PayPal freezes out other groups, who turn to WePay (UPDATED)


PayPal has lost customers and credibility after freezing the accounts of Burning Man's Temple Flux – a story we broke this week that triggered an overwhelming response that caused the company to back down – with many of them flocking to the more community-based alternative But the publicity has also unearthed even more stories of nonprofit groups getting their assets frozen by PayPal.

Groups ranging from the National Association of Injured Workers to Burning Man camps Comfort and Joy and Black Rock Diner tell the Guardian they've recently had their assets frozen without warning by PayPal, a multinational company owned by eBay that reported $2.2 billion in revenue last year and makes its profits mostly from interest and other returns from the money it holds for others.

“There was never a time they said this was going to affect our ability to access our funds,” Temple of Flux treasurer Colinne Hemrich said of the group's fairly impersonal dealings with PayPal, which froze the group's funds just as it was leaving for the playa to build the project. Under public pressure, the company freed the funds, letting Temple members know “they were doing us a big favor,” project manager Catie Magee told us, yet the delay soured these burners and others on PayPal.

But smaller groups haven't been so lucky. “It's not on the same scale as the Temple, but proportionately and to us, it's still a really big deal,” Michael Williams said of his Black Rock Diner camp, which is in final preparations for heading to Burning Man and said PayPal recently froze their account, also because they weren't able to prove their nonprofit status.

“It's just people in our camp who have been using PayPal to send us dues, so this is very frustrating,” he said. “I'm never going to use PayPal ever again.”

Sam Gold, founder of the National Association of Injured Workers, a nonprofit that helps workers navigate the complex system for filing nonprofit claims, has been fighting PayPal for months since it froze the group's account, in the meantime learning more about their business practices and preparing to file a lawsuit.

“There are all sorts of people they're doing this to, thousands and thousands of people...And it's all about collecting interest of their money,” Gold said, citing stories on websites such as about how the company falls through the cracks of serious regulation by any government agency and routinely settles legal claims before they grow into larger problems for the company.

“PayPal is taking small charitable nonprofits and making them jump through all kinds of hoops and face long delays to get their money. They can get away with it because nobody knows who's supposed to be regulating these guys,” Gold said. “I want to see their dirty wash on the public clothesline because only then will [Attorney General] Jerry Brown and the district attorneys take note of this scam.”

PayPal spokesperson Anuj Nayar, who spoke to the Guardian earlier this week as the company decided to release the Temple funds, couldn't be reached for comment on the latest allegations and told us he couldn't go into detail on why they freeze accounts, saying only “we are under certain regulations.”

But he did note that the company has 87 million accounts and moves about $2,600 per second. “When there are issues that come up, we do our best to address them as quickly as possible,” he said. That volume of transactions and the difficulty in getting any kind of personal attention from the company (which does not list telephone numbers on its website) is part of the criticism from small groups, and why Rich Aberman (who we reached quickly and easily) says he started WePay (ironically, with funding from PayPal founder Max Lezchin, who Aberman said was concerned that PayPal became too big and impersonal after it was acquired by eBay in 2002).

“At this point, PayPal's main business is setting up purchase accounts for online businesses. So they treat all their customers as if they're businesses,” Aberman said. “Our ideal customer is a normal person who is collecting money for some project.”

While Aberman said he understand PayPal trying to protect its interests by making sure its nonprofit clients have filed all the necessary paperwork, the scale of the company makes it difficult to work with groups doing good things and taking in money from people who clearly want to support those groups.

“Since our customers are different, we handle them differently,” Aberman said, noting how they simply ask for the Social Security number of a project principal in case any tax issues arise later, rather than freezing a group's assets. “At the end of the day, we're just trying to get people set up as quickly as possible so they can do their thing.”

UPDATE: PayPal spokesperson Anuj Nayar just responded to my latest inquiry and said, "There are a number of reasons why we may put a hold on an account, particularly concerning 501c3 [nonprofits]." Yet when I asked for specific regulations and agencies that would require all a customer's assets to be frozen -- rather than holding a smaller deposit or simply reporting the information -- he said that he would need to check on that and get back to me. As to whether the company's practices slip through the regulatory cracks, he said the company operates in 36 states and 190 markets and faces regulations in each one.


