Update: PayPal Holds Half of Indie Developers' Money

[fix-the-spade]

#Edit, nevermind, I appear to be about half a decade out of date...

 

[Albino Boo]

Ok, maybe I'm missing something here, but what exactly gives PayPal the right to do this?

Because the user agreement gives them the right to seize or withhold any amount of money for any reason they choose. Since they are classified as neither a bank nor a credit provider they are not particularly restricted by US or EU law in what they can and cannot do with money. Nor do their customers have legal protection under the same laws as those laws cover bank account sand credit givers, which Paypal is neither.

Did you even read the update or the posts in this thread? I said before the update that its anti money laundering laws that caused the problem and then the update confirmed what I said

Ok, maybe I'm missing something here, but what exactly gives PayPal the right to do this?

So I see I'm not the only one that'd previously stopped using Paypal in this forum

Any chance we can get everyone else to do this too? Maybe they'll just go away (probably taking a lot of people's money with them) if we don't pay attention to them

Why do people even bother with PayPal?

I know it's convenient, but from the stories I've read lately, it's like riding an angry tiger home from the zoo "because it's more convenient than walking".

PayPal are complying with anti money laundering laws. They have to, by law, hold proof that money is not laundered and tax is being paid properly. The level of proof that the law requires varies on amount of money in the account. You can provide proof that you are an LLC but they need further information with higher amounts. If PayPal fail to collect the information they face criminal prosecution. Any other company doing the same thing is also covered by the same law. Barclay's bank settled a case with the US government by paying a fine of $298 million. Governments are very serious about getting the tax that they are owed and if you aid the evasion of tax by not checking they are going to hit you very hard.

and

Update: As of this afternoon, PayPal and Nyu Media have resolved the problem. PayPal issued the following statement via email:

"We have reached out to Nyu Media and the issue has been resolved. We want to reiterate that supporting these campaigns is an exciting new part of our business. We are working closely with industry-leaders like IndieGoGo and adapting our processes and policies to better serve the innovative companies that are relying on PayPal and crowd funding campaigns to grow their businesses. We never want to get in the way of innovation, but as a global payments company we must ensure the payments flowing through our system around the world are in compliance with laws and regulations. We understand that the way in which we are complying to these rules can be frustrating in some cases and we've made significant changes in North America to adapt to the unique needs of crowdfunding campaigns. We are currently working to roll these improvements out around the world."

And in particular the following line

We never want to get in the way of innovation, but as a global payments company we must ensure the payments flowing through our system around the world are in compliance with laws and regulations.

 

[Abomination]

We have reached out to Nyu Media and the issue has been resolved.

Sounds good on paper but I'd like to hear a statement from Nyu Media that the issue has been resolved.

The person who is holding the money of someone else doesn't get to be the one who says "It's all good now, guys. No really."

 

[Vivi22]

Can we get Paypal's side on this story too? I see people already making far-fetching conclusions based on very little information.

There's already been an update to the story which I assume came after you posted, but just to be fair here, this isn't the first time that PayPal did this exact same thing. It's happened to several other indie developers in the past, and apparently they haven't stopped.

 

[Amir Kondori]

This is like the 4th or 5th time they've done this to a crowd sourced production. Why the HELL is anyone continuing to use them? I haven't heard of Amazon payments doing this to any indie campaigns. I hate PayPal and endevour to use it as little as humanely possible, but of course until there is a widely trusted online payments competitor, like Dwolla or Amazon payments, I am sometimes stuck using them.

 

[Tahaneira]

This may be legal behavior, but it still doesn't stop the fact that holding back half the money needed to make something until it's made is a completely ridiculous situation. It's like telling they can have the other twenty-five gallons of gas when they reach the end of their fifty-gallon's worth trip. I don't care how legal it is, or how justified they claim this to be, it's pretty stupid.

 

[1337mokro]

I think there is a far more nefarious reason paypal regularly does this and it most certainly has nothing to do with looking out for the customer or making sure money laundering doesn't happen.

After all money laundering and tax fraud is rarely committed by regular peeps. No these are privilege crimes committed by the wealthy. I think there is some kind of paypal fraud going on where they use the money they withhold from so many people for some kind of scam of their own.

