The issue is that they generate the need for you to take out a loan with them by securing "the appropriate balance of funds." If they did not hold the 20k, his

The issue is that they generate the need for you to take out a loan with them by securing "the appropriate balance of funds." If they did not hold the 20k, his business would not need a 20k loan. Would paypal be on the hook if the business withdrew the 20k and they were hit by a bunch or refunds? Sure, but thats the risk they take by being a "bank." They make interest off your capital. Thats the exchange they agree to. This is them trying to make double interest off your capital by locking your funds and offering a loan for the same amount. Put another way, would you be okay with your bank holding 20k to make sure you can pay for housing/bills, and then offering you a 20k personal loan that generated them interest? No, because that would be unreasonable. Its your money. If they think you are a risky client, they should stop working with you. Its a conflict of interest, and a blatant one that could be heavily abused.