(Disclaimer: This article is not legal advice. If you need legal advice, please consult an attorney.)
Using a credit card to buy a PayPal MyCash reload card, loading it to a PayPal Prepaid Mastercard (PayPal’s debit-like product), and then using PayPal or the linked debit card to withdraw the money in various ways has long been a well-known method for meeting minimum spending requirements. PayPal has also been cracking down on this behavior for a long time, typically by sending warning letters and then limiting or closing accounts. Unlike most banks, if PayPal closes your account while it still has a remaining balance that you have not withdrawn, PayPal will wait 180 days before mailing a check for the balance to the account owner. For users with a significant amount of money in the account, losing access to those funds for half a year can be a major loss. That is what today’s class action lawsuit, Zepeda, et al. v. PayPal, Inc, is about.
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Settlement Agreement
The class members in this lawsuit include anyone whose PayPal account was limited, frozen, or closed between April 19, 2006 and November 5, 2015. PayPal and the representative plaintiffs in the class action have now jointly drafted a settlement agreement with a maximum total payout of $4,000,000. Each class member may choose one of the following:
Basic Claim
Compensation is calculated according to the table below:| Length of Funds Freeze | Less than $1,000 | $1,000 - $10,000 | More than $10,000 |
|---|---|---|---|
| 1 – 30 days | $3.00 | $3.00 | $36.00 |
| 31 – 90 days | $3.00 | $5.00 | $150.00 |
| 91 – 150 days | $3.00 | $10.00 | $100.00 |
| More than 150 days | $14.00 | $25.00 | $440.00 |
For example, if your account was closed and you only got your funds back after six months, and the frozen amount was less than $1,000, you could receive $14. If it was more than $1,000 but less than $10,000, you could receive $25. These two amounts are the most common.
Alternate Claim
A court-approved neutral third party will evaluate each claimant’s actual losses caused by PayPal’s freezing of funds, up to a maximum of $2,000. Choosing this option requires some burden of proof, meaning you must demonstrate the damages you suffered because of PayPal’s actions.What Are My Options?
If you are a class member described above, you have the following options:Accept the settlement and submit a claim form
You can choose to agree to the settlement. The easiest way is to submit a claim form online by providing all required information on the website.
Exclude yourself from the class action
If you do not want to participate in this lawsuit and want to preserve your right to sue on your own, you must notify the court by mail. The mailing address and required contents are available here. Note that you will not benefit from this class action, but you also will not be bound by its outcome.
Remain in the class action but object to the settlement
If you choose this option, you will still be bound by the outcome of the lawsuit, whatever it may be. However, because the settlement still must be approved by the court, you may write to object to the terms of the settlement.
Do nothing
If you do nothing, you will still be bound by the result of this class action, which means you will lose your right to sue PayPal (res judicata). However, because you did not submit a claim form, you will not receive any compensation.
Using PayPal for Minimum Spending in the Future
You may be wondering: now that PayPal has been sued, will it get rid of the notorious 180-day funds hold policy going forward? Unfortunately, under this settlement agreement, PayPal denies any wrongdoing or illegal conduct. PayPal only promises to improve the transparency of its terms of use and, when possible, provide reasons when a user’s account is closed. Therefore, if this settlement takes effect, the risk of PayPal shutting down your account and freezing your funds will still remain. Unless such conduct is ultimately ruled unlawful, you should still be careful not to leave too much money in the account when using PayPal to meet minimum spending requirements.
Summary
This settlement agreement still needs court approval. If the court refuses to approve it because it considers the settlement unfair, this class action could continue for a long time. If you are part of the affected class, make sure to choose your course of action so you do not lose any rights you may have. Has PayPal ever shut down your account? Share your thoughts on this case in the comments.