Judge Says Paypal's Arbitration Rules Unfair

MooRogue points to this article in today's San Francisco Chronicle, which reports U.S. District Court Judge Jeremy Fogel's ruling that Paypal "attempts to isolate itself from challenges," noting "Judge Fogel also refused to dismiss the class-action lawsuit going against Paypal." I guess I've been lucky with PayPal so far, but I know a few people who haven't.

Comments

Paypals response:

[geekoid]

"This is totally unfounded. Just because people use our system, doesn't mean we need to bear any responsibility for what goes on with are system! Jeez, you people are all acting like money is important and should be regulated..."

Re:Paypals response:

[Fesh]

I'm not seeing this point brought up, so I'll go ahead and air it. The difference is that PayPal is a bank, whether they like it or not. They store money for you. They make it convenient to pay for things without using cash. A bricks-n-mortar bank would be screwed on so many different levels if it behaved like this, why is PayPal any different?

obligatory link

[packeteer]

www.paypalsucks.com

Another Article, Same Jist

[Murdock037]

Nice to see Slashdot isn't getting more than a few stories a day from the Register at this point.

But just in case you love the vulture, they still beat 'em to it:

http://www.theregister.co.uk/content/6/27028.htm l

Is Ebay a bank?

[MrCaseyB]

I thought I remembered a story about a decision that would make ebay follow all the rules and regulations that traditional banks follow. What was the outcome of that and would that have prevented ebay from being able to screw people like this? IS Ebay even FDIC insured?

Re:Is Ebay a bank?

[NineNine]

Actually, I'm thinking about PayPal. Either way, it's a moot point now. It already came and went. EBay/PayPal won. It was ruled that they're not technically a "bank", and so they don't need to be regulated.

Essentially, when you put money into EBay/PayPal, you're taking a gamble that you're gonna get it back. No FDIC insurance there. Hell, not even any regulations that say that they have to keep xx% of cash on hand. If there were a run on PayPal/EBay (ie: a lot of people withdrawing cash), I seriously doubt they'd be able to handle it. In fact, that's a good idea...

Somebody needs to organize a day when as many as people withdraw cash from PayPal. When they bottom out, that'll get the Fed's attention.

Re:Is Ebay a bank?

[Zeinfeld]

What was the outcome of that and would that have prevented ebay from being able to screw people like this? IS Ebay even FDIC insured?

FDIC insurance is irrelevant unless eBay (owner of Paypal) goes under. FDIC insurance is not a requirement to perform bank functions, but federal regulation is.

I don't see why Paypal is not subject to the same rules as any other bank or money transfer agent. Nor do quite a few state attorney generals. If you take money from consumers and hold it in accounts the Federal Reserve regulations apply to you, period, end of story.

This case is rather more interesting, the judge essentially threw out the mandatory arbitration claim as being, well arbitrary.

Contracts should not trump the law. It is one thing for two companies negotiating a million dollar contract to agree to be bound by arbitration, it is quite another for a company to unilateraly impose terms on consumers.

Of course extreeme Randite Libertarians will blather on incessantly about 'rights' however this is one case in which the law is defined empirically. The law is what courts rule it to be. Courts have refused to uphold contract terms that usurp the common good since the days of Claudius.

Federal small claims

[jbolden]

For local cases small claims courts work really well. Generally for about $25 you can file, there are no lawyers, the case takes place within a month of filing, the judge hears both sides and the thing is over in less than 15 minutes. Suprisingly often once you "sue" in small claims court you can get the other side to actually negotiate in good faith.

With the internet there is a great deal of "mail order" type business going on for a county based system to work. But the system itself works pretty well. I don't see any reason the Federal Government couldn't set up an internet based small claims court under the interstate commerce clause. Also maybe raise the limit to say $25k. For large cases hiring an out of state lawyer to handle a suit is not unreasonable its insane for small cases and there are lots of small cases.

Re:Federal small claims

[dr_dank]

If the issue is with PayPal, you forgo your right to sue for "binding arbitration" (read:a private court that will almost certainly be in PayPal's favor), IIRC. Hopefully, the class action suit will put an end to that nonsense.

PayPal...

[ak_hepcat]

I've used PP a few times, and it's gone pretty well for me. I've never 'deposited' money in them, mostly because I realise that *** They Are Not A Bank ***, just a western-union house. If only western-union didn't charge as much money for money-transfers, they could take over the paypal market. ($18US for a $40US transfer. Hello? Can you say unreasonable markup?)

not a troll but

[evacuate_the_bull]

mentioning paypal on slashdot is almost worse than mentioning MS....this is going to get ugly

no prob here

[greymond]

I've been using paypal constantly with ebay - both selling and buying - I even take donations via paypal on my website. I havent had a problem with them at all. I read through some of the old slashdot's on this and it seemed that people who had LOTS of money (ie: more than 1 grand) in there PP account somehow got fucked over but the people like myself who have $100 or less in there at any given time are left alone just fine. Maybe this is something the conspiracy people should look into - like maybe paypal fucks with the people who put alot of money in there at once because they know they can get away with it because the majority of people who run small amounts won't complain and will stick up for PP.

