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There's very little thought put into a discussion on "why" PayPal froze those funds. PayPal says "based on what we've seen in the past there's a high probabilit

There's very little thought put into a discussion on "why" PayPal froze those funds. PayPal says "based on what we've seen in the past there's a high probability that you'll collect a lot of money for an event and then not execute that event. If that happens, we PayPal will be on the hook to make those payments to those disgruntled end users. So we can either 1) Simply refuse to work with you or 2) risk share with you by keeping enough in your account so that we can reduce our exposure to those types of claims" If you chose a business model with an elevated level of risk then you'll have extra expenses associated with that. I really dug that email. It's encouraging that it triggered what sounds like a very real internal discussion amongst multiple people there vs being getting completely ignored. I know I sound like a PayPal apologist - I'm not! I know there are some very real horror stories out there. It's just that they're probably one of the few payment companies that would enable this business to actually be a business and asking $20K in surety when you're _on the hook too_ isn't as mean spirited as it first appears.

smt88 11y ago
Freezing the account is not, in and of itself, what makes this incredibly unethical. It's trying to sell a loan after freezing the account. That creates an enormous conflict of interest for the people at PayPal who decide when to freeze/unfreeze an account.
- omfg 11y ago
  It's just an automated ad promoting a product. I'm sure that company saw other ads when logging in on different days. Is it silly that they advertise it on high risk accounts? Maybe.. but it's nothing nefarious.
  - PixelB 11y ago
    According to the article, PayPal claimed that it was not an automated ad and they were in fact eligible for it. "To paraphrase: “It may seem weird that we’re holding collateral on your account and offering you a loan, but that was not a mistake! You’re still eligible. Contact me if interested.”"
    - URSpider94 11y ago
      They didn't claim it wasn't automated. They just claimed that it isn't a mistake. The better explanation is that the criteria for a hold and the criteria for a loan are not one and the same.
      - chris_wot 11y ago
        Hence the concerns over a conflict. Whilst the risk to PayPal may be deemed acceptable to PayPal, the only reason you would need the loan is because they froze Tor funds. They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves!
        URSpider94 11y ago
        My point is, I don't believe they are offering the loan because the company is in financial trouble (due to the hold). I believe they are offering the loan because the company meets certain requirements in terms of transaction volume. Companies can reach the required transaction volume without having holds on their account.
        cwyers 11y ago
        > They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves! Well, they're passing the risk on. The risk is in chargebacks from people who bought things from the OP's company, right? If they weren't using PayPal or some other third-party payment processor, that would be their risk.
        smt88 11y ago
        > Well, they're passing the risk on Yes, but PayPal gets a (high) transaction fee in exchange for assuming that risk. The company borrowing from PayPal is charged interest for the privilege of taking that risk away from PayPal. That's insanely exploitative on PayPal's part.
  - smt88 11y ago
    I don't see why it matters whether it was automated or not. Either way, PayPal has a huge conflict of interest by A) creating a situation where a business needs a loan and B) selling loans.
- emeraldd 11y ago
  This a thousand times over ...
- tyingq 11y ago
  Sounds exactly like a protection racket to me. Artificially create an urgent need for a service, then sell the service.
- mcv 11y ago
  I think the freezing is unethical. It's not PayPal's money. The customers didn't intend that money for PayPal, but for the merchant. Taking money that isn't yours is theft in my book. Does PayPal even pay interest over the money it denies their customers?
caser 11y ago
This is totally fair. We knew this was something we might have to deal with given the nature of the business. Still, things change when they then turn around and offer you a business loan. It's hard to argue that they need to freeze your funds for collateral when they then deem you credible enough to lend you money. It's not so much that our accounts got frozen that makes this interesting. It's the fact that they froze our accounts and then offered us a loan.
- URSpider94 11y ago
  See my separate comment -- a hold plus a loan is not the same as just not holding the money, from a risk point of view. Although it would look the same to your bank balance, the two look nothing alike to PayPal's accountants and auditors. If you think there's a potential liability between two parties, it's much better to formalize it as a loan agreement than to just carry it as a risk. This is why, for example, the cable and cell phone companies show up on your credit reports. When you pay them in arrears for your service each month, you are in effect borrowing money from them.
  - caser 11y ago
    Interesting point. From that perspective, you could argue that giving a loan against the collateral is a way to account for some of the risk on Paypal's side while still giving us some funds. Still, we've been with Stripe since then and have had no problems.
    - URSpider94 11y ago
      Exactly. To give another example, I was at Lucent in the late 90's, just before the telcom collapse. Ultimately, Lucent stock collapsed by 90% and the company was bought by Alcatel (which was just bought by the remaining parts of Nokia that Microsoft didn't grind into dust, but I digress). A big part of what brought Lucent down was not just that sales of communications equipment plummeted, but also that Lucent had extended financing to its customers so they could buy more equipment, and then those same customers defaulted on their loans. Ultimately, it's important to make sure that a loan-granting organization is run separately from your core business, to avoid people making poor-quality loans just to goose sales numbers. Still, we've been with Stripe since then and have had no problems. yet ... There was a recent article on how hoverboard sellers have suffered massive fraud losses, that specifically talked about how Stripe is trying to chase people to recover hundreds of thousands of dollars in chargebacks. That can't happen too many times, given the thin margins of payment processing, before they have to do something to protect themselves.
WalterBright 11y ago
eventbrite, on the other hand, holds the money collected until the event concludes.
aftbit 11y ago
If this is true, shouldn't Paypal give you the option to receive your $20,000 back and then quit using Paypal? Or perhaps be a bit more explicit with this up front (_before_ they froze your account)?
- URSpider94 11y ago
  Unfortunately, it's too late by that point. Paypal have taken on the risk, if they just let you get your money and leave, then that's what all the fraudsters would do.
  - fastball 11y ago
    Is that really PayPal's problem though? It's the user fault for being defrauded. Does PayPal really have liability?
    - icebraining 11y ago
      Yes, I believe PayPal would have to pay if the user made a chargeback on their CC.
      - orionblastar 11y ago
        I have a friend who ran a computer store. He accepted credit cards and sold used Windows 7 Pro PCs for $150USD. Some of the customers bought a PC and then did a chargeback on their credit card to get it for free. Enough of them did that so that he got blacklisted by his bank and his credit card machine no longer worked. People do the same thing with Paypal when I sell something on eBay. Even if it is the right item, they do an item not as described to get their money back. For example I sold a used Macbook that was an older model and could only run 10.7 and buyer knew it was used and old and could only run 10.7 but filed an item not as described claiming it was old so he wanted half off. Macbook was worth $500 and he bought it for $350. I told him Macbooks keep their value unlike PC Laptops. Paypal froze my funds and eBay investigated. Eventually eBay sided with me because the listing said old and used and limited to 10.7 etc. It took like two weeks of freezing my account until they resolved it. It was not even my fault, the buyer wanted half off for no good reason and item was as described. He could have sold the Macbook for $500 and made a profit.
mcv 11y ago
Why would PayPal be on the block when the merchant doesn't deliver? The merchant should be on the block. PayPal should just be payment infrastructure. The fact that PayPal pretends to be the merchant, at the same time pretends to represent the customer in a way the customer never asked for, and undermines the payment between the real customer and the real merchant, makes PayPal unreliable as payment infrastructure. PayPal has a history of denying people access to their money, and I'd certainly never allow any of my money in the hands of PayPal. They operate as thugs. They take money they're not entitled to, make commercial transactions unreliable, and endanger the companies' ability to provide the services that customers paid for. PayPal is the biggest source of risk here.
tim333 11y ago
The problem with most people's complaints seems to be that PayPal doesn't look at your business and say they'll need a $20K surety. They just seem say nothing and then grab the money without warning, leaving people to scramble for cash. If they made a deal in advance it would be much more civilized.

