To be completely honest, and while I only have a degree in Finance and don't work in the industry, it would actually be considered irresponsible of a financial services company to NOT put it into at least a Treasury bond of sorts.
In fact, the process should be almost automatic. Otherwise, I'd argue their system , and its management, as grossly mismanaged and arguably violating their fiduciary obligations to shareholders. As to whether the other party should hold claim over any interest, that's something courts would need to decide in the same way the interest from a security deposit account once went to landlords and I think all the courts changed so that it always belongs to the tenant. Bear in mind that the interest in these cases is typically just dollars and it was more a symbolic victory for tenants.
Although, I've been skeptical of Paypal practices ever since my sister asked me how to pay me using her Bitcoin through Paypal only to find out that the Bitcoin bought on Paypal can only be sold to Paypal. That one just rubbed me the wrong way.
“PayPal combines your balance with the balances of other users and invests those funds in liquid investments. PayPal owns the interest or other earnings on these investments.”
(I can’t seem to find a way to hyperlink to selected text on iOS, so I’ve also included a screenshot of this quoted statement instead, below [2])
I assume that (unless stated otherwise in their agreements / legal documents) PayPal continues to apply the same policy to funds that are held by them in accounts pending closure for high chargeback rates. I could be wrong though, I just ctrl+f’d for “balance” on the first legal document linked on their site. Also, only applies for Canada, since I didn’t check any other country’s agreements (but my guess is that wherever it’s not expressly illegal for them to do so, they’ll use whatever money they’re “holding” for you as a revenue generating investment vehicle).
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1: https://www.paypal.com/ca/legalhub/useragreement-full?locale...