PalPal democratizes taking credit cards

[gentlewizard]

I used PayPal earlier this year to accept credit card payments for a seminar I co-produced. It all went very smoothly: following the instructions in their online manual, I was able to add the Paypal button to my website and also pre-populate the signup form for new PayPal users.

Best of all, the fees were only $0.30 plus 2.9% per transaction, with no monthly minimum, terminal fees, etc. like with a standard credit card processor. This page at PalPal shows the comparison.

To me, this means that accepting credit card payments is not just a privilege of those who can "qualify" at a bank, but available to anyone with just a painless web signup. And the fees are less too.

If PayPal can ever get its customer service act together, it will really give banks a challenge. The credit card processors don't care: they're getting huge traffic from PayPal.

Re:PalPal democratizes taking credit cards

[Bagheera]

To me, this means that accepting credit card payments is not just a privilege of those who can "qualify" at a bank, but available to anyone with just a painless web signup. And the fees are less too.

One of the issues that has been brought up is that PayPal is NOT more economical than a merchant account. You reference their site, and I honestly wish I could find a good merchant account link - but I know from friends in business that the transaction fees are less than 2.9%.

While the point of qualification may be valid (there is none for a paypal account) the "savings" are non-existant for most business users. And, to be quite honest, it's not that difficult to qualify for a merchant account. A friend of mine started her business on-line with a merchant account and no real credit after a bankruptcy.

The real issue is that PayPal is NOT a bank, does not have the oversite that a bank does, and makes it so they can screw their users if they feel like it. The Judge in this instance has stepped in and told them "No, sorry, you aren't going to keep screwing your users."

Good for the Judge.

Re:PalPal democratizes taking credit cards

[Guppy06]

"PalPal democratizes taking credit cards"

First off, I just have to say how I laughed at that title. That's like saying Lenin democratized Russia. Replacing one oppressive regime with another doesn't change anything. PayPal just makes sure everybody is oppressed evenly.

"Best of all, the fees were only $0.30 plus 2.9% per transaction, with no monthly minimum, terminal fees, etc. like with a standard credit card processor. This page [paypal.com] at PalPal shows the comparison."

That's all well and good, but my problem (well, one of them at least) is that they charge per-dollar to begin with. For most normal bank transactions, you are charged per-transaction, not per-dollar, and it's only with credit cards do we see this baseless pricing racket put in place. I mean, it't not like transferring $100.00 requires ten times the amount of bits to move through the wire than $10.00.

On top of that, it takes them several days to transfer money to my checking account, but they can take it from my account "instantly?" Why does it work that way? Maybe so PayPal can skim a little interest off the transaction on top of the transaction fees? Charging me twice, are they?

I live in Louisiana. My bank is in Texas. When I sell things on eBay, often times when a person mails me their check and I mail the check to my bank, it takes less time to get my money than it would have taken through PayPal.

"To me, this means that accepting credit card payments is not just a privilege of those who can "qualify" at a bank, but available to anyone with just a painless web signup. And the fees are less too."

The problem aren't the middle-men who set up the transaction services, the problem goes much higher than that, rooted in the oligopoly that the credit card industry has become. Look at the recent legal troubles Visa and MastarCard are finding themselves in.

"If PayPal can ever get its customer service act together, it will really give banks a challenge."

It will be a cold day in hell before most banks can challenge my bank as far as I'm concerned. And PayPal has a long way to catch up with normal banks.

Just as an example, most banks don't make you sit through click-through ads before you can access your account. If that's not outright contempt for their customers, I don't know what is.

I have so much more respect for Citibank and c2it at this point that it's not even funny. Seriously. Large uber-corp offering a better service at a better price than some dot-bomb start up. Go figure.

What more can you expect from a company that

[tcc]

Doesn't delete your account even if you specifically ask them to do so after many emails, fax, etc... and if that wasn't enough, they still spam you with their newsletter and promotion...

I mean, it was one thing that they didn't give me that 5$ credit when my friend added himself, and sent them a message to confirm that he got refered by me, but blattantly spamming and keeping your information in their database like this even after repeated requests is just plain wrong.

At least I'm lucky, I didn't do the mistake of running a merchant service with them, especially after all the horror stories I've heard.

