by Henrietta
http://200westmain.com/redinkdiary
PayPal Background Overview
In Europe PayPal (Europe) Sarl et Cie SCA,
is legally registered as a bank and is
regulated centrally by the Luxembourg
bank authority.
In the USA PayPal is not a bank and is not
directly regulated by the U.S. federal
government although it is subject to
reporting provisions of the Bank Secrecy
Act. Because PayPal serves as a payment
intermediary, it is treated as a money
transmitter or a money service business.
PayPal is subject to state regulation,
but state laws vary, as do their definitions
of banks, money services businesses and
money transmitters. PayPal is not subject
to the provisions of the Electronic Funds
Transfer Act and Regulation E (EFTA/E).
Consumers using PayPal with a credit card
(not debit card) are covered by the
provisions of the Truth In Lending Act
and Regulation Z, (TILA/Z) through the
card issuing bank.
Keyword = State Regulation
The Banking Departments of states which
regulate money service businesses website
is maintained by the Association of Regulators
from states which do regulate and has
many valuable links.
Most states have links to the laws and
statutes which regulate money services
businesses, many have links to the
Attorney General.
Keywords to help in your search:
• MSBs or Money Service Businesses
• Consumer Protection
• Money Transmitter
• Department of Financial Institutions
• Banking Department
Most Regulatory Statutes for MSBs contain
wording that states the maximum time period
within which money transmitters must perform
the function they are licensed to do,
ie. give you the money
I have not seen a single statute with a period
of 180 days or 60 days. Most seem to be 10
business days, unless you are suspected of
committing a crime. This is America, you are
innocent until proven guilty. PayPal will not
be able to say that every seller who has had a
reserve imposed is suspected of criminal activity,
especially since no action has been taken to
report that suspicion to the appropriate
authorities or police.
The Federal Trade Commission (FTC) does not
resolve individual consumer complaints. The
FTC collects complaints about companies and
business practices. The FTC enters all complaints
it receives into Consumer Sentinel, a secure
online database that is used by thousands of
civil and criminal law enforcement authorities
worldwide. These collected complaints can help
detect patterns of wrong-doing, and lead to i
nvestigations and prosecutions.
Tough Talk
You can sit there in your office and tell
yourself “I am not selling in a high risk
category. I will not be affected by reserves”
You should know that the phrase “high risk
category” is BaySpeak, meaningless. “High
risk category” sellers who have had reserve
accounts imposed include:
• Collectibles
• Toys and Hobbies
• Pottery & Glass
• Antiques
• Baby - Nursery Bedding
as well as the categories that we would
expect to see like Cell Phones & PDAs.
Yes ALL Merchant Credit Processors have the
ability to require a reserve account in
their legal agreements. However, it is not
something which is implemented across the
board for all accounts regardless of risk.
If you have zero or bad credit and a bad
track record or history of chargebacks
(if they will even accept you) then you
should expect a reserve.
PayPal are not following accepted industry
procedures or risk standards. I have been
told that when PayPal have all the planned
reserve accounts in place on eBay they
will be requiring them on websites. Seems
like fair warning to me. Our Australian
friends proved that when everyday people
get off their rear ends and make noise
consumer protection happens. PayPal
backed down.
If you don’t like it make a written complaint.
If you can’t be bothered to take action you
must bear the consequences of your inaction.
Fighting PayPal Rolling Reserves
New Law Taxing for PayPal & eBay Sellers
By Ina Steiner
EcommerceBytes.com
Online merchants face many challenges
running their business, and taxes and
cash flow are top concerns. A new law
will require payment card processors
and third-party settlement organizations
to report eBay sellers' and online
merchants' transactions to the IRS
beginning in 2011.
Sellers have had many questions about
the new law and have also wondered
about certain PayPal practices around
credit checks and holding payments.
We checked in with PayPal and with
an attorney in the payments field
to learn more about these issues.
Reporting Payment Transactions to the IRS
The United States Congress passed the Housing
and Economic Recovery Act of 2008 last summer.
Included was a provision that requires payment
processors and third-party settlement
organizations to report gross transactions
of payees to the IRS (Internal Revenue Service).
