PayPal Redirects Charitable Contributions Without Consent, Lawsuit Says | Hacker News Reader

PayPal Redirects Charitable Contributions Without Consent, Lawsuit Says

nytimes.com

301 pointsjayzee83 comments

Remember when in the aftermath of Katrina, Paypal seized donations fundraised from Something Awful intended for the Red Cross for "fraud" and then refused to release them even when everyone told them they knew full well what was going on? After they got called onto the mat they finally agreed to release the funds but only to one of their own selected list of charities, all of which had vastly greater overhead expenses. In the end Lowtax finally had to tell them to refund everyone and have them make individual donations instead.

Paypal is shit, the best thing you can hope is that you fly under the radar, because the horror stories are very real. They are not a bank, they are an unholy, unregulated "money transmitter" and if they choose to screw you there is nothing you can do about it. Have fun with your mandatory binding arbitration.

Absolutely. Paypal attempted to direct the funds to the United Way, a high-overhead charity that they had an existing relationship with. [1]

1: http://www.somethingawful.com/news/paypal-fiasco-summary/

FYI, Paypal is declared and regulated as a bank in the EU, declared in Luxembourg.

So if something like this happens to you as an european, either sender or receiver, use your rights.

> As of July 2007, PayPal provides localized versions of its service to customers in the EU through PayPal (Europe) S.A.R.L. et Cie, SCA., a wholly-owned subsidiary of PayPal that is licensed as a bank in Luxembourg.

Whereas:

> In the United States, PayPal is licensed as a money transmitter, on a state-by-state basis

@nolok what is the value of this regulation? Some recent/current examples. 1) During the banking crisis after 2007 EU banks loose 100billions of euro's and the taxpayer mostly payed for their losses. 2) They get 80billon euro's for free every month (quantitative easing) from the ECB which goes down the drain, iow into their profit, not into supporting the economy. 3) Up till the Greece crisis, Greece had to pay high interest rates to the commercial bank because of the risks associated with lending to Greece, but when the shit hit the fan, the commercial banks got their loans redeemed by the IMF/ECB instead of the banks having to write them off. 4) And more recent, N26 is regulated in Germany but had very flakey security https://media.ccc.de/v/33c3-7969-shut_up_and_take_my_money. And I can go with al long list...

I couldn't agree more that Paypal can not be trusted, in my vocabulary Paypal US stole the money from the designated charities. To say that Palpay is nice and good in Europe because they regulated by Luxemburg banking authorities, IMHO is far stretched.

I don't think the parent said that Paypal is nice and good in Europe. It merely said that they might be under a stricter regulatory control in Europe, so unhappy customers have more tools available to keep them to account.

[Edit/add]: However, American citizens have often stronger tools available in class action suites. EU countries trust the authorities, and it is then up to officials to control parties like Paypal. Do they do it? It's not necessarily very consistent.

Except class action lawsuits get you absolutely nothing unless you are a lawyer. Enjoy that voucher for a free pancake, only redeemable between 4.30 and 4.32 AM at a single restaurant.

But at least they can be started and participated by individual citizens.

As an individual consumer you are very likely to shrug off small losses because of a company acting in bad faith and move on. It is not worth your time. The management of an individual company has a large incentive for acting in bad faith because the aggregate profits from ripping off many consumers can be large. Class-action lawsuits are expensive for the company being sued and act as an effective deterrent to bad behavior, and are one of the very few ways for consumer collective action under a capitalist system.

> 80billon euro's for free every month (quantitative easing) from the ECB which goes down the drain, iow into their profit, not into supporting the economy

This is not how QE works and it is absolutely not free money.

PayPal is a nightmarish company. I've lost ~3000 USD to PayPal when I was doing small business back in early 2000s. Their "buyer first" policy had screwed us big time, even though we have provided all the documentation to contest the bogus claims. PayPal froze our money, and terrorized me for a whole year with collections agencies. It was awful. I am out of 3K dollars, and I have stopped using PayPal since.

