Does PayPal's Debit Card have an unfair advantage in the industry due to no regulation by Regulators?
By Mike Fleming

PayPal's popularity has dropped because consumers have perceived, and accurately so, that the company waffled when it first learned that when a company markets itself to a large banking customer market, that company may very well be held, at least in the eye of the consumer, to the standards and expectations that licensed banks are held. Despite PayPal's strenuous efforts to insulate itself from accountability and bank regulators, the American consumer is screaming loudly for recourse and is being heard.

The most recent issue to begin surfacing is the marketing and customer service practices of PayPal in its effort to keep customers from transferring their funds to FDIC insured banks and offering the PayPal Business Premier Debit Card with a MasterCard Logo. My experience has been that I have had a PayPal account for some time when the company began to bombard me with solicitations highlighting the advantages of having their debit card and touted the fact that it contained the MasterCard logo, recognized by many consumers as a reputable company which enjoys the confidence of the public. This marketing ploy appealed to me and my need for convenience in handling my financial transactions as they related to the PayPal account I hold. My assumption was that this payment instrument was comparable to my bank account debit card. However, when I learned that I had two transactions on my PayPal account that were not authorized by me through this debit card, I became acquainted with both PayPal's unfair customer service practices and the fact that PayPal's debit card holders do not enjoy the same rights afforded bank customer debit card holders.

Banks are required to follow strict guidelines when issuing such payment devices and those rights afforded to consumers through the Electronic Funds Transfer Act include:

  1. That a dispute will be acknowledged in writing within ten business days; and

  2. that customers that contact the number on the back of the card be allowed to dispute or report a card stolen through that contact; as well as

  3. that funds will be provisionally credited to the customer’s account within a specific timeframe; and finally

  4. that the results of the investigation by the bank will be sent to the cardholder in writing and the bank must provide some sort of proof if the customer requests it.

PayPal followed none of these rules in my situation. If one calls the number on the back of the PayPal Debit Card, they can expect to be put on hold for a lengthy period of time before ultimately being told that they must dispute the charge via PayPal's website. This is an expensive call if made from New York as PayPal provides only a toll number on my debit card and it is in San Jose, California. And it doesn't stop there! Assuming they have access to a computer, once this poor soul goes to PayPal's website, they will never find a place to dispute such a debit card transaction. Consumers who are not proficient on the computer will only find information on how to apply for the card. It even gets worse believe it or not. If the customer decides to email them at the other contact method on the back of the PayPal Debit Card, cardsupport@paypal.com, they are sure to get an auto-response electronic message requiring them once again to return to the website and submit the concern. That's it, no more information than that. I submitted three messages to this email address before I finally received a response that provided me with a link to an affidavit to dispute a Debit Card Charge. At this point the customer can assume that they MUST HAVE A COMPUTER in order to use the PayPal Debit Card and at the same time be protected from unauthorized charges. PayPal seems to have interpreted the Electronic Funds Transfer Act to indicate that every single human being on the face of the earth is born with a computer attached to their chest and has unlimited and free web access; so they figure an email is the same thing as "in writing" when it benefits them, and of course, the company that is not a bank and is protected from lawsuits through its arbitration clause can do that. Normal people generally give up at this point and PayPal literally banks on that.

For those persistent people like myself, the ride is still not over. PayPal has decided that when you finally find the secret affidavit you must then check one or all of the boxe(s) on it which include six different scenarios and offer no other box that states “other.” This is confusing to me, maybe cause I grew up in the hills and possibly the city folks can help me on this one, but doesn‘t it seem that there are more than six reasons that one might have to dispute an unauthorized charge? The reason I get stuck on this part is because at the top of the form I was told "Incomplete forms will be returned." And I could not tell you what this statement means. It seems to suggest that PayPal will refuse to acknowledge this very time sensitive contact that the EFT Act affords only if I limit my reason for the dispute to six different scenarios all of which require me to submit yet another document to prove it. But it is anyone‘s guess and only PayPal knows the meaning of it and I am sure the meaning of this statement flips and flops to suit the company’s needs. What the heck is an affidavit anyway…. (Hint: a written declaration made under oath before a notary public or other authorized officer). Alright, so I have to swear and I have to prove that I’m swearing or else PayPal will not acknowledge my dispute. Makes sense to me cause like I said, I grew up in the hills. Of course, my mother was born in Brooklyn so that gave me the ability to take a step back and see what is going on here. This whole affidavit thing is just another stall tactic on PayPals part to confuse the everyday Joe into giving up.

Finally, the completed affidavit must be mailed to PayPal's Nebraska address (not by fax or email, mind you). Oh, and I almost forgot, they must receive your signed and completed affidavit within 60 days of the transaction (I have no idea where they got that from, but it contradicts the 120 days that really persistent and inpatient people like me learn when they finally call MasterCard).

For those of you who forget to send your swearing your showing proof form certified mail, go back to step one except move the calendar up another 15 days cause there is something wrong with the mailman on this particular route. PayPal will swear to it!

If you have not figured the game out, PayPal is so arrogant that they will stall you until you have no right to dispute the charges because the time-frames for handling such disputes will have expired. That is fine with PayPal because the worse thing that can happen to the company is that one might sue them. Wrong, again! Remember the 24,000+ word user agreement? It contains an arbitration clause that makes this so expensive and requires one to travel to San Jose, California that its simply impossible for most customers. The livid cardholder at this point has no choice but to file a complaint to the bank regulators that regulate such payment instruments and search for them depending on which state they live in. Wrong again! PayPal isn't a bank so they have no regulatory authority over PayPal. Or do they?

If there exists any satisfaction for me and my $1,010.75 “Not A Bank 101" lesson, it would be that this may be the straw that breaks the back of PayPal in that the issuer of the card, Bank One NA as well as Wells Fargo are beginning to feel the heat of bank regulators as a result of PayPal’s poor and unfair methods of handling these disputes. These banks are sure to distance themselves from PayPal as this issue makes it way into the public and legal forums we all enjoy as American consumers. Because not only has PayPal disrupted my life as they placed their profits over the fair business practices and unwritten rules that consumers call reputation. The company has also tarnished the reputations of both Bank One NA and MasterCard in its unfair and misleading practices and has exposed these institutions to regulatory action at both State and Federal levels.

If the past portends to be anything of the future, it will be an interesting saga to watch PayPal insulate itself from the consequences of it own actions as they hear the slap upon the faces of Bank One NA and MasterCard by regulators, which the force of logic would conclude is destined. The very least we might hope for is that the banking industry might move to banish PayPal’s debit card as it holds an unfair advantage in the market….

…..and one final note: Why do I have to sign an affidavit form and mail it to Nebraska when all I have to do is click three buttons to enter into a 24,000 word contract with PayPal to use the service?

Guest commentary by Mike Fleming