Ashley Howard just got banned from PayPal. The company informed her that she will no longer be permitted to use its money transfer service. And more bad news followed. PayPal froze the several thousand dollars currently held in her account for 180 days.
Howard asked our advocacy team to request that Paypal unlock her account and give her access to the money. But something didn’t quite add up about this plea for help.
Banned from Paypal
“I got banned from Paypal after I added funds from my bank account to my PayPal account,” Howard reported. “I did not know ahead of time that the process I used was against policy. Paypal didn’t give me a warning or anything.”
Howard explained that she had added over $2,500 to her PayPal account to “buy things and send money to friends.”
Almost immediately she noticed that PayPal had limited her account. She could not access any of her newly deposited funds.
“I called. PayPal told me that I would know why in 24 hours,” Howard recalled. “Now Paypal locked my account for 180 days. And it’s closed for good.”
Many before her have found themselves banned from PayPal
All over the internet, you can find similar tales of locked PayPal accounts. And many of these blindsided Paypal users have received the same 180-day frozen funds notice.
To find out what might be going on, I went to Paypal’s acceptable use policy. There are a variety of unacceptable actions that can get you banned from PayPal. But none of them involve merely transferring money into your account from your bank account.
Based on this document, Howard’s plight seemed puzzling.
As our advocacy team always does, I asked for the paper trail between Howard and PayPal. I thought perhaps that would clarify what happened.
It didn’t.
A strange paper trail
Howard sent just one email. And it only deepened the mystery.
We recently received a report that your bank account was used without your
permission. To help prevent more unauthorized transactions, we limited this
account. Because of this issue, your account has been permanently limited.You can get more details about your account limitation in the Resolution
Center.
PayPal addressed this notice to “Ashley Howard,” but the email address named “LaParris Marie.” And the email address which I was communicating with was in the name of “David Huddleston.”
Now my shenanigans detector started to go off, and I began to suspect that we should not pursue this case further.
What’s going on here?
I asked Howard to clarify her identity and inquired about the various names on the email accounts.
“Well, that’s another email. The PayPal account is under the name Ashley Howard,” she told me. “They never sent an email saying what I did wrong. That’s the issue.”
It’s not unusual for someone to have an email address that’s not in their own proper name. But making an email address in someone else’s name seemed strange. And digging further into PayPal’s massive legal notice, I noted several ways to get banned from PayPal. Under “account limitations” it reads:
If we suspect someone could be using your PayPal account without your knowledge, we’ll limit it for your protection and look into the fraudulent activity.
If your debit or credit card issuer alerts us that someone has used your card without your permission. Similarly, if your bank lets us know that there have been unauthorized transfers between your PayPal account and your bank account.
Send PayPal the requested information
And in order to get the restrictions lifted, PayPal provides the following guidance:
You will need to resolve any issues with your account before a limitation can be removed. Normally, this is done after you provide us with the information we request. However, if we reasonably believe a risk still exists after you have provided us that information, we may take action to protect PayPal, our users, a third party, or you from reversals, fees, fines, penalties, legal and/or regulatory risks and any other liability.
Based on the limited correspondence that I could see, I assumed that PayPal had the same suspicion that I had about this account.
But I asked for one more bit of information before this case went to the Case Dismissed vault.
The PayPal email said that the company had provided a detailed explanation about the banning in the resolution center. I asked to see it.
And that’s the last Howard, Huddleston or Marie contacted me.
Banned from PayPal? What you can do
It’s important not to get banned from PayPal in the first place. It’s quite difficult or even impossible to get PayPal to reverse its decision once you find yourself banned.
Because I was curious about this case, I contacted PayPal for clarification. Our PayPal executive contact took a look at Howard’s situation:
Thanks again for reaching out. Per company policy, I can’t provide specific customer account information, but on the background I can confirm that our dedicated customer service team correctly worked Ms. Howard’s case.
She went on to explain that when Paypal places a limitation on a user’s account, it does not “necessarily mean” that the user has violated any terms. The temporary limitation protects “both buyer and seller.” Permanent closure of the account does, of course, indicate a violation of PayPal’s terms of use.
Finally, she offered this link for users to reference about PayPal account limitations and how to get them lifted as quickly as possible.
You may never know
Like other giant corporations about which we have written — such as Amazon and eBay (Banned from eBay — and no one will tell me why) — in many cases, PayPal will not reveal the specific reason for banning. In fact, in PayPal’s terms the company explains:
Our decision about holds and limitations may be based on confidential criteria essential to our management of risk. We may use proprietary fraud and risk modeling when assessing the risk associated with your PayPal account. In addition, we may be restricted by regulation or a governmental authority from disclosing certain information to you about such decisions. We have no obligation to disclose the details of our risk management or security procedures to you.
So in other words, PayPal may never tell you why it banned your account. But the first step in an attempt to fix your problem is to go to the PayPal resolution center inside your account.
The business model of PayPal
If you choose to use PayPal, it’s critical to understand what the company is and what it isn’t.
PayPal isn’t your bank account. The Federal Deposit Insurance Corporation (FDIC) protects deposits made into bank accounts but not into PayPal accounts.
In fact, PayPal is considered a “Deposit Broker” according to the Federal Deposit Insurance Corporation. A deposit broker is a company that takes your money, combines it with other users’ money and invests it in other things. It makes money off the interest of those deposits. You make nothing. And PayPal charges you to invest your money in those ventures from which it makes money.
PayPal explains all of these details in their lengthy user agreement under Holding a PayPal balance.
Any PayPal balance you hold represents an unsecured claim against PayPal and, except as provided below, is not insured by the Federal Deposit Insurance Corporation (FDIC). PayPal combines your PayPal balance with the PayPal balances of other PayPal customers and invests those funds in liquid investments in accordance with state money transmitter laws. PayPal owns the interest or other earnings on these investments.
Make sure to read your PayPal user agreement
I suspect that most PayPal users have not read through all the terms of use and legal notices associated with their accounts. But it might be a good idea to take a close look before dropping large sums of money into your PayPal account. Paypal could limit or ban that account for undetermined reasons as well. It’s murky as to what rights you have to force the company to immediately return your money. And remember — as PayPal itself points out the FDIC does not insure those balances.
PayPal is not a bank and it is not insured by the FDIC. FDIC insurance does not protect you against the risk of PayPal’s insolvency.
So user beware: If PayPal should suddenly go bankrupt, your money could be gone forever.
Editor’s note: Updated February 2019
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