Source: Paypal Warning and personally confirmed by getting caught twice on their "game" within a 5 years period using their "services". Now, Paypal is probably not the only one acting this way and this is why we strongly recommend, if you have to collect money online, to use a official and real Merchant Account sending your money to your real bank account.

 

The main warning subject of the majority of the horror stories about e-commerce using e-account such as Paypal or others is the following:

 

Your Paypal account can be frozen at any time, without advance notice, leaving you without your money for months (if not forever), and there isn't much you can do about it.

 

 

Let's begin by first stating that PayPal is not a bank and does not provide its merchants with a Real Merchant Account. PayPal provides its merchants with a PayPal account.

 

 

With a Real Merchant Account, your funds are deposited into your personal or business bank account, which you control and which is also protected by Federal Banking Regulations. 

 

With PayPal, your money is deposited into a PayPal Account, which PayPal Fully Controls.

 

Since PayPal is NOT a bank, they do not need to follow federal banking regulations. These regulations are in place to help the "Average Joe" avoid issues like having their bank account frozen for 6 months with no explanation...(Imagine if your bank was permitted to do that!)

 

Because PayPal is not regulated in the same way as a Real Merchant Account, Paypal accounts are frozen for almost anything and without warning. The account can still usually receive money while it is frozen of course, but it certainly cannot withdrawal money. Once an account is frozen, the funds are often held by PayPal for months on end with Absolutely No Recourse for the merchant.

 

Merchants finding themselves on the wrong end of a frozen Paypal account will still have to find some way to pay their obligations and fill orders for the weeks and months while the account is restricted. A domino effect occurs when a merchant's account is frozen, leaving them with No Means To Fill Orders. Those orders are then disputed by customers, creating more chargebacks and the illusion of fraudulent activity on the part of the merchant. "Welcome to the PayPal Nightmare." The Best Solution?: Get a Real Merchant Account.

 

 

According to the San Francisco Chronicle, there are approx. 100,000 complaints outstanding at PayPal (Are any of these yours?). In many instances disputes can run on for months leaving people frustrated and out of pocket as they are unable to access their accounts. So what happens to the millions of dollars tied up in frozen accounts and disputes? Well, here is a clip from the San Francisco Chronicle that basically sums it up:

 

U.S. District Judge Jeremy Fogel of San Jose refused to dismiss a lawsuit that seeks class-action status on behalf of thousands of PayPal customers nationwide. A common allegation is that the company brushes off or stalls customer grievances for months and meanwhile freezes the customer's account and pockets the interest (So that's how they make their money!). No wonder they freeze so many accounts!

 

 

As you will come to discover while browsing through the many horror stories posted on this site by current and former PayPal users, PayPal has some tough allegations to deal with. Allegations of mishandling money, unnecessarily locking funds, not providing adequate customer support, freezing accounts with no explanation and disregarding customer complaints, just to name a few.

 

In early 2002, Plaintiffs Roberta Toher and Jeffrey Resnick filed separate lawsuits against PayPal, Inc. These two cases were later consolidated into one lawsuit in the United States District Court for the Northern District of California.

 

The lawsuit alleges, among several other issues, that PayPal has placed inappropriate restrictions or other limits on customers' accounts and engaged in several other improper practices. Based on these improper practices, the lawsuit sought damages for money unjustly held, negligence, and violations of consumer protection statutes.

 

Rather than dealing with a lengthy public trial and being forced to clean up their act, PayPal decided to settle out of court and pay $9.25 Million Dollars to Tens of Thousands of PayPal merchants who processed with PayPal between October 1, 1999 and January 31, 2004. (A mere slap on the hand for a company this size)

 

Instead of a Judge forcing PayPal to change their questionable business practices, PayPal agreed to pay the settlement and walk away from the entire allegation.

 

So what does this mean to current PayPal merchants? Unfortunately, this means that PayPal is free to continue operating in the exact same way it always has. Judging by the number of PayPal horror stories we receive every single day, it appears that the situation has only gotten worse since the settlement.

 

We highly suggest getting a Real Merchant Account to avoid becoming another PayPal horror story.