In a series of write-ups that I have been working on about Paypal (whose latest class action lawsuit was filed in May, for placing 6-month holds on customer accounts without explanation), offers members the opportunity to place their money into a non-FDIC insured money market account -- controlled by Paypal. No joke...
Not too long ago, Paypal put a hold on my account while demanding that I send them certain documentation and jump through all sorts of hoops. They eventually released my money, reinstated my account and sent me an email asking me to take a survey about the experience; but, what would the outcome have been if I were not on a two-week break from school with time and determination to jump through their hoops?
Apparently the trigger for my account was when I applied for the debit card that Paypal offers and the fact that I have recently changed addresses. In my case, I learned after hours of conversation with customer service representatives that their reasoning was that by verifying my identity they were protecting the bank that they use to fund the debit card.
Paypal uses the USA Patriot Act and the Know Your Client Act as justification for placing these holds on customer accounts.
The CIP provision (section 396) and Title III (MLCA 1986 and BSA 1970) to the 'Anti Money Laundering,' or 'AML' laws, passed by Congress from 1970 and amended through the Bush Administration, makes it compulsory for financial institutions and service providers to be accountable for initial customer identification (before they do business with a client), and requires them to maintain extensive records of steps taken to verify the identities of prospective clients. Banks, lawyers and accountants are all covered under these laws.
These entities are required to:
Verify prospective client's identity.
Verify that clients are not, nor have been, involved in illegal activity -- such as fraud, money laundering or organized crime.
Maintain proof of steps taken to identify the client's identity.
To establish whether a prospective client is listed on any sanctions list in connection with suspected terrorist activity, money laundering, fraud or other crimes.
Paypal is not a bank, not a lawyer, and not an accountant. Paypal does not perform initial checks on prospective client. In a CNET News article, Paypal has even been asked by the State of Louisiana to cease transactions in that state until such a time that Paypal obtained the proper licensing to conduct such a business.
When a new customer wants to open a Paypal account, all he or she is required to do is to provide an email address, a phone number, fill out the form and agree to their 25 page click wrap agreement (user agreement). After a simple email verification process, the account is almost instantly available for use.
