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Banks do this as well. In fact, it's fairly common.

> It's my money.

Actually, no. See, if someone pays through PayPal with a CC, they are paying on credit. Not cash. Credit cards work through credit card companies and banks, and they have rules. Because you are using PayPals association with these banks, you have to play by PayPals rules.

If you want to accept credit cards, you can do so without PayPal. Just get it from your bank directly, but it won't be as easy as setting up a PayPal account.

I can assure you they do not do it to earn interest. PayPal loses far more money on chargebacks, fraud, payment reversals, dispute resolutions, etc. than it makes on a measly 21 days of interest.

Further, "hold backs" (aka "reserves") are very common in bank-operated credit card merchant accounts.

So why didn't they do that from day 1 when i opened my account 8 years ago?

Because it's not very user-friendly.

Bait and switch.

That's a harsh description, I think. But it's true that PayPal does some things over time that other payment processors do upfront. That is one of the primary reasons PayPal has been so successful.

I wonder how much money they actually lose on a chargeback though? Chargebacks are debited from the merchants account (i.e. the merchant wears the cost of the fraud). So despite the origin of the fraud, the merchant wears it.

This is at least true with digital goods that can't be returned, I don't know what the policy is in regards to physical goods and PayPal.

I think it's fair to say the answer is "a lot". Especially in cases of fraud, there's not going to be any money in the merchant's PayPal account to debit. They were gone long before the chargeback came through, and they aren't going to leave a legitimate bank or credit card linked to the account to go after either. PayPal takes those losses.

PayPal losses are somewhere in the teens of basis points. Not all chargebacks are passed on to merchants.

When your money is in PayPal's hands, it's technically theirs because they are not a financial institution. Your money is not insured or protected in any way other than how PayPal deems appropriate. They are not liable for anything, unlike a bank. So it's not only illegal at all (perhaps immoral but hey), it's also perfectly OK because _you_ agreed to their terms of use when you opened an account with them.

That's only true in the US; in the EU, Paypal is actually a bank, registered in Luxembourg.

Sorry, I had to laugh a little when I saw this since I received the same notice recently. I've been using eBay / PayPal since 2002 with 100% feedback and hundreds of transactions, so you'd think they'd treat me like a loyal and valued member, nope. I think my trigger was that people were giving me refunds for my purchases and I was giving people partial refunds as well. During the holidays a lot of people I purchased from made mistakes and left items out so they decided to give me a little something. I guess all that buying, selling and issuing / receiving refunds cause them to flag my account.

I got that notice too recently, and I've had no activity in my Paypal account for more than 6 months, so I'm not sure what their rationale is...

> determined that there's a relatively higher than average risk of future transaction issues

Minority Report?

it's legal because PayPal is technically not a bank.

Then the law is wrong.

I mean, let's drop the literal-mindedness for a second. It's my money. They are holding it hostage. I want it back. They should not be allowed to do this.

Still nothing wrong with the situation, in your opinion?

No, you're wrong. Nobody is forcing you to use Paypal, you accept payment that way because it's convenient for both buyer and seller. You could advertise on Craigslist, but would you feel comfortable if someone says, 'I will send you a check, please ship to this address'? No, because the check may be bad and you could have a big financial headache. Likewise, many buyers would not be comfortable sending a check or taking a large amount of cash to buy something from a stranger. Finally, eBay allows you to reach a much wider market than you could through local classifieds, and takes care of almost all the administrative overhead of the transaction.

As a buyer, you want this security so that you can pay a few thousand $ without the fear of getting nothing in return. As a seller, you have to treat the 21-day float period as a cost of doing business, or else impose less generous terms of your own (and see less interest from wary buyers who do not want risk). In the business world suppliers are often expected to provide 30 or even 60 days of credit to commercial customers, and dealing with this is the essence of cash flow management.

It seems you want all the benefits of having your money instantly, but that someone else bears all the risk. The opportunity cost of the 21-day wait is the risk premium you pay for access to a large marketplace.

This is the absolute best response to this post that we could ever have expected. Nailed it.

Why thank you, that was a nice thing to say.

A good way to read Hacker News is just to follow 'anigbrowl comments:

http://news.ycombinator.com/threads?id=anigbrowl

He's like this all the time.

