If you have not already read The Superglue Factor eBay and PayPal I suggest you do so. There have been mentions of PayPal’s ‘new’ rolling reserve policy in the last few days on AuctionBytes and on a ‘pacifier for the baby’ PayPal Blog post. The policy is not new, it has been in place for over a year and being implemented in Europe since spring. Naturally there is no mention of the factors which can lead to reserves and account limitations being imposed. I say naturally because the list is so long that in best eBay and PayPal tradition it renders down to ‘because we can’.
The latest amendment to the PayPal User Agreement (UA) is dated June 3rd, 2009, the following announcement is now placed prominently at the top of the UA.
Amendments to the UA include a re-definition of the Personal Account and the fees that non-business transactions may be charged, those changes are in Section 4.2 and Section 8.
The strangest amendment is this one:
What Government Agencies identify products as having a high likelihood of being fraudulent? If you know the answer to this question please share in the comments. My call to PayPal this morning was non productive, the PayPal representative did not know the answer.
On to the holds, or is that holding on?
It should be noted that there are three different types of hold that you authorize PayPal to place on your account simply by signing in to the PayPal website.
- The eBay transaction 21 day hold. Announced in eBay Safer Payments Policy 2008, and amplified (def.#2) on the Paypal Blog 2/14/2008 and PayPal Blog 3/28/2008. The 21 day hold only applies to eBay transactions.
- Implementation of 30 day (or longer at PayPal’s discretion) rolling Reserves for Premier and Business Accounts, PayPal Websites Payment Pro and Virtual Terminal occur if PayPal “believes there may be a high level of risk associated with your Account. The terms may require that a certain percentage of the amounts received into your Account are held for a certain period of time, or that a certain amount of money is held in reserve, or anything else that PayPal determines is necessary to protect against the risk associated with your Account.”
- The punitive hold or account limitation; if you are suspended from eBay, if PayPal thinks you might have done something, or might be thinking about doing something contrary to either eBay’s or PayPal’s UA, (there are 25 restricted activities in Section 9 alone of the UA) or if you set off any red flags in their computer security algorithms.
What causes red flags?
Any one of the many security controls PayPal uses, not only to protect buyers but primarily to protect PayPal from risk. Risk = loss of PayPal’s money = BAD. Many of the red flag generators are caused by things over which the seller has no control.
- Charge-back or reversal by a buyer who failed (or chose not) to participate in the PayPal Buyer Complaint Process
- Receipt of potentially fraudulent funds
- Reports from credit agencies of a high level of risk; this can happen if you are the victim of identity theft and report it, pay off and/or close a credit card account, or reduce your debt level, and we all know credit agencies never ever make mistakes or put other peoples bad debt on your account.
What can you do to protect yourself?
If you trade on eBay you are at highest risk. You should take all steps proactively to verify your account. In the USA you must link your bank account to your PayPal account, or be approved for the PayPal Plus Credit Card or PayPal Buyer Credit. To become verified, follow these steps:
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1. Log in to your PayPal account.
2. Click “Unverified.”3. Choose the verification method and click the corresponding button.
Give PayPal all information they ask for, including your social security number before you reach the number and amounts of transactions that will cause automatic account limitation, $500 per month for new account users.
Do not sell exclusively in categories that PayPal deems high risk.
Sign up for a Money Market account, this is additional verification and the bonus is that you will at least receive interest if and when your account is limited.
If you do not sell on eBay?
You are perfectly free to decline to accept PayPal. If your volume is high enough, you are an established business and have good credit you can apply for a Merchant Processing Account. If you are a small seller on another venue you may choose to accept only Google Checkout or one of the alternative payment systems.
You should be aware that most are more costly than PayPal, and, thanks to PayPal’s deceptive marketing, many buyers have a totally unjustified belief in PayPal’s Buyer Protection which does not apply off eBay. My records show that when I removed PayPal from my payment options I lost 50% of my potential sales during the period of my trial.
As Auntie May would say “You are damned if you do and damned if you don’t.”
Y’all come back!
Unfortunately, reserves are long overdue at PayPal. One of the easiest ways to combat fraud is to slow down money movement. Merchants will need to slightly modify their cash flow patterns, at least in the beginning.
Posted by pwb on June 9th, 2009.
If it walks like a duck and quacks it probably is a duck. eBay/PayPal are acting like a bank when it suits them while claiming to be only a money exchanger to escape regulation. Half the stuff in their user agreement would not fly for a regulated financial institution.
