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)
Post a comment
Comments:
Wow, besides the main issue, it looks like Paypal just tries to sneak things in. They NEED to communicate more.
Surely, I'm not the only person in the world who has never considered a PayPal account, right?
PayPal: We om nom nom on your monies.
Google checkout is better than PayPal in this case. In the past PayPal has held my money until the buyer leaves positive feedback. Some buyers are pretty slow when it comes to that.
I said goodbye eBay and hello Google Ads.
Paypal since owned by Ebay has been a big pos. There is no reason to bow to their crappy fees and policies. If you are a real company get a real merchant account and move on with life.
If you are an ebay seller, then yes, they force you to use them. I personally am not because ebay and paypal will not back you up when a tricky ebay scamster buys something and charges it back.
Vote with your dollars and get out.
What the protection plan's terms actually sounded like to me was that if the bulb failed it would be replaced once, and if it failed after that the owner would be SOL.
However, if there isn't an electronic fault with the set causing the bulbs to go, then the replacements are clearly defective. I wonder if they are using an off brand replacement or something like that? In any case the reader is just lucky they're getting this resolved.
I personally utilize authorize.net for on-line credit card transactions. I weighed out all potential solutions for processing credit cards and found that they met my needs the best. I love the reports options, repeat billing, refunds, tracking, etc. They can also be implemented into a website and looks much more professional than that damned PayPal button and singup process. I recommend the OP take a look at Authorize.net.
Ebay and Paypal are starting to rally against the seller to make it easier for the buyer. Too bad it makes it easier scam the seller now.
like others have said,Vote with your dollars and get out, bye bye Paypal and ebay.
@pecan 3.14159265: The primary reason I have never sold anything online is because I don't want to deal with PayPal (as a seller).
Something I learned before accepting paypal for my business: Get a dummy bank account.
We got a no-fees bank account for our business, which we registered the paypal account on. The moment there was a significant amount of money there, we transferred it all to the bank and immediately withdrew it all. We then deposited the money in the ATM of the bank we used for regular business. The bank account paypal was given access to was always at $0, so the maximum risk was always what remained in the paypal account, nothing more.
But that's because I always knew paypal were crooks.
@shepd: But if Paypal dinged it for a charge the bank just charge you $35 and send it into the negative? You'd still have to pay.
Paypal's nothing more than a on-line bank and should be treated as such by the government. I know I'll be closing my account - it will make e-commerce a bit tougher, but I'd rather not be in bed with a company like this.
Paypal is evil. The worst stories on Consumerist pale beside what Paypal does to their customers on a daily basis.
Taking money out of people's bank accounts and holding it for two months. And they haven't overdrawn or done anything to warrant such an action.
Use Craiglist NOT Ebay
That allows you to use cash and not Paypal.
No Fees and no money grabbing ogre in your bank account.
@Smashville: Nope. I've been to eBay about five times in my entire life, and have never had any desire to open an account.
@pecan 3.14159265: out of 70+ transactions (as a buyer), i've never had any problems with paypal, but then again, i've never had a bad experience with ebay either. guess i'm lucky?
Is there a reason people still use Paypal? I mean, any reason at all?
Paypal is a prime example of what would happen if banks were un-regulated. Think of this, if your bank statement came in 20% light with only a note to that says "20% held back in case you bounce a check." What would you do?
Paypal was good before Ebay took them over. They were far less scummy, more fair, and also managed to put out a 5%+ interest rate on what you held in your paypal account.
I think that a 20% hold for 2 months on money paid to us is excessive. We weren't notified either - is that legal?
Well, that's the problem with using PayPal - they're not a bank, so they're not subject to all of the regulations that a bank is subject to. So while banks get away with murder when it comes to screwing customers over, Paypal gets away with.... um... mass murder!
I occasionally use paypal for online purchases. However, it has no account balance, no link to my bank account, and I always use a credit card so I can initiate a chargeback in the event of a problem, because I know paypal doesn't give a shit, and will not actually help me.
@pecan 3.14159265: i had one, very briefly...and automatically transfer everything in that account to my checking account when I would sell my books on half.com
@tape:
if you are a eBay user and have created your business on their site they now force you to use their paypal service. No other payment methods are allowed unless you set up a merchant account.
@Smashville: I buy a box of veggies from a CSA every week and pay through paypal - but don't have an account. They let me log in anonymously. Is this not an option on ebay?
@bkdlays: That's exactly what happened to me. A buyer purchased something off me, paid and then refused to accept my package. Paypal took sides with the buyer and that screwed me over.
@wcnghj: I've had Google Checkout hold a reserve of $35,000 on an account - an amount far larger than transaction, for months after the last transaction of even the low four figures. They can set the limit arbitrarily and - by their TOS - can hold on to that money for 6 months after you close your account.
