Read This About PayPal! PayPal Being SUED!
Read This About PayPal! PayPal Being SUED!
Class-action suit follows Web payment service's IPO
By Lisa Napoli
MSNBC CONTRIBUTOR
Feb. 21 ? Less than a week after its blockbuster debut on the Nasdaq stock exchange, online payment firm PayPal has been hit with a class-action suit charging it with improperly administering users accounts and poor customer service.
THE SUIT WAS FILED in Superior Court in Santa Clara County, California late Wednesday seeking unspecified compensatory and punitive damages. PayPal could not be reached for comment Thursday morning.
A spokeswoman for the law firm Jacoby and Meyers said the firm have received "thousands" of complaints against PayPal.
The firm gathered many of those complaints from a link posted on one of several Web sites set up by angry PayPal users, where current and former users of the service regale each other with horror stories of frozen accounts and bad customer service.
"It appears there are many issues really ? holding on to consumers' money, without clear guidelines, for no apparent reason, and very, very poor ability to communicate back to the consumer," said Gail Koff, a co-founder of New York-based Jacoby and Meyers, which filed the claim.
"In some instances it's a lot of money, in some instances, it's not. It's ... a hugely frustrating situation, as is exemplified by the complaints. And you can't talk to anyone about it. There's a big black hole of nothingness."
A spokesman for PayPal said he could not comment because the company is in a post IPO quiet period.
Difficulty in tracking down PayPal customer service representatives is a frequent complaint made by PayPal users, who say that in the aftermath of notices regarding their accounts they have been unable to communicate with company representatives.
On the consumer Web sites, Paypal phone numbers that have been sleuthed out by users are posted with pride for the benefit of others.
The suit charges that "the Company deliberately conceals the contact information of its customer service from the users."
Perhaps the larger issue is the charge that PayPal mismanages customer accounts.
One of two plaintiffs named in the class action suit, Lanskoi Kirill, found his account, which contained $30,000, frozen earlier this year when he tried to withdraw funds from it. An automated message explained that "an unusual use of funds" led to the account restriction.
After faxing various documents to PayPal, Kirill said his account is still frozen.
The suit alleges that such incidents are a result of an overly cautious stance on the part of PayPal.
"As a result of its inability to set up an adequate and effective anti-fraud mechanism and its attempt to compensate for such inability, PayPal adopts an aggressive and grossly over-broad anti-fraud policy that persistently causes erroneous and wrongful restrictions of access to be imposed on user accounts ? causing economic damage and financial loss to a significant number of innocent PayPal account holders," reads part of the 20-page complaint.
In its SEC filings, PayPal paints a different picture of its customer service, claiming that its has over 400 workers handling customer phone calls and e-mails, and it responds quickly to inquiries.
However, the suit quotes PayPal chief executive Peter Thiel in one published report a year ago as saying the company "wildly underestimated" how quickly the business would grow. Advertisement
In January, 2000, the company had ten thousand users. Just two years later, it boasts over 13 million users around the world.
PayPal is widely used by buyers and sellers on eBay as an alternative to credit cards. It has also become popular with other online merchants who are not set up to accept credit card transactions, or who want to offer an alternative for consumers.
Koff said the timing of the class-action suit was not tied to last week's much-publicized initial public offering by the firm, which was heralded in the media for being the first dot-com IPO in close to a year. "We have been looking in to this for a long while," Koff said. PayPal's stocked opened on the Nasdaq market Friday, soaring 54% from its opening price of $13 a share.
Koff also said the suit is also in no way related to two patent-infringement suits filed against the company, one which delayed PayPal's IPO by a week.
Nor is it connected to pre-IPO rumblings about an investigation into PayPal by the Louisiana Attorney General's Office. John Travis, that state's commissioner of financial institutions, said on Wednesday that a letter sent to PayPal was "blown plumb out of proportion" in the media and was a routine matter asking PayPal to comply with a new law governing wire transfers of money. He said the company has "cooperated with us and done everything they can" as far as filing necessary paperwork to transact in the state.
Talk about levying class-action suits against PayPal peppers the various PayPal-complaint Web sites, but this is the first to be filed.
"This is an effective way of bringing attention to the problem," said Koff. "It gives people a voice."
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