PayPal Takes Bite Out Of User's Funds, Calls It 'Rolling Reserve'

In addition to tacking on some sneaky new fees, PayPal apparently has instituted another off-putting practice on some accounts. According to reader Melissa, the online money changer was taking 20 percent off of her monthly sales and keeping it in reserve in case a customer initiated a chargeback.

Melissa explains:

My company has had a Paypal account for 7 years now. We do most of our sales (tickets for tours) online and have good credit, etc.

Recently, on July 1, without any notification or explanation whatsoever, Paypal has (daily) deducted 20% of our money from sales and put it into a “Rolling Reserve” account, each transaction of which they are holding for *2 months*. Our bank account is linked to our Paypal account so any chargeback (we’ve had 2 in 7 years) comes directly out of our bank account if we have no money in our Paypal account. We are a small business and we have employees to pay. I think that a 20% hold for 2 months on money paid to us is excessive. We weren’t notified either — is that legal?

This is just a bad business practice on the part of Paypal, and I want others to be aware of it. I talked to a Paypal representative and they could not give me an answer as to why this fee was instituted, other than to say that they were filing a complaint from me to have it removed.

After some more haggling, Melissa got the reserve albatross removed from her account. PayPal sellers, be on the lookout for a similar battle.

(Photo: frankieleon)