Many merchant processers have reserves, but they don’t roll over and play dead when their paying customers need help and none of them fine you $2500 and hold your funds 180 days… just because they think you might be up to something.
Due process, innocent until proven guilty, is this America?
Posted by Kate on June 9th, 2009.
Kate, you are painfully ill-informed.
Posted by jd on June 9th, 2009.
Well there’s a sweeping statement! Perhaps you would like to amplify your position ‘jd’?
There is provision in the UA for PayPal to justify fining their customers $2500, you will find it in Section 10.6 of the user agreement, I quote:
“10.6 Acceptable Use Policy Violation - User Fines. If you violate the Acceptable Use Policy then we may hold your funds up to 180 Days, fine you up to $2,500.00 USD for each such violation and take legal action against you to recover additional losses we incur. You acknowledge and agree that a fine up to $2,500.00 USD is presently a reasonable minimum estimate of PayPal’s damages, considering all currently existing circumstances, including the relationship of the sum to the range of harm to PayPal that reasonably could be anticipated and the anticipation that proof of actual damages may be impractical or extremely difficult. PayPal may deduct such fines directly from any existing Balance in the offending Account, or any other PayPal Account you control.”
Posted by Henrietta on June 10th, 2009.
Henrietta, I’m curious.
article 10.6 specifically refers to the “Restricted activities” in the Usera agreement with Paypal. (see article 9.1)
Exactly which of these Restricted Activities do you consider unacceptable? (i.e. wish to engage in).
Other than the funds HOLD , for transactions “deemed high risk” (this one is a little fuzzy) I see no activities listed in the “restricted activies” section that my bank does not already apply. Personally I’m not sure I would wish to do business with any company which would engage in any of them.
just to be clear, i’ll quote it here. from paypal UA.
So exactly which is suspect?
9. Restricted Activities.
9.1 Restricted Activities. In connection with your use of our website, your Account, or the
Services, or in the course of your interactions with PayPal, a User or a third party, you will not:
a. Breach this Agreement, the Card Processing Agreement, the Acceptable Use Policy or
any other agreement that you have entered into with PayPal (including a Policy);
b. Violate any law, statute, ordinance, or regulation (for example, those governing financial
services, consumer protections, unfair competition, anti-discrimination or false
advertising);
c. Infringe PayPal’s or any third party’s copyright, patent, trademark, trade secret or other
intellectual property rights, or rights of publicity or privacy;
d. Use PayPal to sell counterfeit goods.
e. Act in a manner that is defamatory, trade libelous, unlawfully threatening or unlawfully
harassing;
f. Provide false, inaccurate or misleading Information;
g. Send or receive what we reasonably believe to be potentially fraudulent funds;
h. Refuse to cooperate in an investigation or provide confirmation of your identity or any
Information you provide to us;
i. Attempt to double dip during the course of a dispute by receiving or attempting to receive
funds from both PayPal and the seller, bank, or credit card issuer for the same
transaction;
j. Use an anonymizing proxy;
k. Control an Account that is linked to another Account that has engaged in any of these
Restricted Activities.
l. Conduct your business or use the Services in a manner that results in or may result in
complaints, Disputes, Claims, Reversals, Chargebacks, fees, fines, penalties and other
liability to PayPal, a User, a third party or you;
m. Have a credit score from a credit reporting agency that indicates a high level of risk
associated with your use of the Services;
n. Use your Account or the Services in a manner that PayPal, Visa, MasterCard, American
Express or Discover reasonably believe to be an abuse of the credit card system or a
violation of credit card association rules;
o. Allow your Account to have a negative Balance;
p. Provide yourself a cash advance from your credit card (or help others to do so);
q. Access the Services from a country that is not included on PayPal’s permitted countries
list.
r. Disclose or distribute another Users Information to a third party, or use the Information for
marketing purposes unless you receive the Users express consent to do so;
s. Send unsolicited email to a User or use the Services to collect payments for sending, or
assisting in sending, unsolicited email to third parties;
t. Take any action that imposes an unreasonable or disproportionately large load on our
infrastructure;
u. Facilitate any viruses, Trojan horses, worms or other computer programming routines that
may damage, detrimentally interfere with, surreptitiously intercept or expropriate any
system, data or Information;
v. Use any robot, spider, other automatic device, or manual process to monitor or copy our
website without our prior written permission;
w. Use any device, software or routine to bypass our robot exclusion headers, or interfere or
attempt to interfere, with our website or the Services;
x. Take any action that may cause us to lose any of the services from our internet service
providers, payment processors, or other suppliers;
y. Use the Service to test credit card behaviors.
