PayPal under fire over donations block

In .net 221, we reported on PayPal 'burning' conferences, endangering them by locking accounts or keeping massive cash reserves from an account holder, ostensibly to protect ticket buyers. Reports have now surfaced about a PayPal PR blunder that has shut down accounts belonging to Regretsy.

The blog had collected a Santa fund, with the aim of organising a gift drive for children "in the Regretsy community who might not get much otherwise". Having raised a considerable sum, PayPal limited access to the account and demanded Regretsy pay back donations, on the basis that it used a 'donate' button rather than a 'buy now' one or a shopping cart. A further post on Regretsy, if accurate, suggests PayPal's representative offered some curious feedback, not least that Regretsy's actions weren't a "worthy cause", and allegedly stated: "You can use the donate button to raise money for a sick cat, but not poor people." The blog owner's personal account was then also frozen for six months.

A blog post by greengeekgirl claimed the response was in contradiction to PayPal's own policies (PDF). However, with Regretsy not being a registered charity/non-profit, it does appear the site was in breach of the rules and could have been seen by PayPal to be gaming the system, and Iain Chalmers remarked on Hacker News that "[if] you're doing anything other than delivering physical goods to credit card billing addresses via 3rd party trackable shipping, you need to make sure you're fully aware of the risks you're choosing to expose yourself to using PayPal. If you're using PayPal for donations [and/or] anything where you can't give them a FedEx tracking number (or equivalent), you're opening yourself up to a world of hurt in the dispute resolution process."

Regardless, given the nature of Regretsy's collection, PayPal's response could have been a little less draconian. Certainly, the community reaction on PayPal's Facebook page (which it was initially moderating heavily) suggests the company needs to do something soon to avoid a PR disaster.

Neither Regretsy nor PayPal returned .net's request for comment. However, Anuj Nayar, Director of Communications, PayPal, later responded regarding the issue on the PayPal blog. He said that the funds have been released, the company is "working directly with the account holder," and that PayPal "believe strongly in helping those in need, especially around the holiday season". He added that PayPal is "making a donation to Regretsy to help their cause, and we’re truly sorry this occurred". The post also outlines the reasoning behind PayPal's actions (if not the poor customer service), stating that it's required by law to follow guidelines regarding donated funds.