I watched a programme in BBC ''Watchdog'' about Paypal and could not believe paypal could be so irresponsible..I never had any problems but I can see why it could be a huge problem for others. Below is a link and a extract, in case you are interested. http://www.bbc.co.uk/programmes/p0192wwkPayPal: ‘Safer, easier way to pay’…but hard to get your money?PayPal - the online payment platform responsible for 7.6 million payments every day pride themselves on ‘keeping sellers more secure’. They claim that each transaction is protected by a sophisticated security system. However a growing number of complaints have come in from people frozen-out of their own accounts and prevented from getting to their money - by the very measures that are supposed to be protecting them. What’s going on?PayPal have the right to place a ‘reserve’ on your account allowing them to freeze a certain amount, if not all of the funds in your account, if they deem your account high risk.
PayPal can hold on to your money for up to 180 days, a process that has pushed businesses operating purely through PayPal to the brink of collapse.
In November 2011 Watchdog reported that PayPal were imposing limitations and reserves on users’ accounts. These impositions meant that users were unable to access their money for a period of time and in one case, a legitimate eBay-based business was forced to close due to PayPal’s actions.
Security measures are of course imperative when it comes to money transfers but once a restriction is imposed on an account, some users have found it almost impossible to rectify the issue.
This was exactly the case for Tim Rogers, MD of ‘When Nature Calls’ - an events -based business supplying luxury toilets to festivals and events. Tim explains,
‘PayPal obviously are alerted to the fact that there’s sudden increased activity on our account and that normally means that they’ll undertake a review as to why that’s happening.’
Tim claims that this had happened to him regularly since he opened his PayPal account in 2011, but usually he supplied information to verify his business and his account would be unfrozen.
However, in January 2013 when his account was flagged for review again, he told us it wasn’t as straight forward as it had been previously.
‘They asked for more information to verify my business and this time after I’d supplied it they told me they were placing a reserve on 100% of the funds in my account and I would only be allowed it back in stages once the event, for which I’d taken the money, had taken place.’
Despite numerous complaints PayPal still only released 9% of the held funds. The other 91% in Tim’s account remains on hold and he won’t see a penny of it until after his event in June.
PayPal explained that they were imposing the reserve to protect against the risk associated to the account but their reserve on the funds only created further risk - it threatened the smooth running of Tim’s business.
Tim explains,
“It put us under great financial pressure, we had staff to pay, we had suppliers to pay. We weren’t able to access the funds that we had and because this came out of the blue without any warning from PayPal that this might happen, we had no funds in our bank current account at that stage. Our business hasn’t changed. I believe that after 2 years trading we’ve proved that we’re a legitimate business that operates perfectly well.”
Unfortunately, that’s not always enough to convince PayPal. According to customers who’ve contacted Watchdog, once the company makes a decision it can be impossible to shift them.
Dr Peter Cox knows that too well. He markets a course in MRI technology in Australia and began to take payments through PayPal in August 2010.
By December 2010 his activity had triggered PayPal’s security system to act quickly. Peter’s account was flagged for review and he was asked to send numerous documents to prove his legitimacy.
Even after supplying relevant documents, PayPal decided to place a reserve on the funds in Peter’s account and, like Tim Rogers, he wasn’t allowed them back until after his event.
Peter Cox explains,
“Even after I’d sent them all this information and they had I think the record shows 27 separate pieces of information, really everything accept my blood group I think, they were still not satisfied. You would think that that would be enough, but no, not for PayPal.”
But it’s not just businesses that are bearing the brunt of PayPal’s security system. Lawrence Creaser is a 3rd year student at university in Cardiff. He set up a PayPal account to sell unwanted items on eBay. Unfortunately he only ever made 99p before PayPal decided he was too risky and placed his account in a state of permanent limitation.
Lawrence explains,
“The one transaction that went through that PayPal account was a pair of my girlfriend’s shoes that sold for 99p, that’s literally the only in-goings or outgoing in the account”
After sending his driving licence to verify his identity he explains that his account was going to be permanently limited, due to high risk.