It's quite a hit to have roughly 40% of our budget frozen, weeks before the playa. We prepare all year for this. A huge thank you to Rich and Sophie at WePay for getting us set up so quickly yesterday and today.

Michael Williams
The Black Rock Diner
(We've never asked for donations in 6 years of serving grilled cheese with love, but please help at

Posted by Michael Williams on Aug. 13, 2010 @ 7:51 pm

Draft Media Release re PayPal

“It is with great sadness that eBay’s Chief Headless Turkey, John Donahoe (aka “Peter Principle”—among many other derogatory terms), announces the probable demise of eBay’s most ugly daughter, PayPal. PayPal is about to be stricken by particularly virulent strains of Visa+CyberSource and Mastercard Open Platform; these afflictions are aggravated by PayPal’s insurmountable lack of direct financial institutions support and a great deal of PayPal user dissatisfaction, particularly with respect to PayPal’s grossly unfair, “all responsibility avoiding” user agreement, totally primitive risk management processes, and grossly unprofessional, usually buyer-biased, fraud-facilitating (indeed, non existent) transactions mediation, to name just a few of the “inconveniences” that PayPal merchants have to endure.

“PayPal’s health may therefore be expected to deteriorate and, if ultimately not completely incapacitated, will most likely be eventually confined to its mandatory offering on what little there will, by then, be left of the Donahoe-devastated eBay marketplaces. There is no cure for this condition, and the “eBafia Don” is particularly saddened by the inevitable presumption that it is unlikely that PayPal, will be able to continue to underpin eBay’s sagging bottom line too far into the future.”

Yes, it’s a send-up. But, the fact is, had the developers of the original “bankcard” concept ever behaved the way PayPal behaves towards its payees, credit/debit cards may never have gotten off the ground, and we would probably still be paying for all our purchases with bits of paper and little metal discs.

It appears that there is effectively no PayPal representation at all on behalf of the payee with respect to a payer making a credit card chargeback—for whatever reason. PayPal apparently simply accepts the chargeback and passes it back onto the payee. PayPal’s processes are so “clunky” that they are an open invitation to unscrupulous buyers to defraud sellers, and PayPal’s system apparently offers payees absolutely no protection against this form of potential fraud.

Indeed, all those payments processors that do not have the direct underlying support of the financial institutions ultimately involved and who actually “know” the two entities involved in any transaction, as does have the likes of Visa and Mastercard, all have the same insurmountable—and ultimately potentially fatal—deficiencies that PayPal has—no effective, non-disruptive, risk management process.

In Australia, PayPal, unlike all other payments processors, has declined to sign up to the payments processors’ “Code of Conduct”, and the clear message therefrom is “user beware”!

I accept only that from a buyer’s point of view PayPal is more convenient than paying directly by credit card, and PayPal may still have some momentum therefrom. But, from the merchant’s point of view, for the number of material reasons referred to above, PayPal is a most unprofessional, inefficient and clunky system.

When the new banks-supported online payments interfaces offered by the likes of Visa/Mastercard are refined to the point of similar convenience, I have no doubt that PayPal’s appeal to merchants will very quickly dissipate as the obvious superiority and greater professionalism of the banks-supported online systems gather their own momentum with merchants.

It’s only a matter of time …

Having said that, the banks risk assess their merchant clients before they hand out merchant accounts so that maybe not every small “merchant” (or payee) may be able to obtain one of the banks’ online payee accounts. Maybe there will always be a place for the likes of PayPal—they could become the “online merchant account provider of last resort”. Can you imagine what PayPal’s level of service will be like by then?

eBay/PayPal/Donahoe: Dead Men Walking

Posted by Philip Cohen on Aug. 14, 2010 @ 3:42 pm

Unfortunately, this is happening all the time to Ebay sellers who no longer are allowed to accept checks or money orders and who must offer PayPal as one of their payment venues. If you want to get some more information on this, go to the Ebay forums and read the posts about PayPal grabbing a hold of sales money and not releasing it for as long as 180 days if the buyer does not cooperate and certain hoops are not jumped through.