smt88 11y ago

Freezing the account is not, in and of itself, what makes this incredibly unethical. It's trying to sell a loan after freezing the account. That creates an enormous conflict of interest for the people at PayPal who decide when to freeze/unfreeze an account.

omfg 11y ago
It's just an automated ad promoting a product. I'm sure that company saw other ads when logging in on different days. Is it silly that they advertise it on high risk accounts? Maybe.. but it's nothing nefarious.
- PixelB 11y ago
  According to the article, PayPal claimed that it was not an automated ad and they were in fact eligible for it. "To paraphrase: “It may seem weird that we’re holding collateral on your account and offering you a loan, but that was not a mistake! You’re still eligible. Contact me if interested.”"
  - URSpider94 11y ago
    They didn't claim it wasn't automated. They just claimed that it isn't a mistake. The better explanation is that the criteria for a hold and the criteria for a loan are not one and the same.
    - chris_wot 11y ago
      Hence the concerns over a conflict. Whilst the risk to PayPal may be deemed acceptable to PayPal, the only reason you would need the loan is because they froze Tor funds. They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves!
      - URSpider94 11y ago
        My point is, I don't believe they are offering the loan because the company is in financial trouble (due to the hold). I believe they are offering the loan because the company meets certain requirements in terms of transaction volume. Companies can reach the required transaction volume without having holds on their account.
      - cwyers 11y ago
        > They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves! Well, they're passing the risk on. The risk is in chargebacks from people who bought things from the OP's company, right? If they weren't using PayPal or some other third-party payment processor, that would be their risk.
        smt88 11y ago
        > Well, they're passing the risk on Yes, but PayPal gets a (high) transaction fee in exchange for assuming that risk. The company borrowing from PayPal is charged interest for the privilege of taking that risk away from PayPal. That's insanely exploitative on PayPal's part.
- smt88 11y ago
  I don't see why it matters whether it was automated or not. Either way, PayPal has a huge conflict of interest by A) creating a situation where a business needs a loan and B) selling loans.
emeraldd 11y ago
This a thousand times over ...
tyingq 11y ago
Sounds exactly like a protection racket to me. Artificially create an urgent need for a service, then sell the service.
mcv 11y ago
I think the freezing is unethical. It's not PayPal's money. The customers didn't intend that money for PayPal, but for the merchant. Taking money that isn't yours is theft in my book. Does PayPal even pay interest over the money it denies their customers?