 

[Albino Boo]

Hilarious that PayPal does this to prevent citizens from money laundering, but no one is able to do shit about over half the Fortune 500 companies laundering money in off shore tax havens, holding back an estimated $740 billion in federal tax revenue every year.

Tax avoidance and tax evasion are not the same thing. Tax evasion is the deliberate attempt not to pay tax by breaking the law. Tax avoidance is the legal minimisation of tax paid and is perfectly legal.

This may be legal behavior, but it still doesn't stop the fact that holding back half the money needed to make something until it's made is a completely ridiculous situation. It's like telling they can have the other twenty-five gallons of gas when they reach the end of their fifty-gallon's worth trip. I don't care how legal it is, or how justified they claim this to be, it's pretty stupid.

They don't have a choice, if they fail to comply with the law PayPal gets fined. If you want things to change take it up with the US government because its them who make the rules. If Paypal followed a strict interpretation of the rules they should frozen the account and not allow new debits or credits until the company provided the information required by US law. SO by allowing the use of half the money Paypal are actually doing them a favour.

 

[Zombie_Moogle]

Before reading below I will state that I am not speaking on behalf of PayPal or eBay. Any opinions or expressions in this post are purely my own. I do not represent either of these companies.

You are partially right and without knowing the exact parameters behind the developers account there could be more to the story than what we see. A little background, I happen to know the PayPal system and lets just say I'm familiar with it inside and out as a seller. PayPal has two ways that they usually handle situations like these. Part of it is through limitations where they request documentation. Once this is done full access to the account is restored. Limitations don't necessarily have to restrict your access to money. As explained above AML laws are strict in this regard and any transaction that takes place on PayPal is not the Account Holders responsibility but the responsibility of the company facilitating the transaction (i.e. PayPal). So basically PayPal does as anybody would do in that same exact situation. Look at it like this, if you were in charge of a room full of people, and these people were all exchanging money for something. It could be a service or it could be an item. An officer walks in and says, "if anybody in this room exchanges money for purposes that is against the law, we will come after you". Wouldn't you be asking questions? Wouldn't you want to stop some of the people walking in and asking what's going on?

I know I would if it was my neck.

The second type of action is based on other risk factors. PayPal may make a decision that based off of what you are getting money for, who its going to end up benefiting and the risk of people filing to get their money back in its complaint process. This decision is known as a reserve on an account. Reserves hold a specific amount of money either as a lump sum or a % of the amount incoming on each individual payment. It holds these funds as collateral.

The example I give here are concert tickets. The reason be obvious if you look at the situation objectively. The concert could get canceled, the person selling the tickets may be selling fakes, or some other act that puts PayPal in a position as a payment processor.

Lets take a look at the case in point. Sure PayPal does have some information, but the information provided does not necessarily guarantee nothing is going to happen with the developer. PayPal does not know if this developer will deliver or not, whether people will start issuing chargebacks midway through their development, and since they are located out of the country PayPal doesn't have as many options to fight back if things go sour. As enthusiasts of the industry, we all know developers go out of business all the time at any time. Who's to say that will not happen here? The reserve is meant to cover some of the loss should this event happen.

In conclusion, although there are some consumer (or business) unfriendly practices, there are many consumer (or business) unfriendly threats as well. Would PayPal be able to protect consumers and make the claim that by using its product its the safest way to pay. If you were the owner of PayPal would you be able to stay afloat if your company suffered heavy losses like this should it not go as planned?

Of course laws/regulations are important & any business would comply as best they could to avoid penalties. My issues was not with their reasons, but with their methods.

OT: your Username/icon combo made me smile. Just wanted to thank you for that

 

[McMullen]

snip

Fair enough. But why did they say they were holding half the money until after development was complete? Why not say that they would hold it until they had finished their inquiries into the client company?

 

[J Tyran]

Ok, maybe I'm missing something here, but what exactly gives PayPal the right to do this?

Because the user agreement gives them the right to seize or withhold any amount of money for any reason they choose. Since they are classified as neither a bank nor a credit provider they are not particularly restricted by US or EU law in what they can and cannot do with money. Nor do their customers have legal protection under the same laws as those laws cover bank account sand credit givers, which Paypal is neither.