After some back and forth, I managed to get it cut down to 20,000. While I understand the necessity of ensuring that no one scams their customers and runs to preserve Google Checkout as a reputable intermediary, that's still $1,000+ of interest they make a year (assuming a modest 5% rate of return) off of money that is in no way theirs.
@eddieck:
It's not the owner but the operation.
Craigslist is simple, open and uses cash as it's medium. As long as Ebay doesn't mess with that formula I will recommend it.
Cash is becoming more convenient again. Consider the risk you are taking by giving any company your money. Once cash is out of your own hands, getting it back can be very time consuming. Bank of America, Sovereign Bank, Citizen's Bank, PayPal, I'm talking to you. My mattress never gives me any problems: it won't charge me fees ever. It's too bad. At one time banks were convenient; Now, not so much.
Is there something surprising about this policy, or something incredibly outrageous? All the credit card companies have a reserve policy when it comes to merchants who sell travel products in the months-scale-future -- to protect against the business going under and taking all the money with it. Even airlines have to maintain this reserve -- see Frontier airlines which had to declare because it couldn't satisfy the requirement.
You would think a consumer advocate site would be more reasonable about something designed to protect customers when a shady seller goes under. Who knows what kind if person this is, posting the story -- I would rather protect her customers than her
@John Jacob Jingleheimer Bug: However, if you initiate a charge back through your credit card and not through paypal resolution process, they will penalize you paypal account (lock or cancel it).
@kepler11: and on a side note, I think this goes to show that a company that has responsibilities to multiple parties can do no right here on Consumerist.
1. You criticize Paypal for holding back funds designed to protect customers in case of default. 2. And if they choose not to do so because of your complaints, then you complain about customers who got ripped off because Paypal didn't protect them from shady sellers.
Paypal isn't the greatest company, to be sure. But which do you want, Consumerist? Whose side are you on? #1 or #2?
This does not shock me. I work in an industry where this is standard practice. We have a rolling reserve accounts with multiple gateways that sum well in to the 6 (maybe 7) figures. It is a way for them to protect themselves and their customers against us going out of business.
It would be news if Paypal decided not to pay out the reserve balance for reasons other than chargebacks.
I cancelled my PayPal account of 8 years for a similar reason. They held the full amount of a sale IN CASE there was a chargeback without any notification or anyway to release the funds. Total BS...never using them again. Assholes.
You know, if that was the case, kepler11, then why did the Paypal representative(s) NOT inform me of this "standard practice" in regards to travel products? In fact, they weren't able to come up with any explanation whatsoever. If I'd been given a credible reason I would not have been so upset.
We've been in business since 2001, we are a real legal corporation that pays real taxes, and employs real people and have (most importantly), as I mentioned, GOOD CREDIT. So, that's what kind of people we are, since you were wondering.
The only corporation that is shady here is Paypal.
@squinko: Yea, but after Ebay bought paypal, how the seller gets screwed two ways. The number of different scams that have come out after ebay changed alot of its policies (sellers can not leave feed back for one)to "better the buying experience" has made it a horrible selling experience
@pecan 3.14159265: I've had great success with paypal in the past. I use the account as my guilt free cash that I can spend on whatever I want on the internet. But all these weird fees and stuff they've been putting in place has made them look awfully less attractive lately.
@kepler11: Maybe the issue here is that PayPal doesn't notify its merchant customers when it is about to hold 20% of their funds, and people find this unacceptable. Or maybe the issue is that account holders shouldn't have to be the insurance slush fund for all of eBay's and/or PayPal's transactions. I gave up on this two-headed monster years ago.
eBay/PayPal is a necessary evil once in a while, although I *used* to sell (and buy) on eBay a LOT - racked up a 500+ ranking.
eBay is a monopoly. No other online auction site is viable in the least. Believe me, I have investigated thoroughly. eBay is wildly abusive to it's sellers, but they get away with it because if you want to sell your excess stuff in an online auction, eBay is the only viable way to do so.
PayPal is wildly abusive as well - mostly to sellers, and they pull all kinds of shenanigans without the slightest remorse for the evil they do. NEVER use your checking account with PayPal - ALWAYS use a CC with them so you can chargeback in the event they start being stupid with you.
Now that eBay has forced all sellers to accept PayPal (I can't believe that's even legal - you can't even accept cash in a hand-to-hand transaction), the combined pair is a bottomless pit of the devil's own feces. There could be no happier day in my life than to see somebody take down eBay/PayPal in some way shape or form. It would totally restore my faith in humanity, of which I have none left. Primarily because of the soulless, remorseless non-humans that run places like eBay and PayPal.
@Megalomania: Where can one get this 'modest' 5% rate of return? You're not suggesting they are actually investing it in the market, are you?
When you no longer have a model for growth, you nickle and dime your current customers to death. Bravo PayPal!