Only ~500 for me, but same deal. Fradulent buyers flat out lying and no amount of evidence on my side stopped them from trying to go to collections over it.

Notch (original Minecraft author) got $750k frozen by PayPal.

Same here, about $2,000 they claim I owe them because they stupidly decided to refund money to an obvious scammer. Luckily I had already withdrawn the money. This happened when I was 15 and since then I am banned for life from Paypal - every time I tried opening up a new account they would eventually ban me. However during the last 15 years I have started multiple successful businesses and used alternatives like Stripe instead of Paypal and they are missing out on literally hundreds of thousands of dollars in fees.

At 15 you aren't allowed to have an account with PayPal and were technically defrauding them with a false birthday to get in. It isn't much of a stretch for them to ban you for that alone. Even if you were emancipated, it would be nearly impossible to prove that to a web business with no allowances for unusual circumstances.

Maybe they changed the policy since 1999? I don't remember lying about my age at the time, and they had my SSN. Plus my age never came up as a factor during my fight with them about the ban.

On the other hand, it isn't entirely impossible that Paypal algorithms saw something about the Red Cross that looked like fraud.

http://www.npr.org/2014/10/29/359365276/on-superstorm-sandy-...

Literally nothing in the PayPal algorithms could have foreseen something like the article you've linked, and to suggest so is exceedingly disingenuous.

It is likely that they didn't catch the linked problem, and I didn't intend to suggest so. What the linked article shows is that the Red Cross isn't beyond the suspicion that something they did wasn't that clealy above board that an algorithm couldn't possibly have been triggered.

The algorithms was triggered before any attempt to send the funds anywhere was made, and without any knowledge of where the funds were going, and with the stated concern that they might not be going to a charity.

Yes, we get it, it's ironic that the Red Cross didn't look so good either in the aftermath of Katrina, but this has literally nothing to do with Paypal or their algorithms.

PayPal is going to lose this one. They're acting as a charity fund-raiser, which is highly regulated due to a long history of flaky fund-raising.[1] PayPal is probably going to claim they're a special snowflake because they're a payment processor or something, but that probably won't fly, because PayPal claimed to the public that they were collecting funds on behalf of a charity.

[1] https://oag.ca.gov/charities

Why is it, when an established company does something like this, the headline talks about "redirecting contributions", instead of calling it what it is?

Why not just say "Paypal Defrauds Donors"?

I remember that several Xorg developers alleged that Paypal robbed Xorg. I think Xorg never got anything back. https://ubuntuforums.org/archive/index.php/t-1417033.html

I recall reading a bible quote or might have been another religious book. It said, when a powerless man breaks the law, a crime has been committed, but when a powerful man breaks the law, the law was unclear.

Because when you have lots of money, you can afford to use the threat of expensive libel lawsuits to keep people in line. The prospect of dragging someone into litigation is enough of a chilling effect they don't even have to commit to it for it to be effective.

Like a Universal Health Care you could have a "Universal Law Care", a per se legal costs insurance for every natural person. You might have to pay low fares measured in daily rates calculated from your rate of income/wealth for any legal action you take, but nothing that would put your way of life at risk. With automated processes in law becoming more and more of a thing, it would be possible to handle cases faster and on a much finer grained basis, without sucking so much time and resources. Think of a fully-automated arbitration process. There would still be "manual law", where you could always escalate to, if you think Robo-Judge is wrong. Meanwhile wet-ware judicature would also get much more efficient/cheaper by help of automation (I think a wide-spread acceptance of teleconferencing into court would also help).

In a scenario like this, such obvious fraud would not be a thing anymore imo. And we could be there soon (except maybe for the Universal Law Care part).

"Obvious" to whom? There's been a lawsuit filed, that doesn't mean it's "obvious." We are certainly aware of PayPal's history as slimy (and my inclination is to side with the plaintiff in this suit), but suppose the plaintiff also is aware of this reputation and is lying in an attempt to simply cause PayPal harm?

How "obvious" is the alleged fraud in that case?

