PayPal Hit with Class Action Over Alleged Seizure of User Funds Based on Suspected Policy Violations

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A proposed class action alleges PayPal has unilaterally seized funds from users’ accounts without cause or any fair or due process. 

The 37-page case in California claims PayPal wrongfully places a hold on the funds in users’ accounts while failing to specify the reason the hold was initiated. The suit alleges PayPal has even told some users that they will have to subpoena the online payment processing company in order to learn why a hold was placed on their funds. 

According to the complaint, PayPal’s seizure of user funds is based on apparent violations of its Acceptable Use Policy, even though the company supposedly does not specify the ways in which a user has run afoul of the policy. As the suit tells it, PayPal’s use of a liquidated damages clause “buried” in its user contracts, while showing no causal connection to any damages the company may have suffered, amounts to a justification by PayPal for its “wholesale seizure” of a user’s entire account balance. 

Per the filing, PayPal has seized user funds without first conclusively determining that an individual has actually breached the company’s Acceptable Use Policy, and chosen instead to take a “shoot[] first and ask[] questions later” approach to alleged policy violations. The lawsuit argues that PayPal cannot wield its user agreement and acceptable use policy as a “license to steal” from accountholders. 

“These funds belong to the users, not Defendant,” the lawsuit argues. “Nevertheless, Defendant has adopted a business practice of unilaterally seizing some or all of its users’ funds when Defendant merely suspects the user in question violated Defendant’s [Acceptable Use Policy], which is a set of restrictions Defendant places on certain transactions made through the PayPal platform.” 

The lawsuit says that the funds allegedly seized wrongfully by PayPal bear no relationship to any actual damages the company might have suffered. According to the suit, PayPal “arbitrarily” seizes users’ funds even if it has suffered no damages whatsoever. 

Moreover, the complaint claims PayPal violates its own user agreement by failing to provide adequate notice to individuals whose accounts have been hit with a hold. Per the case, the PayPal agreement requires the company to, at minimum, provide notice when a hold has been placed on a user’s account, including the reason for the hold and an opportunity to request restoration of access to the funds being held. 

“PayPal’s ‘notice’ falls far short of what is required,” the case says. “As a result, Plaintiffs have no idea why their money is ‘held’ by PayPal.” 

The lawsuit looks to cover all persons who, within the applicable statute of limitations period, were PayPal users and had funds seized from their accounts by PayPal based on a purported breach of the company’s Acceptable Use Policy. 

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