I stopped selling on Ebay because I refused to accept PayPal. I closed my PayPal account in 2008. As a buyer, it is an inconvenience at times but I refuse to deal this greedy company.

Posted by SleepyTime on Aug. 15, 2010 @ 3:31 am

A friend and I have gone into business together buying, repairing and reselling costume jewelry on feeBay er uh eBay and have run into roadblock after roadblock. As a buyer eBay treats me with a business sense but as a seller we are treated as if we are untrustworthy second class citizens. I purchased a pair of bone earrings on eBay and listed them for resale. We were warned about selling bone items that may appear to be ivory or bone from endangered species. No where in the listing did we even mention the word bone but still the llisting was cancelled and we received a warning. We again listed the earrings carefully wording the description so as not to imply, suggest, or state that they were bone. eBay suspended our account by cancelling all of our 800 listings at a time when we were just started and doing quite well for starters. But continued to invoice us.

When we reopened the store after the two week suspension, Pay Pal froze our account due to the bad feedback we received while we were suspended in eBay. PayPal explains that they have to put a 21-day hold on the funds until they are sure that the buyer is satisfied and has left positive feedback on our account. They are slowly releasing the funds bit at a time but not to where we can take the funds to buy more inventory or to pay for expenses. They have allowed enough funds in the account to use for postage to ship the items. But what I really want to know is how much interest are they earning from all the funds that are being held. I am certain that PayPal would not just let the Burning Man funds sit there when they could purchase a cd and earn the interest off the funds. Who does that interest belong to? I do not believe that it belongs to PayPal because they do not own the funds that are being held. I think PayPal should be accountable for any profit they earn off of held funds. The nerve.

Posted by Guest on Aug. 23, 2010 @ 12:35 am

I fear that I may be attacked for asking this, but I don't know much about burning man and I about am curious about the non-profit status of groups that build things for burning man. How are they charitable? And also, what is the difference between small bus/ individual paypal and the accounts used by 501c orgs?

Posted by Guest on Aug. 16, 2010 @ 12:16 pm

Nonprofits come in myriad forms and include arts collectives, cultural organizations, and even just social groups. They needn't be charities, just organizations in which all funds are poured back into the organization. As for PayPal, the difference between how they treat nonprofits and businesses is actually very slight: transaction fees for nonprofits cap at 2.2 percent whereas businesses cap at 2.9 percent.

Posted by steven on Aug. 17, 2010 @ 11:45 am

Those Burners only WANTED their money...We, at PayPal, NEEDED their money!

Posted by Sandy Purina on Aug. 19, 2010 @ 6:50 pm

It's funny how people are quick to jump ship when they aren't satisfied with things. I too am guilty of this so often. But we did a little experiment recently using WePay and PayPal and the results were pretty much the same crap, just in a different wrapping. See for yourself....

1. WePay are pulling all the same tricks PayPal did when it started up, plus they both tell customers they adhere "standards" which they try to mimic real banking practices, but only when it's to their benefit. When it is not the rules change, this goes for WePay and PayPal. It is important to remember that these companies ARE NOT BANKS, and they make the rules up them self.

2. PayPal has far more customers, thus more issues than a newly formed WePay. So naturally WePay would have less complaints from less customers. Grass is always greener on the other side. I think it is fair to say Buyer Beware!

3. WePay indeed freezes accounts just like PayPal. In fact, we've discovered that group account have been frozen, paused, adjusted, and then some. It doesn't appear that your funds would be safer at WePay. In addition, it's funny that WePay would drop a 600 pound block of ice in front of PayPal with the message "PayPal freezes accounts" as to imply they don't freeze accounts or "pause" them to limit any risks. Who wouldn't freeze an account if it is suspect.