Legal aid (and no-win, no-fee class action lawyers for "obvious" cases) already exists. But that doesn't mean that corporations don't have deeper pockets and a stronger interest in winning in many circumstances. And unless you've got hard AI, RoboJudge isn't going to understand the intricacies of how PayPal markets its donation service to consumers and distributes revenues and whether its disclaimers were sufficiently clear and obvious to its intended audience

I don't know about the bible, but here's an old Russian proverb:

Алты́нного во́ра ве́шают, а полти́нного че́ствуют.

Translation: One hangs the thief who stole altyn(3 kopecks), and honors the one who stole poltinnik(50 kopecks).

PayPal absolutely steal money from people. A community I run once tried a donation campaign to pay for hosting costs etc. At some point paypal decided this was fraud (right after someone sent a larger sum of money) and locked the account. Locking an account means they take the money, and there is no way to get it back, apparently. They kept coming up with excuses as to why no one was allowed to access the money and refused to refund people.

I wanted to try my hand at fighting them a year later and the account was gone entirely. Bye money.

Fraud is a legal term that presumes a finding in a court of law to be anything other than a nonsense word (that means whatever someone thinks it means). It's absolutely correct in this case for the headline to refer to "redirect" because no court has found that to be fraud (yet) - that's the allegation the lawsuit is making.

It's why we don't call murder suspects murderers.

So suspected of defrauding donors then.

I think the word you are looking for is "allegedly".

So my parents run a non-profit and a recently letter we got from Amazon Smile explains what is happening here. Amazon Smile is a service were you can choose a charity for Amazon to donate to. When you shop at Amazon, a small percentage of that money goes to the selected charity.

Recently they got a letter in the mail explaining they had been chosen as recipients of this Amazon Smile money. The thing is, they never chose to be featured on Amazon Smile. Amazon used some database of non-profits (that they had never heard of) in order to present options to customers, then notified the non-profits later. The letter specifically said that in order to collect the money, they needed to create an account with Amazon smile.

PayPal is probably just pre-populating their list of charities, failing to fully notify recipients of the donations, then saying "Whoops, I guess we got to do something with the money."

Which non-profit?

I'd love to hear more about how Amazon Smile works from the charitable organization's side.

They just instruct some classes for engaged couples. Nothing that interesting.

https://org.amazon.com will probably be of interest to you.

That probably explains why the amazon smile program included a local charity that caught me by surprise. I didn't think the local office would be technically savvy to sign up for a special amazon program.

Wow. That just sounds arrogant on the parts of Amazon and PayPal.

Dammit. I've been using Amazon Smile to donate to a small non-profit. It's obscure enough that I was surprised to find it listed as an option, but given that it was there, I just assumed that they would get the money set aside for them.

Is Amazon doing the same thing (withholding donations from charities that don't register for their service)? Is there any way to check?

"If you do not register your charitable organization, including providing accurate bank account information for an electronic transfer, the AmazonSmile Foundation will still track and store donations earned in each calendar quarter. Once you’ve registered your charitable organization, your organization will be eligible to receive in the next donation cycle all donation amounts that were previously allocated to your organization and were not subject to reallocation under the Participation Agreement."

but

"Please note that donations that have been allocated to an unregistered charitable organization from customers that made their first supporting purchase more than eight full quarters ago and have not been distributed will be reallocated to other registered charitable organizations."

Sounds like exactly the same situation as PayPal, and there's no way for me as a customer to check who's actually getting the donation, right?

This looks really bad for PayPal.

"It did not have an account with the Giving Fund, even though its profile page there included its logo, mission statement and tax identification number."

TLDR; PayPal is soliciting donations for over a million charities, most of whom are unaware of this.

It sounds like they already have a team manually collecting information on charities. It wouldn't be so unreasonable for them to manually write a check to the actual charity after 6 months with no collection, which would take most of the meat away from the lawsuit. The free money would probably help their conversion rates with this trick, too.

> It sounds like they already have a team manually collecting information on charities.

Probably not. There are many online databases of registered charities already, and I wouldn't be surprised if new ones get scraped into them automatically. It seems likely that PayPal would have used an already existing dataset.

