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How did I get permanently banned from PayPal with my money locked inside?

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Michelle Couch-Friedman

Consumer reporter and ombudsman

Could you get banned from PayPal with your money locked inside? Unfortunately, for many former users wondering how to get their cash released, the answer is “yes.”

Ashley Howard says that she is one of those confused consumers who entrusted her money to PayPal.

The company informed her that she will no longer be permitted to use its money transfer service. And more bad news followed. PayPal froze the several thousand dollars currently held in her account for 180 days.

Howard asked our advocacy team to request that Paypal unlock her account and give her access to the money. But something didn’t quite add up about this plea for help.

Help! I’m banned from PayPal

“I got banned from Paypal after I added funds from my bank account to my PayPal account,” Howard reported. “I did not know ahead of time that the process I used was against policy. Paypal didn’t give me a warning or anything.”

Howard explained that she had added over $2,500 to her PayPal account to “buy things and send money to friends.”

Almost immediately she noticed that PayPal had limited her account. She could not access any of her newly deposited funds.

“I called. PayPal told me that I would know why in 24 hours,” Howard recalled. “Now Paypal locked my account for 180 days. And they won’t reopen it.”

Similar tales of locked PayPal accounts

All over the internet, you can find similar tales of locked PayPal accounts.  And many of these blindsided Paypal users have received the same 180-day frozen funds notice.

To find out what might be going on, I went to PayPal’s acceptable use policy. There are a variety of unacceptable actions that can get you banned from PayPal. But none of them involve merely transferring money into your account from your bank account.

Actions that will end with you banned from PayPal according to the company

You may not use the PayPal service for activities that:

  • 1. violate any law, statute, ordinance or regulation.
  • 2. relate to transactions involving (a) narcotics, steroids, certain controlled substances or other products that present a risk to consumer safety, (b) drug paraphernalia, (c) cigarettes, (d) items that encourage, promote, facilitate or instruct others to engage in illegal activity, (e) stolen goods including digital and virtual goods, (f) the promotion of hate, violence, racial or other forms of intolerance that is discriminatory or the financial exploitation of a crime, (g) items that are considered obscene, (h) items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the laws of any jurisdiction, (i) certain sexually oriented materials or services, (j) ammunition, firearms, or certain firearm parts or accessories, or (k) certain weapons or knives regulated under applicable law.
  • 3. relate to transactions that (a) show the personal information of third parties in violation of applicable law, (b) support pyramid or ponzi schemes, matrix programs, other “get rich quick”schemes or certain multi-level marketing programs, (c) are associated with purchases of annuities or lottery contracts, lay-away systems, off-shore banking or transactions to finance or refinance debts funded by a credit card, (d) are for the sale of certain items before the seller has control or possession of the item, (e) are by payment processors to collect payments on behalf of merchants, (f) are associated with the sale of traveler’s checks or money orders, (h)involve currency exchanges or check cashing businesses, (i) involve certain credit repair, debt settlement services, credit transactions or insurance activities, or (k) involve offering or receiving payments for the purpose of bribery or corruption.
  • 4. involve the sales of products or services identified by government agencies to have a high likelihood of being fraudulent.  (The Paypal user agreement)

PayPal: We received a report of unauthorized transaction

Based on PayPal’s terms, Howard’s plight still seemed puzzling.

As our advocacy team always does, I asked for the paper trail between Howard and PayPal. I thought perhaps that would clarify what happened.

It didn’t.

Howard sent just one email. And it only deepened the mystery.

We recently received a report that your bank account was used without your
permission. To help prevent more unauthorized transactions, we limited this
account. Because of this issue, your account has been permanently limited.

You can get more details about your account limitation in the Resolution

What’s going on here?

PayPal addressed this notice to “Ashley Howard,” but the email address named “LaParris Marie.” And the email address which I was communicating with was in the name of “David Huddleston.”

Now my shenanigans detector started to go off, and I began to suspect that we should not pursue this case further.

I asked Howard to clarify her identity and inquired about the various names on the email accounts.

“Well, that’s another email. The PayPal account is under the name Ashley Howard,” she told me. “They never sent an email saying what I did wrong. That’s the issue.”

It’s not unusual for someone to have an email address that’s not in their own proper name. But making an email address in someone else’s name seemed strange. And digging further into PayPal’s massive legal notice, I noted several ways to get banned from PayPal. Under “account limitations” it reads:

If we suspect someone could be using your PayPal account without your knowledge, we’ll limit it for your protection and look into the fraudulent activity.

If your debit or credit card issuer alerts us that someone has used your card without your permission. Similarly, if your bank lets us know that there have been unauthorized transfers between your PayPal account and your bank account.

PayPal user agreement explains account “limitations.”

Send PayPal the requested information

PayPal provides the following guidance for users who want their account limitation lifted:

You will need to resolve any issues with your account before a limitation can be removed. Normally, this is done after you provide us with the information we request. However, if we reasonably believe a risk still exists after you have provided us that information, we may take action to protect PayPal, our users, a third party, or you from reversals, fees, fines, penalties, legal and/or regulatory risks and any other liability.

