March 12, 2002 3:55 PM PST

Feds: PayPal not a bank

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La. asks PayPal to halt service in state

February 11, 2002
Federal regulators' position that PayPal is not a bank boosts the company's contention that it shouldn't be regulated as one, but officials caution that theirs isn't the final word in the matter.

In an advisory letter sent last month to PayPal concerning its use of customers' funds, the Federal Deposit Insurance Corporation said it does not consider the company to be a bank or savings association because it does not accept deposits as defined by federal law, which requires institutions to have a banking charter. PayPal doesn't have a charter, thus it is not a bank, the FDIC said.

"PayPal does not physically handle or hold funds placed into the PayPal service," the FDIC said in its letter.

PayPal representatives said the FDIC opinion should help the company stave off attempts by state and federal officials to regulate its business.

"As long as we continue doing what we are doing today, we won't be subject to Federal banking laws," said PayPal Chief Executive Peter Thiel.

But an FDIC official said state officials may still conclude that the company is acting as an unauthorized bank.

"It's really a state issue," said the FDIC official. "I've been on the phone with several state regulators. I've indicated that federal law is not going to help them. They are going to have to come to their own determination under state law" about whether PayPal is acting as a bank.

PayPal has come under increasing scrutiny from states such as New York and California, which have raised questions about whether the Palo Alto, Calif.-based company is operating an illegal banking service.

State regulators have also begun to question whether PayPal is operating an unauthorized money transmitting service. Last month, Louisiana asked PayPal to cease offering its service to state residents until it secured a license from the state to transmit money. PayPal is in the process of applying for such a license, Thiel said.

PayPal acknowledged that the FDIC opinion is not binding on state regulators, but argued that it could have a positive effect.

The opinion "could be considered relevant by some state authorities in their review of whether PayPal is engaged in the business of banking under state law. Notwithstanding the opinion, PayPal will continue its applications for state money services licenses where appropriate," the company said in a statement.

The FDIC's decision on PayPal's banking status came as part of an advisory opinion on balances left in PayPal customer accounts.

As of this quarter, PayPal began depositing customer balances into FDIC-insured bank accounts. The company had asked for an opinion from the FDIC on whether it could pass the insurance protection on to its customers. In its advisory letter, the FDIC said the insurance protections--up to $100,000 per customer per bank--would extend to PayPal customers, even when PayPal deposited the funds for them, PayPal said.

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paypal is a banking facility
My sales go directly into this account. It can be accessed by a debit/bank card. Only funds deposited are accessible. This is my money in there they are holding, untill which time I choose to withdraw it. Paypal is definantly engaged in banking activities, and should be covered under the FDIC.
Posted by (3 comments )
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paypal is a banking facility
My sales go directly into this account. It can be accessed by a debit/bank card. Only funds deposited are accessible. This is my money in there they are holding, untill which time I choose to withdraw it. Paypal is definantly engaged in banking activities, and should be covered under the FDIC.
Posted by (3 comments )
Reply Link Flag
paypal is a banking facility
My sales go directly into this account. It can be accessed by a debit/bank card. Only funds deposited are accessible. This is my money in there they are holding, untill which time I choose to withdraw it. Paypal is definantly engaged in banking activities, and should be covered under the FDIC.
Posted by (3 comments )
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PAYPAL acts as a Bank and Should be regulated as Bank! Our Federal Government Must Close the Loophole's, that allow an Unsavory Company like Paypal to operate unregulated and checked. If Paypal Inc. doesn't want to be regulated as a Bank, then Shut it down.
Posted by apaypalvictim (3 comments )
Reply Link Flag
The "Feds" don't think Paypal is a bank? They didn't see any problems with Freddie or Fanny either! It's getting to the point where we the people can't trust our government for anything. Anarchy is probably closer than we want to believe!
Posted by moroeder (1 comment )
Reply Link Flag
I guess you and I can get away with violating laws by saying were aren't people. We are carbon entities. There are no laws governing carbon entities, ergo, we are not subject to laws. It works for PayPal. Why can't it work for us?
Posted by The-Ceej (2 comments )
Link Flag
I found this in a forum they banned to guy but I see his point.

hold by ebay is illegal....
It is time to file a class action suit !!
Lets get the ball rolling !!
Let me explain.

Paypal has everyright to hold funds as a banking center I concur with this.
however..... it is not Paypal holding the funds, it is Ebay.

Paypal is following directives imposed by Ebay the hold is being intitiated on the Ebay side I know this to be fact after arguing exstensivly with both parties.
It started when I opened a new account under a new name for an expanded business last month.
I have been current with ebay since 2004 I am a powerseller with 100% feedback rating and lauded by Paypal for having a steller record.