Ebay + Paypal

[handsomepete]

The unfortunate thing is that Ebay and Paypal were (and still are, I s'pose) linked so closely. I just sold about 30 items on Ebay and almost all of the inquiry e-mails I received contained the line "Do you accept PayPal? That's the only way I can bid." I ended up caving and getting an account just to up the chance that I would get a decent price on everything. Lo and behold, half of the auction winners ended up paying that way. So far, I've had no problems but plan on closing it immediately after I've finished collecting and shipping.

Now, correct me if I'm wrong, but I was under the impression that Ebay acquired Paypal. Do they have any known plans to let it die slowly and shove their credit card program to the forefront? Have similar problems emerged from the Ebay cc service?

WHY do people still join class-action suits?

[pla]

So far, in my life, I have joined three class action suits, all basically after-the-fact since I had no intention of suing on my own behalf and the letter said basically "join or give up your share".

In one, I don't actually know why someone filed suit, only that I got a free movie rental. In another, I got a whopping $4.00 (four *dollars*, not hundred) in exchange for well over a hundred dollars in abusively-applied late charges from my CC company (who I have only "fairly" paid late twice in over 10 years). In the other, I got less than the cost of the stamp to mail the response (don't even remember what company I got *that* cash-cow from).

After the CC deal, I resolved never to join another class-action suit.

The actual people who got screwed... get screwed again, by the lawyers, who make hundreds of millions. And, these settlements don't even "punish" the companies involved as a result, since it "costs" them less to pay off the occasional suit than by changing their offensive business practices.

I'll join another class-action proceeding when it involves the executives of the offending company going to prison. Other than that, I see no point in lining yet another up-and-coming lawyer's pockets with *my* suffering.

Re:WHY do people still join class-action suits?

[cpeterso]

Firms accused of chicanery could get IRS tax break: Companies that cooked books may be able write off fines

plus, companies that must pay fines may be able to deduct those fines from their taxes as "ordinary and necessary" expenses. For example, in the early 1990s, Alaska lawmakers were incensed to learn that Exxon Corp. would be able to deduct almost all of its $1 billion settlement with the state and federal governments over the Exxon Valdez oil spill. A study by the state legislature calculated that tax deductions and the settlement's multiyear payment structure lowered Exxon's actual out-of-pocket cost to $463 million.

Congress has denied tax deductions for only a narrow range of payments -- including fines and similar penalties paid to governments, some antitrust damages, bribes, kickbacks and treble damages in antitrust cases. On the other hand, almost all payments in private lawsuits are deductible, including punitive damages.

Re:WHY do people still join class-action suits?

[mosch]

class action lawsuits generally don't help you individually (unless you're one of the lawyers, or the damage was quite incredible), but they do help society as a whole, because it makes it hard for companies to knowingly fuck people lightly.

Let's say a company does something that screws you out of $20. Are you going to do anything? No, it doesn't make sense. Now let's say a lawyer finds a million people who got screwed, now the company is facing a real lawsuit, and has incentive not to pull those kind of shenanigans again, even though you might only get $5 back after all is said and done.

I'm all for class action lawsuits against paypal. A company who locked down a tad over $100 of my money, and won't even allow me to refund it to the sender. They're an illegal bank, and I'm happy to see that a money-hungry lawyer is busy fucking them hard, even if I never see a dime because of it.

btw, if you're looking for a paypal alternative that's run by a real bank, is FDIC insured, and doesn't charge you to send or receive money, check out c2it by citibank.

Re:WHY do people still join class-action suits?

[dillon_rinker]

...ungtil the law changes. Two things are necessary to fix corporate America:

1. Corporate death penalty. Hey, shareholders! Your stock certificates are now toilet paper, because you gave your money to criminals! This will encourage stockholder responsibility; no longer will they be able to focus on the bottom line to the exclusion of all else, unless they LIKE seeing their assets on an auction block.

2. Jail time for executives in civil cases. Demanding that I give you my wallet is a crime, but cheating someone out of $100,000,000 is business as usual? I don't think so. Just because the loss of cash results from a contractual disagreement doesn't mean that FRAUD is not occurring.

A few things to cover.

[DiveX]

After the thread regarding junk faxes/telemarketing calls a few weeks ago, I am happy to say I won my first case. The company I was going to sue over a prerecorded call agreed to pay $300 plus a promise to never call again.

However a few things are incorrect in your statement. Filing fees can vary greatly. In my county, for a claim of less than $100, there is a $79 fee. For anything between $100 and $5000, it is $96 (I know, strange but true). In several states, you are allowed to have a lawyer represent you, so it isn't just person vs person, although the judge may provide you with a lot more leeway. I now have one suit pending and am prepared to file another if they do not meet my demands within another week. Judgement is the easy part, collecting can be impossible.

Wha...?

[xenoweeno]

There can't be that many people who think that PayPal sucks!

