
Warn HN: When PayPal doesn't know the meaning of "Donation"... - ComputerGuru
This is a few weeks old, but I was inspired by Jacques.. Fellow HNers really should be very, very wary about using PayPal for anything other than splitting the cost of dinner amongst friends.<p>I've had my PayPal account since 2002, and have been using it to send and receive thousands of dollars since then. Last month, PayPal froze my account. I try to keep it as close to empty as possible, but since they purposely make it hard to get money out (i.e. you can't schedule withdrawls) there were some 2500 USD in donations when they froze it.<p>I write free software. My free software has a "donate" link that goes to the PayPal donation page. The idiots at PayPal froze my account since I couldn't prove 501(c) exemption (which I don't have - and more to the point, never claimed to!) and insist that it's "illegal" to receive donations unless you're a registered non-profit with 501(c) IRS clearance. All this happened when I changed the name of the account from my name to the name of my website (because I didn't want my name on the payment page), bringing to their attention my site and PayPal account.<p>I tried to reason with them (showed the definition of "donation") and explained that I'm just getting paid at the whim of the user for services rendered, and that it isn't a "non-profit donation" in the IRS sense. No luck there. I asked to go back "to the way things were" - back to a normal premier account in my own name, and not in the name of the non-501(c) organization that I run the site under, but they (of course) wouldn't listen.<p>In the end, they stopped responding to my emails and told me to get the papers I need to be able to pull the money out. I cannot transfer the money I have to my bank account. I cannot close my account, withdraw any money, use my PayPal debit card or anything other than (you guessed it) put more money into the PayPal balance. The money frozen is enough to hurt, but not enough to make it worth it for me to get a lawyer or waste too much time on it.<p>So just a word of warning to the wise: don't use PayPal. You'll thank yourself forever.<p>(I ended up switching to Amazon Simple Pay, which is _incredible_ except no phone support and customer service response times for _merchant accounts_ is 3 days+. Then I tried my hand at Google checkout, except my conversions went down, waaay down; and have come to the conclusion that it's stupid to accept money through any of these 3rd party services. Time to check out real payment processing providers like BrainTree &#38; co.)
======
patio11
Paypal will let you do daily withdrawals. The magic word is "auto sweep". You
have to call and ask for it.

I have used Paypal successfully for fourish years now. Not to ignore your
experience, but if I listened to my buddies on the day after they were dumped
I'd swear off speaking to young ladies, too.

BrainTree is not viable at your scale.

~~~
thaumaturgy
I don't think that metaphor fits at all, because this isn't about people
swearing off an entire class of services ("women are evil : web-based payment
companies are evil").

To better fit your metaphor, I'd say it's like having all your guy friends
warn you that they each had a relationship with Jenny and she cheated on every
single one of them, and you shrug your shoulders and say, "Well, she hasn't
cheated on me yet, and besides, I think that was totally understandable
behavior."

~~~
pbhjpbhj
>they each had a relationship with Jenny and she cheated on every single one
of them, and you shrug your shoulders

To be crass for a moment: If he's only bothered if Jenny puts out that night
and not about a long term relationship, knowing that there are other girls he
can sleep around with, then he wouldn't be bothered.

Tunnelling through the metaphor: If using auto-sweep he's only risking, it
seems, one or two days of payments. When/If he gets cut off by PayPal then he
can jump ship.

------
TorgoGuy
You do NOT have to be a 501(c)3 to accept donations with Paypal. Just register
as a regular business and use the donate button. What may have happened here
is that you registered with PayPal as a "non-profit" to get the lower
transaction fees, but that's NO-NO if you are not a 501(c)3.

Supporting documentation: [https://merchant.paypal.com/cgi-
bin/marketingweb?cmd=_render...](https://merchant.paypal.com/cgi-
bin/marketingweb?cmd=_render-content&content_ID=merchant/donations) Click on
the pricing tab, then open up the "Standard Rates" section at the bottom. The
relevant quote on this page about the donate button is this: "If you are not a
501(c)(3), you can still accept donations with our standard pricing."

~~~
prakashk
I can second this based on my own exeprience.

A few months ago, I helped my son to set up a non-profit organization and a
website to collect online donations (<http://sujal.org>), mostly from family
and friends. I chose the non-profit option for the business type when the
PayPal account was created, since the organization was registered as non-
profit in my state and also because we intended to file for exempt status with
the IRS (until we found that it costs $400 to do that, which is a story for
another time.)

A few weeks later, PayPal suspended the account. I contacted PayPal and after
a few days going back-and-forth, I was told to change the business type to
something that is not non-profit, and also to add a disclaimer along with the
donate button to convey that the donations are not tax-deductible (see the
above link for exact text of the disclaimer if interested). After doing this,
the account was restored.

------
bradleyjoyce
This exact thing happened to me... I used pledgie + paypal to accept donations
to help a friend out in Peru who's home had been devasted by flooding. Paypal
froze my account, customer service wouldn't tell me what was up, only that I
had to EMAIL the "Compliance Department" which doesn't do phone calls. The
compliance department told me I needed to provide the paperwork to prove my
non-profit status, which of course I could not do. I sent my friend the amount
donated out of my own pocket since the money was locked down in paypal. After
3 months of emailing back and forth I finally got nasty with them and
threatened all sorts of lawsuits etc etc. While they haven't reinstated my
account they finally allowed me to withdrawl the money. That account is
basically in a permanent restricted status and unusable.

PayPal is the new mafia.

------
filosofo
According to this page <[https://www.paypal.com/cgi-
bin/webscr?cmd=xpt/Marketing/merc...](https://www.paypal.com/cgi-
bin/webscr?cmd=xpt/Marketing/merchant/NonProfitsFAQ-outside>); "you must have
documented 501(c)(3) status or you will not receive the reduced nonprofit
transaction fees."

Where does PayPal state that you must have 501(c)(3) status to accept
donations? (I'm concerned because I do something similar to CompuerGuru--
accept donations for free software via PayPal and have done so for years).

------
hippich
I read a lot about these stories with PayPal freezing accounts. Usually, it's
with few grands in it.

Did anyone try small claims courts for it? From reading internet seems small
claims courts have small fixed fee and if defendad (PayPal) will not appear,
they automatically loose.

Probably, it's possible alternative to spending days on phone/email with
PayPal, or paying lawyer tons of money?

------
thaumaturgy
I have diminishing amounts of sympathy for anyone with a recent PayPal sob
story. There are ample enough warnings about doing business with them -- both
here and elsewhere -- and there have been plenty of topics about alternatives.

If you choose to do business with them, you're choosing to take on a great
amount of personal and business risk. Maybe that'll work out for you, maybe it
won't. That's gambling.

Can we stop the PayPal complaint train now?