When I open the new account the first 2 order no problem, the next all in a row have been held by ebay.Ebay say this is random hold and that Paypal is doing it. This is false
It is not random either!! and ebay is doing it, ebay does not have the authority to hold funds as they are not a banking center.
They are illegally hold funds and are telling Paypal to hold funds for them, this is illegal.

I tell what they are doing...... Ebay has lost many sellers due to thier backward policies that protect buyers and leave sellers flapping in the wind....
Paypal processes 1000 transactions per minute....now.... the longer they hold it the more money they can make on interest...

Interest......ing eh?

Since Paypal is owned ebay, ebay is making money on the interest for the orders they are telling paypal to hold.
Not only is this illegal it is "Theft by Deception"
They are stealing yours and my money for up to 21 days while they draw interest...while forcing us to pay for product without the funds we have earned with our selling prowness......

Does anybody here get a free ride from Ebay???
I don't and there are many times ebay makes more than I do because they take value on the whole amount instead a percentage of just the profit like.... we all get....

Do you feel Offended.
I do!!
Posted by Indianafloors (1 comment )
Reply Link Flag
1. Ebay has an auction monopoly on the Internet.
2. Paypal is the monopoly on Ebay.
3. Paypal illegally holds people's money without warning for up to 180 days!
4. Paypal trys to extort and extorts private information in exchange to release their client's own money that Paypal has locked up and held.
5. I will testify in court that Paypal told me over the phone that they are a bank, and as a bank can hold my money. The conversation was recorded by paypal, and so it should be available if gotten.
6. Ebay told me paypal is part of ebay. Ebay would refuse to allow me to record my conversations with them. Ebay suspends/closes ebay accounts that have a problem with their paypal account.
7. The moment orders starting coming into my paypal account from EBID.NET (us.ebid.net), paypal and ebay found some excuse on my paypal account to suddenly suspend the account and hold funds.
8. I agree with other people's statements above. Ebay can be absolute bast ards and very AWFUL to their sellers if they choose to.
9. Paypal does what Visa & Mastercard do.
10. Paypal is acting as an illegal bank.
11. Paypal is also a transaction gateway like authorize.net.
12. Paypal is also like a merchant service?s account.
13. Ebay closes seller's accounts that choose not to make use of paypal because the seller has an issue with Paypal's illegal extortion attempts, or any other issues with paypal.
14. ***Paypal initially does not ask for private information from account holders (like driver's license, social security, etc.), and when seller's account starts to become successful, then suddenly paypal locks up the money in the account (this could be after having a paypal account for years or days), and in order for a seller to get their own money, they are forced to give up their privacy and provide a social security number, a photo copy of drivers license, full name, address, birth date, and many other forms of private information. If the seller does not, then the money is held for 180, no exception. CLEAR DEFINITION OF EXTORTION OF INFORMATION or taking money hostage in order to get private information. In this case, the client's own money. Depending how dependent the client or seller is on the paypal account, or how badly the money is needed that is held by paypal, the client/seller may get forced to release private information that he/she never wanted or intended to provide in the first place.
16. ***Either paypal has no right those private information or the forcing of its disclosure, or Paypal must be forced to require all the private information to the given to them before the account is opened. After all, on the phone, paypal compares the accounts they give to a bank account, and so like a bank should collect all that private information up front. Paypal is basically TRICKING people into a false sense of security, and misleading account holders by first not asking for any of this information, and then later extorting the information when a client becomes dependant on the paypal account. Paypal knows that paypal account signup would fall dramatically if they required personally/private information up front upon account creation.
15. BOTH Paypal and Ebay release private information like name, address, phone number, and email address to other paypal or ebay members. Paypal says they do not, but I have email records from clients that tell me that they called paypal and got it directly from paypal.
16. Paypal and ebay pretty much act as or are like one company, and if you call paypal, you are basically calling ebay. Paypal can "transfer" the call to ebay upon your request, and ebay can transfer the call to paypal. Ebay will admit that paypal is part of ebay and that they are basically the same company. Ebay will discontinue a call if you insult paypal in anyway or form on a phone conversation.
17. Both Paypal and Ebay clearly state to anyone on the phone that if you don't like it, then you can take a hike, and there is nothing any account holder, especially a seller, can do, because Ebay has such a massive and strong hold of the auction market on the Internet. A monopoly.
18. I also believe Ebay is or may be involved in discrimination (or at least certain department employees are), but it is hard to prove that or show it.
Posted by cpc1 (2 comments )
Reply Link Flag
Simply put, both Ebay and Paypal have become rotten companies, and abusive to their clients, and they can abuse because there are no other choices for their clients due to Ebay's monopoly.
Posted by cpc1 (2 comments )
Reply Link Flag
I SOLD SOME ITEM ON E BAY THE CLIENT RECEIVED THE MURCHANDISE I INSURED IT THE CLIENT RECEIVED IT AND SAID THE MONEY WAS IN PAY PAL BUT IT IS BEING HELD I CANT GET MY $200 THOUSE BASTERDS THINK THEY ARE A FDIC INSURED BANK THEY SHOULE BE DISSOLVED THEY ARE HOLDING MY MY ,MY MY $200 THEY SHOULD EAT **** THEWY EXPECT E BAY INTEREST
Posted by 0143nick (1 comment )
Reply Link Flag
paypal held my money, amounting around 200 pounds and wouldnt give me it till i gave them my bank details, talk about holding you to ransom, give us your personal details before u get ur money, well i gave them it, my funds were released then they helped themselves to a 300 pounds out of my bank account, i had no problem with my selling but they choose to hold funds for 21 days this proving that i just didnt know when my account would be locked and they would take my money....which they did i had a nice automated e-mail saying my goods were high risk......this being clothes, i didnt realise my 2nd hand clothes were high risk, so they locked my account with funds totally yet another couple of 100 pounds in it, so in effects they stung me good and proper and i never got any money back after the 180 days they claim they give you it if there has been no disputes on ur account, so they netted 500 pounds from me and the buyers were walking round with my goods, so i was massively out of pocket thanks to good ole paypal, they are common day theives and the sooner people stop using them and e-bay the better, i got my revenge............it did take time but i got it :)
Posted by iwonderwhy13 (1 comment )
Reply Link Flag
I believe there should be a class action suit brought against these thieves. This newly imposed widespread hold of funds for 21 days is crushing me financially. As a disabled person , I use Ebay to supplement my income. I have sold personal belongings only to have the money held leaving me to use disability benefits to pay for shipping as to not receive bad feedback low star scores. They encourage you to use "Free Shipping" as a way of preventing low scores in this area. All the while they are holding monies intended for the shipment of goods to the customer by the customer. This certainly must violate Federal and State laws as a diversion of Postal funds. If anyone reading this knows of a class action suit in progress, Please count me in. I am writing a letter of complaint to the Post Master General and will keep this forum updated of replies.
Posted by sunsetete2011 (1 comment )
Reply Link Flag
Paypal is a bank and does what ever it wants,