Lies and misinformation,

https://www.paypal.com/uk/cgi-bin/webscr?cmd=p/gen/mentions_eu-outside

It is a fully registered bank under EU law, it was granted a banking license from the Commission de Surveillance du Secteur Financier.

 

[xPixelatedx]

You know it would be nice if people actually started a campaign to call Pay-Pal out on their bullshit. If anyone needs to be knocked off their hoity-toity throne it's these fuckers. They are just a money transfer service, they need to start acting like it and stop using policies to block simple use. They also shouldn't be allowed to let politics get in the way (they're very christian from what I understand) and will even ban your account if they catch you buying adult material. Pay-pal is simply way to big to be using 'Ma & Pa business' sensibilities.

 

[Albino Boo]

The only reason it is legal is because the government refuses to close the loopholes in the tax code that MAKE it legal. In short, the criminals are running the banks. Companies finance campaigns for politicians, and in exchange, politicians don't close the loopholes, and the rest of the country gets a shiny steel dildo up the ass.

The reason why its legal because governments can't enforce their law outside of their country. This leads to competition between nations to create less onerous tax regimes. If the US government decides to effectively impose double taxation on foreign profits, which what is required to to make these schemes unattractive, companies will just move their headquarters to another country. This will lead to the reduction of tax income to a lower level than is currently paid. The only way to stop this is for rules to be introduced globally to prevent tax variations. This is very unlikely because even developed countries like Ireland are reliant on income brought in by their low corporate tax rate. Seeing that the Irish economy is in very bad state, the only way that Ireland could afford to agree to global tax rules is by slashing public services and pensions.

 

[Albino Boo]

The only reason it is legal is because the government refuses to close the loopholes in the tax code that MAKE it legal. In short, the criminals are running the banks. Companies finance campaigns for politicians, and in exchange, politicians don't close the loopholes, and the rest of the country gets a shiny steel dildo up the ass.

The reason why its legal because governments can't enforce their law outside of their country. This leads to competition between nations to create less onerous tax regimes. If the US government decides to effectively impose double taxation on foreign profits, which what is required to to make these schemes unattractive, companies will just move their headquarters to another country. This will lead to the reduction of tax income to a lower level than is currently paid. The only way to stop this is for rules to be introduced globally to prevent tax variations. This is very unlikely because even developed countries like Ireland are reliant on income brought in by their low corporate tax rate. Seeing that the Irish economy is in very bad state, the only way that Ireland could afford to agree to global tax rules is by slashing public services and pensions.

I understand WHY it happens. That said, when the companies doing this could pay off our national debt in 5 years BY THEMSELVES, it bothers me when politicians blame working joes for the economy being in such bad shape.

For a start I am not American. The national debt of the untied states stands at $16 trillion, therefore to repay the national debt in 5 years would require the payment of $3.2 trillion a year. This figure is just short of the entire size of the German economy ($3.6 trillion) I don't know where you got your figures from but I doubt US domiciled companies could afford to pay an additional tax burden equivalent to the German economy and remain in business.

 

[Albino Boo]

According to Newsweek, the top 15 Fortune 500 companies (Including Apple, Nike, and Microsoft) hide $740 billion in profits every year, with the Top 50 estimated at $1.2 trillion.

SOURCE: http://www.uspirg.org/news/usp/new-study-82-top-100-companies-used-tax-havens-2012

The rate of tax that the fortune top 50 is already paying on those profits is 35%. To gain the $3.2 trillion year you would need to have tax rates approaching 80%. Rates that high will make shareholders sell their stock and cause a stock market crash of the scale of 1929 and 2008. Recent experience has shown that severe economic downturns will reduce the total tax paid because of reduced profits.


Fundamentally, high rates of tax on profits act as disincentive to make a profit. In the early days of setting up of my business I was working 70-80 hours a week and was dancing on the edge of bankruptcy for about 2 and half years. Now I employ 28 people and my company not only pays corporation tax but also payroll taxes on the employee's pay. The people that work for me also pay income tax on their wages. Why would anyone work that hard and take such a risk to pay the state 80% of the profits? http://en.wikipedia.org/wiki/Laffer_curve