Why PayPal is Opening Itself Up For a Lawsuit
This is a guest post by Paul Wilson who recently started a new blog about internet marketing at www.eckko.com. Paul has been helping me with the redesign of Newspapergirl. Look for more guest posts from Paul and let me know if you’re interested in writing one (through the contact form).
Recently, I have been using the web to do a lot of outsourcing, and it seems it is rather difficult to do this unless you have a PayPal account. Anyone who has used PayPal knows that this company will do anything to get you to use your bank account, instead of your credit card. I believe PayPal does this because their margins are higher with the bank than with credit card companies.
Whether this is the situation or not doesn’t really matter to me as a user. What matters to me as a user is that I am able to pay my creditors the way I want to. I remember back when PayPal allowed us to select the primary source of funding, whether it be our credit card or bank account.
If you have noticed, this is no longer the case. Now PayPal uses by default your bank account, and if you don’t want to use this option you have to manually change it every time you make a payment. Not too difficult of a task to do, but definitely annoying.
I was sharing my PayPal frustration with my friend who runs an online camping store. He told me how he ordered $5,000 worth of merchandise for his store through PayPal. Unfortunately, he was unaware that his bank account was automatically selected as the primary funding source, and instead of $5,000 being taken from his credit card, it was taken straight from his bank account.
With PayPal’s largest demographic making between $5,000 to $8,000 a month, this sort of mistake could seriously hurt. It takes just one small, but legally savvy, company to be hit like this and I can see a lawsuit being drafted and served straight to PayPal’s President Rajiv Dutta’s desk.
A good example of this being a viable possibility is the current lawsuit against Time Warner by Matthew Meeds. Meeds, an angry customer, sued Time Warner because he was forced to rent a cable box when he could easily purchase a box on the open market for less. Make no mistake, I am not advocating suing PayPal, but they do leave themselves wide open to these sort of negative actions. Especially, when their customers are told exactly what they can and cannot do with their own hard earned money.
Interestingly enough, as corporations are becoming more and more aware of the consumer’s voice, they are reluctantly bowing to it. This is obvious when you see corporations like MSN, Yahoo, and Walmart reversing their decisions to no longer issue keys to DRM songs, when their mass customer base begins rumbling.
I actually called PayPal on two different occasions to complain about this minor, but annoying, glitch in their service. Both times the customer service representative told me that they receive several calls a day with unhappy customers complaining about the exact same thing. Hopefully, if enough customers complain, PayPal will listen to their consumers. If not, PayPal might painfully be forced to realize that long gone are the days of greedy corporations force-feeding their customers what they don’t want because it is to the company’s advantage. ~Paul W.
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7 Responses to “Why PayPal is Opening Itself Up For a Lawsuit”
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October 14th, 2008 at 9:11 pm
In addition to this minor annoyance, an interesting recent case is with Leo LaPorte of TWIT and The Tech Guy fame, who purchased a camera on ebay for $2000, payed with Payoak and never received it. Paypal at first only offered him the ‘maximum’ payback of $200 . After Leo started a very vocal campaign to alert his audience of his experience, Paypal honored his full loss. Preferential treatment to say the least… interesting double standard, eh?
Interesting to note Leo secured Visa as a sponsor and talked up the advantage of using Visa for on-line shopping peace of mind.
Use with Paypal caution.
October 15th, 2008 at 7:29 am
PayPal Frustrations…
Paul and Newspapergirl, I totally agree with you regarding PayPal and their practices and how they just might run into a lawsuit. I too find it cumbersome to change funding source each time I use PayPal, it would be much more user friendly to have a si…
October 15th, 2008 at 9:20 am
While it is annoying it won’t be changed because it is a matter of financial benefit to paypal. Transaction fees between PayPal and major banks are several cents lower than between PayPal and credit cards. Given that the people involved in the transaction pay the same % to PayPal either way PayPal’s margins are higher by encouraging people to use their bank accounts.
October 15th, 2008 at 10:46 am
@Randal: Leo LaPorte’s example shows that consumers can have a voice to make a change, and though it may be a double standard for PayPal, it just proves that the squeaky wheel is the one that gets the grease.
@Clint: Unfortunately, it looks like your comment got cut off. I would be interested in reading the rest, since it looked like you were going to offer a different solution.
@Matthew: I agree with you to a point. The simple fact that PayPal gets large financial benefits from this annoying tactic means that simply complaining about it won’t make the change. However, I do think if a company were to sue PayPal things would definitely change (particularly, if the lawsuit ended unfavorably for PayPal). Dealing with PayPal, I honestly believe it will take this type of drastic measure in order for the to change. In all my years with PayPal, I have never felt them to value me as a customer. Lets hope that Amazon FPS catches on!
October 15th, 2008 at 11:14 pm
What would be the basis for the lawsuit? I am also annoyed by this practice, but see nothing illegal or deceptive in the practice of making bank account funding the default.
I’m an ex-lawyer and maybe that’s why I read the small print. But it is there and I dutifully change my funding preference every time I pay. Is this a practice that is annoying and complaint-worthy? If you are a credit card user, by all means yes. Is it illegal? No. They are not forcing you to use your bank account. It takes three clicks to make the change.
October 16th, 2008 at 10:05 pm
@Rick: Not being a lawyer I really cannot say if there is a legal case to build against PayPal. What I am stating though, is that by PayPal automatically defaulting to your bank account without your permission leaves them open to such negative actions.
October 18th, 2008 at 11:13 am
I really agree with you paypal and their practices and how can they just might run into a lawsuit.but this is confused.
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Muthu
Business Sales