PayPal: ‘Aggressive changes’ coming to frozen funds policy

By Julianne Pepitone

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PayPal’s overzealous fraud filters have frustrated customers for years, with an inscrutable verification process that leaves some battling for months to get access to their money.

The eBay-owned payments processor, like other financial companies, has policies in place to ensure that fraudsters aren’t using its system to transfer ill-gotten gains. But PayPal also traps legitimate businesses and charities in its filters, and proving you’re no scam involves a ton of paperwork and time.

PayPal says it’s finally ready to deal with the problem. It’s promising to roll out a massive overhaul of its system within the next several months — but details are scant for now.

“These are not minor — these are aggressive changes,” said Anuj Nayar, PayPal’s senior director of communications. “This is a fundamental shift in our business operations.”

Nayar said he can’t go into specifics about what will change, but transparency is a major focus. “We want to be clear about how people can get out of the [frozen funds] situation,” he said. “We need to get better about helping people, or explaining why actions are being taken.”

PayPal customers have complained for years about the Kafkaesque nightmare of trying to pry frozen funds loose.

The company routinely freezes funds for 21 days if it thinks there’s a fraud risk, and its terms give it the right to extend the freeze for up to 180 days. To get access to their money, users are often asked asked to provide the kind of documentation that a product seller would have, like several months’ worth of sales records. But if you’re running a fundraiser or selling tickets to an upcoming conference, you don’t have that paperwork.

Even for those with extensive paper trails, the appeals process can take months to resolve. The Web is filled with enraged blog posts, websites like paypalsucks.com, and a Tumblr called “Conferences Burned by PayPal.”

Nayar first discussed PayPal’s plan for “big changes” in a TechCrunch article posted last week, after science fiction author Jay Lake found his account frozen. Lake, who is battling advanced colon cancer, is raising money for an experimental genome-sequencing process.

Thanks to his own fame and the aid of friends like Neil Gaiman, Lake’s fundraising effort went viral. Just five hours after launching his campaign, he had $20,000 in contributions. At about 4 p.m. Pacific time the next day — January 11, a Friday — Lake tried to transfer the funds into a bank account. Instead, he received an alert that his PayPal account was frozen.

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