~~~
sabat
_Can we stop the PayPal complaint train now?_

If you have a viable alternative to suggest, then yes, it would be reasonable
to tell people to stop whining. Given that PayPal is the only game in town,
and that there is no obvious competitor for use by individuals and small
companies, the complaints need to be shouted from rooftops.

Ask HN: what about WePay, is that a real competitor?

~~~
thaumaturgy
Complaining loudly and often is only effective if it's likely to create a
different outcome. PayPal isn't going to change their business practices
(people have been complaining about them for _years_ , hence my fatigue over
it); there has been an opportunity in this market for at least this long; and
authorize.net and other similar services are available to anyone that wants to
spend a little bit of effort integrating their API.

That's the last I'll say about this topic, because it's a waste of time.

------
tgriesser
Has anyone used WePay for collecting donations? I was considering it as an
option for a project I was working on and I was wondering if anyone had first
hand experience using it in comparison to PayPal...

~~~
medecau
No experience with them but the only problem I've read about was with
WikiLeaks.

------
lionhearted
What's your jurisdiction? I'm not a fan of court, but it seems like this is
the sort of thing small claims court is made for. They probably don't show up,
you win a default judgment, and then you never use them again. Problem solved.

~~~
jakewalker
The last time I looked at PayPal's user agreements, they require you to agree
to an arbitration procedure in any disputes. So you'd have to fight the
validity of that agreement too.

(I'm not a lawyer, this isn't legal advice.)

------
LaPingvino
Might be quite off-topic, but I want you to know that for international stuff
Paypal has more value to me than Google checkout, as I don't have a credit
card and Paypal works with my European bank account. It might be similar in
several other countries, so that can be a reason for lower conversions with
Google Checkout. Paypal in a lot of cases is my only online currency,
alongside IDeal in the Netherlands (that works with my bank account as well).

------
tici_88
It sounds like your problems are more to do with IRS/US financial regulations
than with Paypal. I doubt Paypal invented the concept of 501(c). Disclaimer: I
don't live in the US so maybe I am not aware of some subtlety here.

On a more general note, it boggles the mind why anything like 501(c) would
even exist in the first place. Sounds like unnecessary, out-of-control
beauraucracy.

------
cperciva
I have some sympathy for Paypal here. They encounter a _lot_ of fake
charities, so the word "donation" is a red flag to them.

~~~
citricsquid
Exactly, it seems a lot of people don't understand what Paypal is. They're a
high risk business, if you tried to open a bank account with an email address
and name you'd be sent on your way, but with Paypal you can. This makes fraud
a huge issue for them, so it's entirely reasonable for them to be locking
accounts when something _vaguely_ suspicious happens. Paypal shouldn't be
treated like a bank (even if they're _registered_ as one here in Europe)
because they're not.

If they get even a whiff of fraud or a _scam_ then they're sure as hell going
to investigate, because if it goes wrong and it is fraud who has to pick up
the bill? Paypal.

~~~
mcantelon
Does Paypal give the money back to the donors after a certain amount of time
has passed or do they continue to keep other people's money?

------
bigohms
Paypal services have horror stories like this all over the web and have become
a largely four-letter word in payment processing.

Always consider any balance hosted at Paypal "in danger" and at risk of loss.
Sweep into your account.

You don't need a lawyer to take this to your local small claims since its
under a typical award.

~~~
hga
Sweep it into your account, then sweep that into another account lest they
decide to withdraw it.

------
clavarrico
Have you tried moneybookers? is it safer? I have had troubles also with paypal
and my frind`s accounts has been frozen too. However most of our
clients/donators don`t even know there are other ways of sending money.

------
wwortiz
We use the paypal donate function for a registered 501(c)3 and haven't had any
real problems but I must say the majority of donations (in quantity, and
higher amounts) still come in through checks in the mail.

------
makuro
Frozen accounts can only stay frozen for so long. Worst case, after 90 days
they'll deactivate the account and send you a check.

------
clavarrico
Have you tried moneybookers?

