance low (most I've ever had in there at a time was still sub-$200). That is good, in that if PayPal freezes my account I have little to lose, but bad because it is too easy to access the funds. :)

    After thousands of sales I have only had one charge-back because the CC was reported stolen after the sale. My account was never closed or frozen. The money was just debited out of my account.

    I'm sure others have horror stories, however as a software developer I really have nothing to lose. After all, the software licenses I sell are virtual, and are of small dollar amounts. Heck, if someone really wanted to get a license illegally they could just hunt down the cracked version of my program and save themselves the larger repercussions of credit card fraud.

    So I guess what I'm trying to get at is PayPal may have its problems, specifically when dealing with actual merchandise of high dollar amounts, but for ISVs it is a very good method of processing payments. After reading this story I will just make sure I never keep large sums of money in my account (which, unfortunately, has never been a problem in the past). It would also be wise to set up a checking account specifically for use just with the PayPal account, to eliminate the risk of tying up any external funds because of PayPal issues.

    Dan East

  • I'd be suspicious... (Score:3, Informative)

    by Grimster ( 127581 ) on Monday March 08, 2004 @10:42PM (#8505503) Homepage
    if there were few complaints, did I read that right, the volume of more than $12.2 billion last year, yowza, if they didn't have some people out there screaming bloody murder about something, I'd be suspicious.

    I've seen several "horror stories" with Paypal first hand. EVERY single time, every one, the person screaming was partly (if not nearly fully) at fault. They sent stuff to people who had shady looking order details, etc, or they ordered things "too cheap to be true".

    And before you mark me off as someone who doesn't know let me fill in a few blanks.

    I have used Paypal since hell I can't even remember, 1998? 99? 00 at the latest. My paypal rating is over 1100 and I recieve "in the neighborhood" of a dozen payments via paypal per day (yes day). I use my Paypal debit card constantly, for nearly everything "day to day" related, buying dinner, groceries, gas, movie tickets, you name it, anything that's not a business expense (use my business credit card for that so I have an unquestionable paper trail for my accountant).

    And let me tell you a story about Friday, I went out to eat, got done and went to pay, "do not honor" card denied (paypal debit card), called card services "oh we tried to call you today and verify some purchases but we got no answer" (well suspending my card is one way to get an answer). I verified some personal information, verfied a few purchases, and then handed the waiter my card back, and all was well. I wasn't mad, or pissed, I was damn glad that Paypal saw a big old $430 charge for something "kinda odd" for me to buy and took action to make sure I wasn't getting drained by some carder.

    I've had a couple chargebacks, they debited the amount from my balance, life went on, I've had a couple disputed charges, paypal asked me for info, I gave it, they asked the buyer for info, I assume they gave it, and in the end paypal either refunded them their money, or told them "tough noogies" and left the transaction as it was.

    I don't doubt Paypal has fucked up royally on a few occasions, but EVERY time I've seen a problem, either my own or someone I knew, Paypal handled it and typically quickly and without too much aggravation.

    You don't process BILLIONS a year and have millions of customers without pissing a few of them off.

    • It's the net standard (Score:3, Informative)

      by KalvinB ( 205500 )
      PayPal is pretty much the standard for handling on-line transactions. I've seen a few other sites for handling transactions but the sites look cheap and the finance charges aren't. Or they have this phoney Disney Dollars thing going. Give us real money and you get to call it "eGold" or some crap that like.

      PayPal also has the sense to offer Instant Payment Notifications and prewritten scripts all ready to go for site owners to plug in to recieve them in a variety of languages. I use PHP. Previously I j

  • EUROPE = REGULATED, different ToS for EU members. (Score:5, Interesting)

    by brain159 ( 113897 ) on Monday March 08, 2004 @11:11PM (#8505859) Journal
    It's worth pointing out that European PayPal users (myself included) are now actually users/customers of PayPal (Europe) Ltd which has a physical presence over here (company offices in England as far as I can tell, possibly an extra customer service centre in Ireland).

    There is a specific heap of EU legislation relating to Electronic Cash Issuers (not banks, just e-money services such as PayPal) - PayPal have now created this EU company and obtained the relevant license in order to do what they do in compliance with the European rules.

    The revised ToS for affected users include:

    *) that PayPal can only lock the funds related to a specific disputed transaction - not your entire account balance
    *) a clear explanation of your financial position in relation to them (that your account balance represents an unsecured debt from them to you - if they tank, you might potentially be stuffed)
    *) Jurisdictional stuff setting the venue for any suing of them by "us" to be England, and pointing out our right to go to the UK's Financial Ombudsman Service or the Courts for relief in the event of a dispute with them - no attempts at all at a "you cannot sue us" clause.

    As a UK-based occasional PayPal user, I'm pretty pleased with this new arrangement. This move into the UK also means I could invoke the Data Protection Act to obtain any "hidden" information on my account in the event of a dispute.

    These changes haven't been hidden - all EU-based members have been emailed about this and the information is on the "updates" column on the left on your main account overview page.

  • PayPal is indeed frustrating to deal with (Score:3, Interesting)

    by Usagi_yo ( 648836 ) on Monday March 08, 2004 @11:37PM (#8506124)
    Even if you are the subject of fraud, they are difficult to deal with. As I found out when somebody used a valid CC, then reported it as a faudulent transaction on Ebay. So I lose $90, appeal it, find out that my sort of transaction is not covered in the sellers protection plan by Neither ebay or paypal.

    They won't tell me who it was, who charged back or any other information about the person other then it was a unautharized transaction.

    60 days later my account is unfrozen and I'm billed or the transaction fee, a chargeback fee and I'm out $90.

    My biggest gripe is, all that stuff they require you to send when under investigation, like utility bill, bank statement (I refused) etc ... they should require up front to open the account.

  • I used them once with the inital $750 that I purchased with my CC. And had filled out information about my checking account and never checked or didn't mess with checking my account for their micropayments. Then about a year later I noticed about $500 missing from my checking account and noticed it was an electronic withdrawl. I closed the checking account and my paypal account as that was the only account with any electronic withdrawls.

    Never have had an issue since. Now if I buy anything from Ebay, w

  • The guy who runs the paypalsucks.com website has PAID advertisements from Paypal's competition.

    It truly does suck when something goes bad on Paypal, I've been the victim of 3 or 4 scams in my 7 years on eBay and Yahoo auctions. That said, Paypal is a MECHANISM that is exploited, NOT the scammers themselves.

    This isn't a shameless promotion - it truly is an informative read that I did on my website:

    http://adzoox.com/paypalsucks.html

    I was commended for my reasearch by the very people that have praised payp

    • I would also be careful as to who "propogates and prods" for the "probes" to be done. Yahoo auctions have almost fade into non existence as eBay has grown bigger and bigger. I wouldn't be surprised at ALL if this was some type of Martha Stewart Example.

      Because a vocal group of people hate Paypal and because the competition despise it and it's parent company's success - they are common targets for criticism. When companies like Yahoo and with services like Yahoo PayDirect are NO BETTER and in fact offer le

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