Comment by dangrossman | Hacker News Reader

Comment by dangrossman | Hacker News Reader

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No, I don't believe you should have that. PayPal can choose who it wants to do business with, the same as you or anyone else. If they've closed your account and held the funds, it's because they decided there is too much risk associated with doing business with you. A process to dispute the decision not to do business with you, with the possibility of winning the dispute, is tantamount to forcing two parties into a contract, which goes against the very spirit of contract law -- that of agreement between two parties to enter into the arrangement.

They hold on to any funds still in your balance for only as long as it takes to ensure you can cover chargebacks and reversals on your own payments, then disburse them to you and your relationship is ended. I don't think adding a dispute process to this would better the situation. It may be frustrating to have someone decide not to do business with you, but it's not illegal, and shouldn't be something you can dispute.

Financial industry is strictly regulated. Otherwise, imagine what would happen if banks could freeze your accounts freely, leaving you out without any means to pay for food or housing. Paypal could be that for larger merchants who could have substantial part of their assets tied up at Paypal.

What I find interesting is that Paypal is essentially a bank, yet it's completely unregulated.

But there is no regulation on banks that would affect this policy. Actual banks that offer merchant accounts do the exact same thing. They can and do freeze your merchant account freely, leaving you with no access to any undisbursed funds.

I've been through this myself. I had a merchant account about 8 years ago, underwritten by First National Bank of Omaha (the largest private bank in the United States). I got a couple large, unexpected chargebacks all at once from a single scammer that used multiple stolen cards. FNBO decided to create a reserve on my account for several days while they reviewed my account, then decided to terminate it due to the chargebacks. They held several thousand dollars of my money for exactly 180 days before returning it to me. That's money I needed to pay vendors and pay my bills - and it was perfectly legal for this regulated bank to hold it.

Strawman. He wants a process to dispute them unilaterally holdin on to your money, not to do business with you.

I agree. Holding my money for 180 days with no appeals process amounts to a tort, and should be considered unconscionable and unenforceable when it appears in a contract. They shouldn't even be allowed to ask for that, because once one player creates such a policy, the rest will follow.

Thought experiment: why not make it 5 years, instead of just 180 days? If a 5-year term were to become "standard industry practice," to paraphrase Dan, who could argue otherwise?

They simply should not be able to exercise that kind of arbitrary power, at least not without being subject to standard banking regulations that can be modified as needed to balance the interests of financial institutions and their customers.

This is the same hold policy at every regulated bank. It comes down from Visa and MasterCard's operating agreements. Its presence in standard merchant contracts predates PayPal's very existence. It's not arbitrary, either; it's the period in which the people that paid that money can file a chargeback or bank reversal to recover it.

It comes down from Visa and MasterCard's operating agreements.

Thus illustrating one of my favorite pet sayings: "Any sufficiently dominant corporation is indistinguishable from a government."

Nothing you are saying actually makes this policy right; you are simply reiterating its existence.

I can agree with their decision to do what they are doing on one condition: They aren't allow to earn interest on my money via short-term T-bills, and if the money is put in T-bills, then the interest can only accrue to the rightful owner of the money and not Paypal. This practice doesn't exist to protect buyers and sellers. It largely exists to allow Paypal to operate on a huge negative working capital at the expense of sellers. IMHO it's fraud to say they do it for fraud reasons when the real reasons are profit. They have a perverse incentive to hold your money to earn interest that isn't theirs. They are stealing the time value of money from the sellers.

I think you're a little bit crazy to think PayPal terminates business customers, who would otherwise be generating significant revenue for PayPal in transaction fees, in order to earn a couple bucks of interest off a much smaller balance than their transaction volume would have been.

The number of legitimate business customers that are terminated is very very small relatively to the amount of money they are generating on this. I used to handle the investment of negative working capital in short term T-bills at a social gaming publishing company I used to work for. When we become really profitable, asked me to figure out what we should do with the money that we didn't have pay developers for 90 days. I don't remember the exact figures, but with a $4-5 million/month run rate, the 90-days of interest on 50% of it which was paid to developers earned us a significant sum in pure profit relative to the net profits from our core business of game publishing.

We were investing in 60/90-day Brazilian T-bills at the time because that is where we were earning the money, so the interest earned was much higher than what you can currently earn on short term securities in the US, but when you are handling the quantities of money eBay is handling, the amount of interest that can be earned on 30/60/90-days securities is very very large.

This same approach applies to the money Groupon holds that belongs to small businesses. Whatever amount isn't being used to pay operating expenses is probably invested in some sort of short term securities.

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