caser 11y ago

This is totally fair. We knew this was something we might have to deal with given the nature of the business. Still, things change when they then turn around and offer you a business loan. It's hard to argue that they need to freeze your funds for collateral when they then deem you credible enough to lend you money. It's not so much that our accounts got frozen that makes this interesting. It's the fact that they froze our accounts and then offered us a loan.

URSpider94 11y ago
See my separate comment -- a hold plus a loan is not the same as just not holding the money, from a risk point of view. Although it would look the same to your bank balance, the two look nothing alike to PayPal's accountants and auditors. If you think there's a potential liability between two parties, it's much better to formalize it as a loan agreement than to just carry it as a risk. This is why, for example, the cable and cell phone companies show up on your credit reports. When you pay them in arrears for your service each month, you are in effect borrowing money from them.
- caser 11y ago
  Interesting point. From that perspective, you could argue that giving a loan against the collateral is a way to account for some of the risk on Paypal's side while still giving us some funds. Still, we've been with Stripe since then and have had no problems.
  - URSpider94 11y ago
    Exactly. To give another example, I was at Lucent in the late 90's, just before the telcom collapse. Ultimately, Lucent stock collapsed by 90% and the company was bought by Alcatel (which was just bought by the remaining parts of Nokia that Microsoft didn't grind into dust, but I digress). A big part of what brought Lucent down was not just that sales of communications equipment plummeted, but also that Lucent had extended financing to its customers so they could buy more equipment, and then those same customers defaulted on their loans. Ultimately, it's important to make sure that a loan-granting organization is run separately from your core business, to avoid people making poor-quality loans just to goose sales numbers. Still, we've been with Stripe since then and have had no problems. yet ... There was a recent article on how hoverboard sellers have suffered massive fraud losses, that specifically talked about how Stripe is trying to chase people to recover hundreds of thousands of dollars in chargebacks. That can't happen too many times, given the thin margins of payment processing, before they have to do something to protect themselves.

WalterBright 11y ago

eventbrite, on the other hand, holds the money collected until the event concludes.

aftbit 11y ago

If this is true, shouldn't Paypal give you the option to receive your $20,000 back and then quit using Paypal? Or perhaps be a bit more explicit with this up front (_before_ they froze your account)?

URSpider94 11y ago
Unfortunately, it's too late by that point. Paypal have taken on the risk, if they just let you get your money and leave, then that's what all the fraudsters would do.
- fastball 11y ago
  Is that really PayPal's problem though? It's the user fault for being defrauded. Does PayPal really have liability?
  - icebraining 11y ago
    Yes, I believe PayPal would have to pay if the user made a chargeback on their CC.
    - orionblastar 11y ago
      I have a friend who ran a computer store. He accepted credit cards and sold used Windows 7 Pro PCs for $150USD. Some of the customers bought a PC and then did a chargeback on their credit card to get it for free. Enough of them did that so that he got blacklisted by his bank and his credit card machine no longer worked. People do the same thing with Paypal when I sell something on eBay. Even if it is the right item, they do an item not as described to get their money back. For example I sold a used Macbook that was an older model and could only run 10.7 and buyer knew it was used and old and could only run 10.7 but filed an item not as described claiming it was old so he wanted half off. Macbook was worth $500 and he bought it for $350. I told him Macbooks keep their value unlike PC Laptops. Paypal froze my funds and eBay investigated. Eventually eBay sided with me because the listing said old and used and limited to 10.7 etc. It took like two weeks of freezing my account until they resolved it. It was not even my fault, the buyer wanted half off for no good reason and item was as described. He could have sold the Macbook for $500 and made a profit.

mcv 11y ago

Why would PayPal be on the block when the merchant doesn't deliver? The merchant should be on the block. PayPal should just be payment infrastructure. The fact that PayPal pretends to be the merchant, at the same time pretends to represent the customer in a way the customer never asked for, and undermines the payment between the real customer and the real merchant, makes PayPal unreliable as payment infrastructure. PayPal has a history of denying people access to their money, and I'd certainly never allow any of my money in the hands of PayPal. They operate as thugs. They take money they're not entitled to, make commercial transactions unreliable, and endanger the companies' ability to provide the services that customers paid for. PayPal is the biggest source of risk here.

tim333 11y ago

The problem with most people's complaints seems to be that PayPal doesn't look at your business and say they'll need a $20K surety. They just seem say nothing and then grab the money without warning, leaving people to scramble for cash. If they made a deal in advance it would be much more civilized.