At least some of the donations would have been made directly to charities had Paypal not advertized in their name. So charities who weren't informed, couldn't get or didn't want a Paypal account were deprived of donations.

They did the whole thing to get people to use Paypal but didn't want to put in the effort to run it properly. In effect they ended up defrauding charities. If you put up a sign that says "accepting donations for charity X" and then don't make every effort to donate the collected money to X, it's fraud.

"Paypal accused of defrauding charities" would have been the appropriate title.

Using charities legally registered names and goodwill to acquire money into your business, with literally no connection whatsoever to those legally registered entities is the definition of fraud.

Imagine you started to collect on behalf of the red cross, directly to your personal bank account, then sent the red cross a letter, letting them know that if they wanted to register with you and accept your terms, you might give them some money that you fraudulently collected by abusing their name and good will.

Fuck PAYPAL

So basically PayPal itself would call it fraud if somebody else would be doing it, right?

It looks like that the Humble Bundle is also affected by this. On their webpage, it says "Charitable contributions administered by PayPal Giving Fund" and "PayPal Giving Fund retains ultimate discretion and control over the use of the donations it receives from Humble Bundle."

Is there a way to know which charities are registered with Paypal?

so I did great to always specify 100% to the devs

Humble Bundle co-founder here. This does not apply to us. The lawsuit refers to a feature PayPal Giving Fund launched a few months ago on their own website, to let people pay charities that are not yet registered.

On our side, for charities that are paid via PayPal Giving Fund, we require them to be fully onboarded. For our "choose your own charity" feature, which lets you customize which charity you are supporting, we only allow our customers to choose charities that are fully registered with PPGF. You can verify this by noting that we only support a fraction of the charities listed on PPGF.

Why use PPGF (or Tides.org, our backup) in the first place? There are regulations that require you and the charity to do a fair amount of paperwork and register with various states. When you are tiny, you can probably fly under the radar, but when you are approaching $100M raised for charity, it is a good idea to be fully compliant.

PPGF is an easy way to maintain sanity, because we can focus on fully complying with every state with the PayPal Giving Fund 501(c)3. PPGF then handles maintaining compliance with the states (+ UK) on their side.

However, for this to actually legally work, the PPGF needs to retain control over the funds, hence the scary disclaimer on the site. If they didn't actually pay a charity we work with, which has never happened, we would obviously let the customer know and make it right. We will be updating the disclaimer next week to be less opaque.

Thanks, that makes a lot of sense! :)

PayPal is long known for its fraudulent behavior. Here is a good list of references:

https://minifree.org/paypal/

I think this (charity donations) is one of the perfect use cases for the blockchain. To be clear, I am not suggesting Bitcoin, but the underlying blockchain technology.

Having publicly visible transactions will be a huge boost to transparency and shady practices like those described in the article just won't fly. Every other month a news article about banks exploring blockchain tech keep popping up in the media and I hope banks find a way to incorporate blockchain technology into the existing system.

Blockchain technology is (nearly) useless without the blockchain being public. Banks need stronger distibuted consensus primitives than theyre using now, but blockchain is overkill.

It would be interesting to figure out how much of the process you could make public without compromising the privacy of the donors too much.

How much additional risk would be added by just publishing a log of all donations, with just the sender anonymized (with the sender knowing or even choosing the id, so they can verify their donation went through?), and how could that be mitigated?

With Bitcoin it is almost impossible to figure out who an account belongs to. It's however easy to follow the money as every transaction is public. So while you can see what the charity does with the money, and also confirm that they received it, it's almost impossible for the charity to figure out who sent the donation.

An account in Bitcoin is just a long random number. And you can create as many accounts as you like. In order to find out who the account belongs to you have to trace back the money to an exchange, and not only hope they will cooperate, but also that they have not deleted the records of the transfer.

It seems to me that the donors are the little fish here and that charities who's logos were used with the intent to deceive the customer/doner are the ones that can eat PatPal alive.

