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PayPal Makes Accepting Charity Difficult

This article was written by in Charity. 8 comments.


Around the holidays, for-profit companies see an opportunity to do something charitable, even though they’re not technically registered non-profit organizations. The concept reminds me of college. I was in my university’s marching band, and we frequently traveled as a group to performances. At the end of the trips, someone on the bus collected money from everyone else to give to the drivers to thank them for their time and for getting us to the destinations alive.

PayPal is one of the many companies that makes collecting cash from many people easier.

If I were to decide to collect money from people all around the country to give to a non-profit organization all of us supported in one transaction, I might choose to simplify the collection process by setting up a website where people could transfer money online from their bank accounts or pay with credit cards. PayPal is the most popular tool for these transactions. Unfortunately, PayPal’s policies are confusing, poorly written, and inconsistently enforced.

Regretsy, a website that brings attention to odd items available on the shop Etsy, created a gift exchange program to help 200 kids receive Christmas presents this year. Families applied to be recipients, and Regretsy verified that those who made the list of gift recipients were truly needy. After publicizing the plan, Regretsy raised enough money not only for toys for the kids, but for cash gifts for the families. This was made possible by PayPal, and the company collected its usual fees on every transaction.

Regretsy used the PayPal account to buy some of the gifts, transactions on which PayPal collected its usual fees. The PayPal account also contained money for other purposes, but PayPal froze every cent in Regretsy’s account a few days ago. Hellen Killer, the operator of Regretsy wasn’t able to get anywhere with a customer service representative. You can read her side of story here. The representative claimed only non-profit organization can use the “Donate” button, but that is incorrect, and it is one of the few clear items in PayPal’s terms. PayPal insisted that Regretsy return the gifts it bought for the 200 families (while keeping at least a portion of the transaction fees) and return the contributions it received (while keeping at least a portion of the transaction fees). Apparently this became a charitable endeavor for PayPal rather than for the 200 families.

After outcry from the internet and significant proof that PayPal did not follow their own policies, Anuj Nayar, PayPal’s Director of Communications, announced that they were following federal regulations that govern all payment processors, released the funds, and is making its own contribution to the cause. This was done without an apology for PayPal’s misapplication of policy, stubbornness of the customer service representative who refused to allow Hellen to speak with anyone with better knowledge of the situation, or the inconvenience it caused.

Operating a payment processing business like PayPal is a risky endeavor, but this is not the only story about the company freezing an account without good reason. The website SomethingAwful raised money following hurricane Katrina and faced similar issues dealing with PayPal, documented here.

Here is how these issues could be avoided, other than simply choosing a payment processor other than PayPal.

In a perfect world, anyone who wanted to create a charitable project of any scale could create a registered non-profit entity and legitimize the endeavors. Unfortunately — or perhaps fortunately, to prevent fraud — creating and registering up a non-profit organization is not that easy. It’s a long process, and if your initiative is in response to an event like hurricane Katrina, getting the proper paperwork together, consulting with lawyers, assembling a board of directors, and raising the significant financial requirements would take away from resources you need to just collect money from others and give it to deserving recipients.

The next best option for an outfit like Regretsy or an individual with a big idea is to partner with an existing non-profit whose mission statement matches the mission of the project. A partnership would be much more practical for short-term projects like Regretsy’s initiative. All money could flow directly from the donor to a non-profit organization, through the group’s own collection methods, to the recipients. This way, the paper trail uses an already-established process, and the contributions are tax-deductible for the donors.

Updated December 12, 2011 and originally published December 8, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar Cejay ♦1,521 (Half-Dollar)

Wow, what a story. I had never heard any of these things. To be honest, if I need to send money I still use Western Union. I am not sure of an alternative solution.

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avatar Luke Landes ♦127,535 (Platinum)

PayPal insists that it is not a bank and shouldn’t be held to banking regulations — yet many people leave money in their PayPal accounts, and the company can freeze those funds at any time thanks to the loose language in their terms of use. When it comes to purely sending money, Western Union is a great alternative, though I’ve never used their electronic transfer service. That would be something to try as an alternative.

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avatar Bethy

More than anything, for Paypal, this was a PR disaster. The “apology” on the PayPal blog should be more apology and less an explanation of the unclear policies.

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avatar Emily Guy Birken

Holy cow, this is a horrifying story. I’m already a little down on paypal from my own experience, since it take such a chunk of my hard-earned money when I get paid through them, but this really makes me look down on them.

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avatar Ceecee ♦53 (Newbie)

I have heard a few negative things about Paypal. I haven’t had a problem, but I have used it sparingly. I feel forewarned, thank you.

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avatar Peter

Instances like this are why I rarely leave a balance in my Paypal account and immediately transfer it to a “firewall” bank account from where it immediately gets transferred to another account that Paypal has no access to. Paypal has been shown to act a bit shady like this on occasion, and I don’t want to tempt them with my money. I’m hoping for some better alternatives to Paypal as well, like the site Dwolla.com that I recently happened onto -where all transactions less than $10 are free, and all others are only .25 cents. We’ll see if they last..

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avatar Maddox

Paypal is the worst when it comes to them freezing your funds for no reason. I speak (or type) from experience. And I’m not the only one this happens to The only reason this got so much attention was because of the media. Payal does this to everyday people EVERYDAY!!

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avatar qixx ♦1,895 (Half-Dollar)

More negative PayPal press. I’m glad i avoid them now that my bank does paypal like transfers for free.

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