PayPal user agreement explains how to lift “Account Limitations” (Being banned from PayPal).

Based on the limited correspondence that I could see, I assumed that PayPal had the same suspicion that I had about this account.

But I asked for one more bit of information before this case went to the Case Dismissed vault.

The PayPal email said that the company had provided a detailed explanation about the banning in the resolution center. I asked to see it.

And that’s the last Howard, Huddleston or Marie contacted me.

What can you do if you find yourself banned from PayPal?

It’s important not to get banned from PayPal in the first place. It’s quite difficult or even impossible to get PayPal to reverse its decision once you find yourself banned.

Because I was curious about this case, I contacted PayPal for clarification. Our PayPal executive contact took a look at Howard’s situation:

Thanks again for reaching out. Per company policy, I can’t provide specific customer account information, but on the background I can confirm that our dedicated customer service team correctly worked Ms. Howard’s case.

The PayPal executive team to Michelle

She went on to explain that when Paypal places a limitation on a user’s account, it does not “necessarily mean” that the user has violated any terms. The temporary limitation protects “both buyer and seller.”  Permanent closure of the account does, of course, indicate a violation of PayPal’s terms of use.

Finally, she offered this link for users to reference about PayPal account limitations and how to get them lifted as quickly as possible.

You may never know why PayPal limited your account

Like other giant corporations about which I’ve written, PayPal will not reveal the specific reason for banning.

In fact, in PayPal’s terms, the company explains:

Our decision about holds and limitations may be based on confidential criteria essential to our management of risk. We may use proprietary fraud and risk modeling when assessing the risk associated with your PayPal account. In addition, we may be restricted by regulation or a governmental authority from disclosing certain information to you about such decisions. We have no obligation to disclose the details of our risk management or security procedures to you.

So, in other words, PayPal may never tell you why it banned your account. But the first step in an attempt to fix your problem is to go to the PayPal resolution center inside your account.

The business model of PayPal

Just like other quasi-banking apps, if you choose to use PayPal, it’s critical to understand what the company is and what it isn’t.

PayPal isn’t your bank account. The Federal Deposit Insurance Corporation (FDIC) protects deposits made into bank accounts but not into PayPal accounts.

In fact, the FDIC considers PayPal a “Deposit Broker.” A deposit broker is a company that takes your money, combines it with other users’ money and invests it in other things. It makes money off the interest of those deposits. You make nothing. And PayPal charges you to invest your money in those ventures from which it makes money.

PayPal explains all of these details in their lengthy user agreement under Holding a PayPal balance.

Any PayPal balance you hold represents an unsecured claim against PayPal and, except as provided below, is not insured by the Federal Deposit Insurance Corporation (FDIC). PayPal combines your PayPal balance with the PayPal balances of other PayPal customers and invests those funds in liquid investments in accordance with state money transmitter laws. PayPal owns the interest or other earnings on these investments.

Make sure to read your PayPal user agreement

I suspect that most PayPal users have not read through all the terms of use and legal notices associated with their accounts. But it is a good idea to take a close look before dropping large sums of money into your PayPal account. Paypal could limit or ban that account for undetermined reasons as well.

It’s murky as to what rights you have to force the company to immediately return your money. And remember — as PayPal itself points out, the FDIC does not insure those balances.

PayPal is not a bank and it is not insured by the FDIC.  FDIC insurance does not protect you against the risk of PayPal’s insolvency. (From the PayPal user agreement)

So user beware: If PayPal should suddenly go bankrupt, you could lose your money forever. (Michelle Couch-Friedman, Consumer Rescue)

*If you’re interested in learning about the newest way scammers can steal your funds via PayPal, check out this article: How did a hacker get into my PayPal account and steal $2,000!?

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Michelle Couch-Friedman

Michelle Couch-Friedman is the founder and CEO of Consumer Rescue. She is a consumer advocate, ombudsman columnist, mediator, writer, and licensed psychotherapist. Michelle is a public speaker, and her expert guidance has been cited in MarketWatch, Consumer Reports, Travel & Leisure, The Wall Street Journal, Newsweek, Popular Science, CNN, CNBC, Boston Globe, CBS News, National Geographic, Travel Weekly, Reader's Digest and more. You might even catch Michelle on TV reporting on a situation. :) Michelle is also the travel ombudsman columnist for The Points Guy and is the former executive director of the nonprofit Elliott Advocacy. During her six years in that position, she resolved thousands of cases for troubled travelers and other consumers. You can read hundreds of 5-star reviews Michelle earned during her service to the nonprofit since 2016 here on Great Nonprofits. She is also a member of the Society of American Travel Writers. Today, she continues to spend as much time as possible fiercely defending consumers and traveling the world with her family. Contact her at Michelle Couch-Friedman or on Linkedin, Twitter or Facebook.