PayPal Under Scrutiny from State Regulators

by Mercator Advisory Group 0

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In an article last week in eCommerce Bytes, a number of eBay sellers upset with PayPal about funding delays to manage risk were reported to have taken their complaints to state regulators. Holds of 21 days prompted one seller in Florida to seek help from that state’s attorney general to pursue PayPal under laws that regulate licensed money transmitters. Florida law stipulates that the receiving party must have transmitted funds within 10 days.

“Bottom line: anyone that has a hold placed on their account, should take a few minutes to do some research, see if they have a leg to stand on, and complain to their state agency/agencies. It does work,” the seller wrote.

The possibility for a 21 day holdback is stated in the PayPal contract.

While the article states that PayPal declined specific comment, a company spokesperson wrote in an e-mail:

“PayPal works closely with state regulators to ensure that it satisfies consumer protection requirements, including the timing required to transmit payments,”

More from the article:

Rooney, the Maryland assistant commissioner, said that complaints against money transmitters are exceedingly rare – his office received just one in all last year. He also had not heard of the issue of 21-day PayPal holds.

“We wish we knew of more problems,” he said. “We want people to file complaints but we don’t get any.”

The state laws governing money transmitters are in place to protect consumers, rather than businesses, he explained. That means that businesses struggling to win prompt release of their funds might not find recourse with state authorities.

It’s a different story with small sellers, however, whom sympathetic regulators might be inclined to assist just as they would consumers. For Rooney, the breaking point would be whether the aggrieved party was an LLC.

“Any customer or the recipient can file a complaint with its state. What we would do with that complaint is send it PayPal and say, ‘Can you give us the specifics on this?'” he said. “If they didn’t we would question why did they put the hold on this.”

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