Cool. I'll second that for tptacek. (and sadly kragen got fed up of HN)

Aw, you're making me blush.

I'm pretty sure PayPal charges fees for the convenience of getting your money instantly, which means nobody is expecting charity here as you seem to be implying. Thus, PayPal is not bearing all the risk, indeed they are being paid to carry the risk. I have a merchant account and it clears to my bank account next day, there is no such 21-day float period, which might be more common when you are being paid by a vendor but not a bank.

In my opinion their rules are exploitative and out of line with what I would expect from a company that I would do business with. (Edited to remove 'out of line with what rational people expect' comment, I do not presume to speak for anyone.)

Their fees are cheap compared to the consignment fees of an antique or other specialty dealer. That said, I am looking at it in the specific context of Paypal as a transaction-processing arm of eBay, an auction brokerage. I don't know if this violin was sold on eBay or through some private sale, but I suspect the former since private buyers usually negotiate terms in advance. They are somewhat exploitative, but on the other hand I consider the buyer's right to get what they paid for just as important as the seller's right to get the cash they sold their goods for. Having been on both sides of the transaction fairly frequently their fees and policies seem fair enough to me, but obviously YMMV.

This is a terribly misleading response. You might as well point out that we're not forced to use banks and therefore they shouldn't be regulated either. The logic simply does not follow.

In fact, he is not wrong to expect that reasonable regulation be imposed on a company which borrows and handles funds. Paypal's system is highly unusual in comparison to other comparable banking services and is predictably often the target of these types of complaints.

Florian says the law is wrong, that paypal should be regulated as a bank. In response, you reject regulation in general. His position makes a lot more sense than your own.

Well, your post pretty much embodies everything that is wrong with the world these days.

"Cost of doing business"? ROTFL, I'm just a dude selling a handful of trinkets and baubles on eBay, once in a blue moon.

Your argument is like one of those math "proofs" that make sense internally, but are stemming from axioms utterly divorced from reality. You could "demonstrate" anything that way. You could even "demonstrate" how PayPal is "right" to keep my money for no good reason, or how Sony is "right" to have me waive my rights to sue them if I use their product. When they do it, it's called "EULA" and "cost of doing business" or some other kind of standard boilerplate bullshit like that.

But let me try the same tactics on their skin. Then it's called "theft" or "piracy" and I go to jail.

And what's the difference? They own immense quantities of cash, out of which they can afford to pay armies of lawyers and lobbyists, effectively superseding the law. I don't have that much cash, so I must dance to whatever tune they like to play.

All they have to do is couch this behavior in intricate pseudo-rational arguments like yours, or lofty but flawed rhetoric like you see all the time on TV, and "all is well" with the world.

This is bullshit. It needs to stop.

Start your own competing service then. Seriously. Then you'll understand why things are the way anigbrowl explains. The one "divorced from reality" is you. There is significant cost associated with PayPal's operation. Their management of all this risk is what earns them their profits.

PayPal provides a service and you are getting benefits from it at a relatively low cost. They are taking risk on from you selling stuff that is making them very little money (trinkets and baubles, as you described).

I'm not saying PayPal are a bunch of saints, or that they don't have some policies which aren't right. As a musician, I find the situation described in the article to be abhorrent, and it's behavior like this that prevents me from using PayPal except as a last resort. But what you are saying basically boils down a temper tantrum about how things should be different. Well, if you have an idea as to how to do this in a way that doesn't bankrupt you, there's your entrepreneurial opportunity. Go change the world.

You make money from the sales, right? And the amount of money depends on your claims that the trinkets and baubles have some residual value (as opposed to being merely pretty junk sold for flea-market prices)? Then you are doing some business, even if it is only part-time business.

They're not superseding the law at all. You have no automatic legal right to enter a private marketplace; if you want eBay/Paypal's low fees, you accept their conditions. If you want the full-service luxury treatment of an established auctioneer like Sotheby's, then you pay their huge fees. If you want the no-questions-asked simplicity of a flea market, then you rent a table and stand in the cold for hours.

Technically, paypal is a bank:

http://en.wikipedia.org/wiki/PayPal#Bank_status

It depends on where you are, in the EU it definitely is a bank.

Not that being a bank means much in the EU, see the situation in quite a few member states.