4. WePay, because it is smaller, and I do mean "small, you get things resolved much faster, as suppose to PayPal. This feels great and personable. However, the shortcomings of a small operation are the successes of a large. We've spoken to WePay countless times regarding our group account for about a month straight. Every day and week brought new experiences and challenges. It seemed to us that WePay needs a better and bigger staff to handle it's growing business; they also need to employ more capable staff with the right skill sets. To our knowledge there were no skill financial employees at WePay. On the other hand, PayPal is so large you get lost in the shuffle and no one likes that.

5. We love all the many features, applications, etc PayPal offers. Unlike WePay, which we're sure they will get there eventually... if they make it.

6. Using WePay we weren't able to effectively audit, as their system is set-up in such a way that it only reports what's online. This means there is no way for a group to download or share transaction reports and history. In addition, we have reason to believe that WePay has no creditable account software or systems in place. We had a employee call in to dispute something and cancel a transaction. Moments later presto! transaction removed. If WePay is all about transparency then how is this transparent?

7. Lets talk functionality for a moment. WePay doesn't offer actions or the following features such as: cancel transaction, resend request, buy now button. As PayPal has a slew of features and actions such as these.

Overall, both experiences have been equal in our opinion. Though the time with WePay has been brief, we can't honestly say WePay is better or worst than PayPal. It's the same but offers some cool new features like funds being managed by groups instead of individuals. Yes PayPal sucks sometimes, but so does my bank, and my health care and many other things.

Posted by Semi on Nov. 07, 2010 @ 11:26 am

For the merchant when Paypal freezes someone's account it causes the buyer to want to cancel the payment but since the account is frozen they can only solve the issue by placing a dispute with their credit card company which then later the merchant ends up having to pay the chargeback fee. Apparently, Paypal's system has a problem to freeze so many user's accounts and they should not ask for people's private data and information, such as license, passport, and varies IDs in order to unblock the account. This is an infringement on people's privacy rights and forces the user to disclose important data. Paypal may also request that 1.95 be charged to the user's credit card to confirm their credit card and refund it back into their paypal account. This method forces the user to transfer money into their paypal account. I'd suggest users to also dispute that charge if they were forced to pay money into their paypal account.

I'd suggest that someone gather enough merchants and lawyers to initiate a class action lawsuit against Paypal and sue Paypal for the financial damages the merchants had to suffer. There are probably thousands of merchants having to pay for these frozen account chargeback fees. Each merchant experiencing hundreds of these cases. I'm sure the amount of chargeback fees paid are in the tens of millions.

Posted by Voicestoday on Feb. 02, 2011 @ 2:14 am

i just wanted to share my experience with wepay

i have been looking for an alternative to paypal and signed up for wepay back in december. i deposited $50 in december and went on to confirm my bank account.

after a while no micro funds were transfered to my bank account and i contacted the support team to see what is going on. they first told me my account/routing number must be incorrect and had me updated it.

micro funds were never transfered even after i updated the info which was correct. after a few week i picked up the phone and talked to them to see what they can to in order for me to correct this issue.

they told me again the numbers must be incorrect or there must be an issue with my bank. i contacted my bank and they confirmed they would never deny a direct deposit to my account and also confirmed there was no micro deposit made since december.

i went ahead and talked to support again and they told me there is nothing they can do and asked me to send them a copy of a void check and my id.

i refused to do that since i don't like to send any copies and don't see the need since we are not living in the 80's.

the support guy informed me there was nothing they can do for me and agreed to send me a check and close my account.

the conversation happened on january 11 and the check was supposed to be send on the same day.

today is february 2nd and i still haven't received the funds. i contacted the support guys again today and they just told me they were sorry and asked me to confirm the address again.

my intentionas are not to bash the company but just tell you guys what i have been going trough and to share my experience.

i simply have a bad feeling and don't think the support guys are really putting any effort in making sure things are being done correct the first time.

also, when i told them they should close my account they never tried to apologize or make any effort to correct the mistake and to try and keep me as a customer.

i have a small business and i know what i do when a client tells me he wants to cancel my service or change the service provide.

i'll keep you posted and let you know as soon as i have received the check.

Posted by Mike on Feb. 02, 2011 @ 6:49 pm