Posted by vince jelenic on June 10th, 2009.
Hi Vince
How kind of you to post the entire text of Section 9.1
If you read my post you will see I said:
# Charge-back or reversal by a buyer who failed (or chose not) to participate in the PayPal Buyer Complaint Process (That would be 9.1.l)
# Receipt of potentially fraudulent funds(That would be 9.1.g)
Chargebacks, this is something within my control, I mean, every seller wants to sell something, ship to the buyer, get a chargeback, now buyer has item and money, I have fees.
Just how am I supposed to know if they are potentially fraudulent funds (assuming it is not a nice gentleman from Nigeria who wants to send me extra for my time and trouble) is it not the responsibility of the payment processor to run security checks on my behalf?
Posted by Henrietta on June 10th, 2009.
“just because”…. it’s funny how your addition of that phrase to an action makes it sound so arbitrary and irrational.
You cannot know they are potentially fraudelent funds. You never do. That applies whether in my store with cheque, ccard, or even debit. Bank will hold and reverse payments if they are holding an investigation. So does paypal. It’s the nature of the payments business.
Doesn’t Google checkout do the same?
Every transaction a business does through a payments processor carries this risk. Have you lately read your merchant account agreements with other processors?
No fine ebay levies would hold up in court if they could not prove the seller KNOWINGLY received fraudelent funds, or any of the other myriad sections of their “restricted activities”.
Is it a major hassle if it happens? YES IT IS. A real PAI.
As a retailer, we have seen various instances of this occuring to our colleagues. We have been lucky thus far. It has not occured online or in b&m store yet.
Paypal is like all the rest. If you contact them, get it in writing. Back it up, print duplicates of everything. If you talk by phone, tape it. Send a fax request for any action you require, vocal by phone is not enough.
That, unfortunately, is no different than the relation I have with any bank, lawyer, business, or payments processor. A shame, but that’s life.
p.s. we have just finished our lease on ccard processing machine, and cancelled our “credit card processor” relationship with global payments. We looked at all the intricate documentation in recent contracts from various providers. Paypal looked like the good guy in that. We now do our processing online. The machine is sent back, all accounts closed.
Can’t wait for Google checkout to reach Canadian biz, would be nice to have other options.
-Vince.
Posted by vince jelenic on June 10th, 2009.
Vince,
I did not say “just because”, Kate did.
Have you looked at ProPay? They have a micro-processor that looks pretty cool. You will find my review on it here:
http://200westmain.com/redinkdiary/?p=263
Google checkout does fraud checks, and tells you if they have any flags. I am really happy with them so far. Their UA is pretty awful too so what else is new.
I used PayPal when they were Xcom, I really do not have a problem with them off eBay.
Posted by Henrietta on June 10th, 2009.
oops, sorry H, if that was the impression, guess it kinda was, coming right after your comment.
I was referring to Kate, and got caught in the “you”, between generic and personal.
Thanks for the info on propay… will check out.
My experience, is most of the good stuff is just NOT available here in Canada to us businesses. Banks got us by the neck up here.
Our saying up here, anytime we see a good product has become “only NOT in Canada” — I’m sure Americans were not bombarded with the old Red Rose Tea commercials - two prim ladies sipping tea, shocked and upset to hear “only in Canada”.
A humorous but twisted memory.
Posted by vince jelenic on June 10th, 2009.
Not sure how many of your readers have a B&M store, we do.
After losing our ccard machine, and having a few moments to think on solution, and prodded by your pointing out propay — I did some searching for good payment processors for us in Canada.
propay, authorize.net, and all the others are for US accounts only. Only way to use would be for us to open an account at a US bank in states, (some require residence).
We found a cool little gadget at smartswipe.ca , a credit card encrypted reader for home use, also possible to use for store online, costs about $100, no fees, no contracts, nada. Very Secure, and it feeds diretly into ANY secure online form (any webstore, claim, have not yet verified).
We’ll use paypal with it till google finds Canada.
Waiting for my gadget soon. It looks like a great solution to many for this problem.
Yeah, we’ll still have to deal with Paypal, but like I said it’s among the best devils here in canada right now.
Posted by vince jelenic on June 12th, 2009.