At the time, PayPal said the new law would
require it to report to the IRS the total
payment volume received by PayPal customers
in the U.S. who receive more than $20,000
in payment volume in a single year and receive
more than 200 payments in a single year.
The new reporting requirement takes effect
in 2011.
Michael Oldenburg said there was
nothing new to report on the new legislation.
Zahara Alarakhia, an attorney who works
with financial services firms said,
"who's going to enforce it, what kind of
compliance issues are payment processors
going to face - no one really knows."
Zahara confirmed that the law applies to
merchants who make over $20,000 in gross
transactions and more than 200 transactions.
So, for example, an online seller who makes
two transactions for a total of $30,000 in
the tax year would not be reported, since
the number of transactions did not exceed
200. She said the law is not retroactive
and takes effect for tax-year 2011.
Zahara said it's going to take a lot of
upgrading on the technology end for
settlement agencies to comply with the
reporting requirements, and it also raises
privacy and regulatory issues. The IRS
does not really understand the merchant
acquiring business, she said, and what
Congress has required under the law
raises substantial issues in the
marketplace, such as security issues
regarding keeping track of social
security and tax identification numbers
that might conflict with other laws.
"The process would have to tie all of
the transactions of the merchant to the
tax identification number and store
those on their systems, which would
increase potential hacking issues
and privacy issues."
PayPal Credit Checks and
eBay's 21-Day Hold Policy
PayPal may hold a seller's funds as
part of eBay's 21-day hold policy -
usually affecting fewer than 5% of
transactions, according to PayPal
Director Monroe Labouisse. In an
interview with eBay blogger Richard
Brewer-Hay last week, Monroe said,
"In a very small percentage of cases,
eBay asks PayPal to hold a payment in a
seller's PayPal account for up to
21 days.
eBay asks PayPal to do this for a
buyer's protection when eBay believes
the transaction is significantly
more likely than the average transaction
to be fraudulent or to wind up in a
dispute between the buyer and the seller.
For example, a relatively new eBay seller
who is selling an expensive electronics
item may be flagged for an eBay item hold."
Monroe said eBay item holds are part of
eBay's overall efforts to bring more
buyers back to eBay, which ultimately
will drive more sales for sellers.
PayPal also conducts credit checks on
sellers in certain cases to manage any
possible risk of loss from a seller's
transactions. The review might result in
PayPal imposing a rolling reserve. "If the
seller's credit score is not as high as
we'd like (and the score we look for depends
on the industry the seller operates in),
or if we determine there are other factors
that may increase the risk of claims or
chargebacks, we will ask for the seller to
deposit a reserve in their account," Monroe
said in the blog interview.
"The reserve will be a certain % of the
seller's past volume over a certain period
of time." These rolling reserves differ
from the 21-day holds.
PayPal spokesperson Michael Oldenburg said,
"In most instances, credit inquires are for
authentication purposes only and will not
impact customers' credit scores. In those
instances where there is an increased level
of risk (for example, high processing
volumes similar to a traditional merchant
or business account), then we may do more
in-depth credit inquiries that could
potentially impact the customer's
credit score."
Oldenburg also said that PayPal does not
restrict accounts as a result of credit
checks. "As you may know, accounts are
generally restricted when we suspect
fraudulent activity. We do this to protect
both buyers and sellers against fraud."
We asked attorney Zahara Alarakhia about
PayPal's practice of running credit checks
and its 21-day hold policy. "As long as
it's in PayPal's terms and conditions, can
they do it? Yes." It's not uncommon for a
payment processor to require a background
check on the merchant business and its
principals, she said. Banks typically put
holds on checks in certain circumstances -
though not as long as 21 days, Zahara said.
"Right now, PayPal has been fortunate
enough to escape all kinds of regulation.
They're not under the purview of a bank,
so they can escape banking regulations"
and KYC (Know Your Customer) standards.
She believes PayPal is trying to enforce
these laws to curb possible regulation
that might be coming down the line that
fight money-laundering and
anti-terrorism activities.
"This new legislation (Housing and Economic
Recovery Act of 2008) is the first time
that PayPal will actually be hit with
legislation - any sort of legislation."
She said that while nothing is on the radar
screen, she thinks eventually there will be
some regulation regarding third-party
settlement organizations.
The law does not differentiate between
online and offline merchants, according
to Zahara.