Given the founder's opinion, caught on video, that "single-digit millionaires have no effective access to the legal system", perhaps they weren't too concerned.

https://theintercept.com/2016/10/31/trump-fan-peter-thiel-sa...

But this offense will tried in a different courtroom, the same that VW and Uber have lately been 'splaining themselves in.

Whoever owns PayPal must have had experience running an extortion racket

I'm just glad Y Combinator would never do business with a person like that.

Don't the PayPal mafia all hate the current PayPal?

Man, I donated through this. I didn't know the charity wouldn't get the money.

You could write a letter demanding proof that they directed your money properly or refund it.

They picked the perfect plaintiff to lead this fight. A woman who did her due dilligence -- compared PayPal's website to the charity websites, donated a significant amount of money, then followed up with those donations. Unless PayPal can prove they repeatedly attempted to disburse the money to the charities by encouraging them to open an account, I don't see how PayPal can come out on top with this one.

Truly a garbage company.

The actual lawsuit: https://www.scribd.com/document/340533057/PayPal-Complaint-F...

Aside from the contributions themselves, they are seeking $1,500 per occurance in "treble damages" and an unspecified amount for punitive damages.

If a human were to do something like this he would get prison time. Instead since it has been done by "a company", nothing will be done. I wish we, the humanity, would start to treat limited liability only as a financial tool. If something like this is done, it's not the company that must be sued, but the people who made it.

Agreed in principle. Limited liability is created by statute, and can and should be rolled back as needed to prevent pathological outcomes.

Maybe companies should be "imprisoned" as well for things like this. Obviously you can't actually put them in prison, but you could force them to cease operations for a period of time, which is effectively what you do to a person when you imprison them.

Unfortunately, this also hurts the employees of the company, most of whom had no connection to the criminal act. I'd rather hold the decision-makers who perpetrated the crime personally responsible.

That's no different from imprisoning individuals, where their family or anyone else who depends on them gets hurt. If you depend on a criminal then you'll suffer when they're punished.

How is (a) claiming you accept donations on behalf of a charity and (b) not passing them on anything other than blatantly fraudulent? Surely at the least those charities have a claim against PayPal as well.

It seems this needs to be appended to https://en.wikipedia.org/wiki/PayPal#Criticism

if you have been screwed by PayPal please consider Bitcoin. I started accepting Bitcoin for various things and really love being fully in control of my money. there are no intermediaries!

If they are a money "transmitter", then how are you allowed to keep a balance? I am ignorant of the lawsaround that, but it seems that's a womp rate sized hole?

So it is kind of hijacking those charities to be their members?

Paypal is evil, but what are the alternatives?

AliPay? WebMoney? Bitcoin??

The good'ol cash or physical check will always work. Don't believe so called the 'new money': you lose all control of your own money and at someone else's mercy.

I doubt anything physical would work if you are on different continent.

Then using a credit card will be the best bet as you can file charge-back.

Physical checks are headed for the dustbin of history. I write at most a check per year these days, and haven't had a new checkbook issued in the last decade. When I moved to the UK 17 years ago, it was the first time I'd seen a check since childhood - they were already "extinct" for most purposes in Norway back then. Since then I've witnessed the rapid decline in check usage in the UK as well.

Cash is headed that way too but it'll take longer.

Probably depends where you live. In Europe bank transfers (generally free or very low cost and instant/within 24 hours).

Bitcoin is great. For people who don't use Bitcoin I use Square Cash or Venmo (owned by PayPal).

Bitcoin is great but

1. It's just too volatile

2. I can't pay most sellers on eBay and Amazon with bitcoins, but everyone takes paypal

If we're talking about alternatives for giving money to a charity, I strongly recommend opening up the contact page of your preferred charity, calling them and just asking them what method they would prefer for you to send them money. Charities often have preferences that allow them to save money on transaction fees. For example they might have a discounted rate with a particular credit card company or prefer a physical check, or want you to pass it through a fiscal sponsor. Especially for small charities -- donors are the lifeblood of charities, so they will bend over backwards to help you give!

Source: I run a charity.

actually, I meant pay for stuff online in general...

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