I have been a loyal customer of PayPal since 2002 and what has occurred to me this past month is extremely devastating. Until recently we have used PP for all our eBay transactions as well as PayPal checkout; pleased with the service, we decided to additionally move all of our credit card processing to PP. After a month or so, without any notice PP changed our minimum reserve from $1,000 to $20,000 + 5% of every transaction for a total of $35,000. After calling PP to see how this could be reversed, I was referred to a risk agent who proceeded to further increase my minimum to $35,000 and a 10% rolling reserve. When I asked why this was happening he told me that our account is "too risky". If this were the case, why would I be allowed to process in the first place? This is an extremely unfair tactic; to allow merchants to process transactions and then freeze all their working capital due to some change in perceived risk. What risk? We have almost no chargebacks in relation to fraud and we have a below average rate of return for our industry. But yet Paul from PayPal made a decision that will have a drastic impact upon our company. And there is no one to talk to; Paul made it clear to me that only he could make any decision on my account. And he is right; when calling PayPal and trying to talk to a supervisor regarding these issues, I was told only Paul could talk to me. This is a very shady operation that intimidates its merchants and does not allow them any recourse.

The big question here is, why allow "risky" merchants to use the service and then starve them to death by holding all their money? These are extremely unfair and shady tactics. PP does not tell you that you are considered a risky account until you have real funds in the account and then it is frozen and held by PP. Why not limit the "risky" merchants to a maximum allowable amount or warn them beforehand that processing above a specific dollar amount will result in additional funds being held within the account? This would be an acceptable way to deal with s-called risky accounts rather than allowing them to process payments and then freezing everything.

The only conclusion I can come to is that PayPal has decided to hold funds in its accounts and reinvest those funds or collect interest on them in order to make a profit and cover company losses that stem from fraudulent accounts or irresponsible merchants. Legitimate merchants, such as myself, are made into victims at the expense of PP's inability to differentiate between legitimate and illegitimate merchants.

I am pretty sure that I am not the only victim here. And since PP is not a bank, I have absolutely no recourse in order to recover the funds that have been unfairly frozen in my account. And regrettably, until PP is seriously challenged by another payment option for eBay, they will continue to resort to this type of activity. There is a growing community out there that is fed up with the way PP manages their accounts and eventually that group will force changes to the detriment of PP's business and/or serious legal consequences.
Posted by WatchesOnNet (1 comment )
Reply Link Flag
Ebay just blocked 15,000 sellers from listing on ebay earlier this week. Many were restricted , some suspended, some banned for life. What was the person of ebay's latest "purge" and what kind of bad publicity nightmare faklout will this create as former ebay sellers tell their friends, family, neighbors, etc. of their bad experience from ebay?
Posted by Gideon137 (1 comment )
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