Financial regulation is needed everywhere

[Animats]

Banks are regulated. Money market funds are regulated. Credit card companies are regulated. Money transfer firms are regulated. Sooner or later, a judge is going to rule that PayPal is subject to regulation as one of those classes of businesses.

They're all regulated for a good reason. They hold other people's money. There's a strong temptation to abuse such a position. Historically that's been a major problem, and thus there is regulation. PayPal is no different.

Interest on the slush fund?

[Anonymous Coward]

The one single point that jumped out of this article for me, was the allegation that Paypal would be collecting interest on the frozen accounts. That is a big no-no, and should move
this discussion away from the civil/class action
stuff, and straight into federal-pound-me-in-the-ass charges for the people at the highest levels of the company.

They are simply not allowed to do this, and one of the most important things that enables them to claim that they are "not a bank", which they point out repeatedly in their agreements, is that
they fully insulate the deposit money from their corporate assets. Collecting interest on the deposit money is exactly the opposite of this.
Did you think they put that detail in the licence agreement because it sounds good? No! They put it there because it is the very thing that allows them to operate outside of banking laws.

If they don't do this, then there might be some serious consequences -- instead of having a judge merely suggest that their arbitration policies might be unfair (which was simply a wave of the gavel intended to remove a barrier for the procedure of a specific lawsuit), they could find themselves on the wrong end of a judicial ruling to the effect of, despite their claim to the contrary, PayPal is a bank, has function as a bank, and has violated federal, state, and local banking laws. Tack on a few mail fraud violations, and you might get to see pictures of another suit in handcuffs.

Looking forward to it.

Re:Alternatives?

[schon]

Ok, so paypal sucks. Are there any good alternatives though?

Yes.

They are FDIC insured, so you have some recourse if they screw you.

This wouldn't be an issue if the banks were better

[targo]

I come from a small country in Eastern Europe (Estonia) but I have lived in the US for the last three years. One thing that surprised me most when I moved here was the backwardness of the US banking system (this is not meant as a flamebait, just the sad truth). In my home country there's a very advanced electronic banking system. Some examples:
1) Whenever you open an account in any bank, you always get free Internet access to it and full control over your account (since 1997).
2) You can transfer money from any account of any bank to any other account of any other bank, the account number system, routing and other issues are standardized by the central bank (since 1995).
3) In most banks, all Internet-based transactions are free (since 1994).
4) Proper security. None of this 4-6 digit PIN nonsense, you get either at least two passwords (one made up by you, the other comes on a password sheet that contains tens of different passwords and changes from session to session), or a smart card (since 1996).
I guess there are lots of other features by now but these are the ones that were implemented 5+ years ago and still aren't implemented in the US.
I find it truly weird that I have complete control over an account and I can handle all sorts of transactions in my home country that is thousands of miles away but I still have to walk over to my local bank that is just 3 miles away every now and then.
Just one example of how useful the system was: When we went out to lunch with friends, we never had to go through this bill-counting ritual (got change for 20?) when paying for it, one guy paid for lunch, and the others just transferred money immediately and directly to his bank account.
If only the US banks got their act together and implemented a normal bank-to-bank transaction system, we wouldn't have this discussion here.

Unhappy with Paypal? Call Craig at (402) 935-2258

[goingware]

PayPal's executives have stated publicly that they try to avoid phone calls to keep their costs down.

If you're unhappy with PayPal, PayPalWarning.com lists a bunch of phone numbers. Call (877) 672-9725 if you want to reach them toll free.

Here's a bunch of known paypal numbers:

(402) 935-2000 / (402) 935-2001 / (402) 935-2062 / (402) 935-2258 [this is Craig, complaints resolution manager] / (402) 935-7733 / (402) 537-5740 (fax) / (650) 251-1100 / (888) 221-1161 / (800) 836-1859 / (877) 672-9725 / (866) 272-9725

And addresses, in case you need to send a process server or wish to register a complaint in person:

PayPal, Inc.
1840 Embarcadero Rd.
Palo Alto, CA 943030

PayPal, Inc.
11128 John Galt Blvd.
Omaha, NE 68137

I signed up for paypal because it was the only way someone who had something I wanted to buy would accept payment. But I wouldn't allow them access to my checking account. They won't let you spend more than $250 through their service unless you allow them direct access to your checking account.

After reading PayPalWarning.com, I decided that I never would use them again.

I was unaware until recently that by giving PayPal access to your checking account, you forgo the liability protections that a credit card vendor is required to give you.

So if you pay a lot of money through paypal for some merchandise you never receive, you basically have no legal recourse - you're screwed. If you had paid with a credit card, you could dispute the charge with your credit card company and they'd have to give you your money back.

I think I'll call Craig when I get up and ask him to delete my account.