Trying to find out why your account has been limited is near impossible. Some users find it extremely difficult to actually get through to anyone in the customer services department who understands their issue and can help them to rectify it.
Other users are left receiving identical email after identical email with no obvious recourse.
Tim Rogers, Peter Cox and Lawrence Creaser were never given a detailed explanation or justification as to why PayPal deemed their accounts high risk. Instead they were left feeling angry and let down by the company that proclaim to be the ‘safer, easier way to pay’.
Company Response
PAYPAL
We try very hard to make things easy and simple for our customers. And we're sorry if any customer finds that not to be the case.
Our intention is to protect people from any issues like fraud, we want our customers' money to be safe and sometimes this means accounts are identified as at risk which means we take action to make them safe. We are committed to getting better at explaining why we have placed restrictions on an account and for fixing things if there was an error. And in recent months, we’ve significantly reduced the number of UK customers whose accounts are subject to reserves.
We now have 18 million accounts in the UK, and most of our customers find things go like clockwork. They tell us they like the fact we let them pay and get paid quickly without sharing their personal and financial information. But we are also doing more to help. We will continue to expand customer support – while making it easier than ever to use PayPal.
Update on customer cases
Mr Peter Cox’s account is open and has no restrictions.
We are working with Mr Lawrence Creaser to lift the restrictions on his account.
We are working with Mr Rogers to better understand his business, and review the reserve on his account.
Watchdog questions
1. How does PayPal determine which accounts are ‘high-risk’?
We consider a number of factors when assessing risk. For example, we look closely at unexpected spikes in payment volumes, complaints and chargebacks, as well suspicious account behaviour such as an account being accessed from unexpected locations. We also take into account each user’s transaction history with PayPal.
2. We appreciate that specific details cannot be revealed, but is PayPal’s security system automated?
While we use sophisticated technology to flag potential risks, this is complemented by teams of specialists who work with customers to understand their businesses and assess the true nature of any risk involved.
3. What efforts are made to make the decisions and processes transparent once an account has been flagged for review?
Our aim is to always explain any actions we have had to take on a customer’s account, and guide them through the steps they and we need to take to remove any restrictions. There may be some cases where we are limited in what we can say, for example, if we have reason to suspect fraud or other criminal activity.
4. When a ‘reserve’ is imposed (rather than a freeze on activity on the account during review), does PayPal gain interest on those funds?
No.
5. Can you clarify what the ‘reserve’ is for and what that money is used for?
Reserves are used by financial institutions to mitigate against potential risks and losses. A reserve is a portion of funds that are held by PayPal in the customer’s account.
6. Do you have a designated complaints department?
Yes, we have teams dedicated to helping customers who encounter problems. We fully comply with the complaint requirements of our regulator and the Financial Ombudsman Service. PayPal has a low number of complaints to the Financial Ombudsman Service – 93 cases during the second half of 2012, one of the lowest numbers for a large company, of which 17% were resolved in favour of the customer, compared with an average of 45% for all businesses covered by FOS.
7. Do you have a designated system for dealing with accounts under review/considered high risk?
Yes. We identify potential high risk accounts based on the transactions history. A specialist conducts a full investigation of the business based on information such as credit bureau reports and chargeback and claims rates. If there are no concerns, no action is taken. If there are concerns about the health of the business, the specialist may recommend that we place reserves on the account based on their risk assessment.
8. What efforts are made to resolve issues for users that, for legitimate business reasons, can’t provide the standard information requested in the review process? What avenues are available to those customers to resolve the situation?
When one of our specialists is reviewing an account, they should consider the individual circumstances and only ask for information that is relevant to the customer’s business. In the case of Mr Cox we clearly should have done more to understand his business and only should have asked for information relevant to it.
9. What efforts are made to resolve issues for users that fall outside of standard/classic business models and hence struggle with the seemingly automated response?
PayPal has helped millions of businesses of all types to thrive. Our goal is to ensure businesses get their money quickly, and the vast majority of them experience no restrictions on their accounts. But we take feedback seriously and where we do find problems we aim to improve. We will apply the lessons from the experience of the customers who have contacted Watchdog.
