Help, PayPal pocketed my money – can it do that?


When Noah Thomas’ PayPal account is frozen, he loses $180 in gift cards. Can the company just keep the money?

Question: I recently had two eBay gift cards (one for $90, one for $87) withheld by PayPal/eBay. eBay gift cards are linked to a PayPal account. The PayPal account that these gift cards were linked to is now permanently limited, rendering the gift cards useless.

PayPal often bans accounts that look like they might pose any sort of risk. They were skeptical of a transaction that was made on my account at an ATM, and even after I provided information on this transaction, they denied all appeals.

I have just accepted that PayPal won’t restore my account. That’s fine. What bugs me the most is the fact that PayPal has taken almost $180 in gift cards from me. I have tried calling eBay and PayPal, but both companies transfer me to each other, essentially just wasting my time. I have also emailed higher up the food chain in both companies about this issue, with no response. I list the on my consumer advocacy site.

I have tried everything I can. I have thoroughly read through both companies’ Terms of Service, where nothing about this issue is discussed. I have considered talking to a lawyer, but the amount of money isn’t large enough for me to justify that.

I hope to eventually use my two gift cards. I understand that my PayPal account may never be recoverable, but it is not legal or fair to withhold my gift cards indefinitely. I just want my money. — Noah Thomas, Nashville

Answer: PayPal shouldn’t have pocketed your money. It may have correctly flagged the ATM transaction, but that doesn’t mean it can simply keep the money in your account.

Or does it? I checked PayPal’s novel-length user agreement. Sure enough, it appears to reserve the right to do exactly what it did: If you are engaged in any “restricted” activity, PayPal may, at its “sole” discretion, “close, suspend, or limit your access to your Account or the PayPal Services (such as limiting access to any of your Payment Methods, and/or your ability to send money, make withdrawals, or remove financial Information).”

Lesson learned? PayPal is not a bank. Its fees are high and its terms are, for some users, unreasonable. What’s more, PayPal’s “sole discretion” may mean that it doesn’t give you the time of day when it shutters your account.

This is not an isolated incident. I’ve dealt with numerous PayPal cases where accounts were closed with vague justifications — or none at all. You had the rare treat of getting stuck between eBay, which used to own PayPal, and PayPal itself, with both companies pushing the blame onto other. Talk about corporate confusion.

Someone at PayPal should have owned your problem. I mean, even though the company can keep your money doesn’t mean it’s the right thing. Although I imagine there are lawyers reading this story who will tell me that actually, it is. I refuse to get drawn into that argument.

I contacted PayPal on your behalf. To its credit, the company responded quickly, apologizing for the “frustration” you experienced.

PayPal agreed to deactivate both cards and issued a lump sum credit of $177 to your PayPal account. It also made your balance available to you, allowing you to withdraw it. I would move that money into your bank account quickly and close your PayPal account, before they change their mind.

  • Joe Blasi

    The gift card laws should still be in force even with the we are not a bank.

  • Alan Gore

    In the tech community, PayPal has long been notorious for actions like this.

    Feel free to use PayPal to pay merchants and to make donations, but never use it to receive money. Like any business that handles money, PayPal is often targeted by fraudsters. But because PayPal is not a bank, it does not have the centuries of institutional experience that bankers have in dealing with this problem. So its default policy on any suspicion about a transaction is to freeze your money and never give it back.

  • John McDonald

    CATCH 22-there is some hope for the merchant

    If a customer wants to pay us via Paypal (same fees for American Express, as Visa & MasterCard) that’s fine, but on odd occasion that Paypal have delayed payment, we’ve said to customer, get onto Paypal fast, as until we get paid, you don’t get your goods/service, the latter often being very time sensitive.

  • Harvey-6-3.5

    This is why I don’t use paypal. They offer no benefit to me relative to using my visa card, and are significantly more annoying.

  • Byron Cooper

    I only use Paypal when there are no other options. When I have to use Paypal, I use a credit card. That way, the transaction can be challenged with Visa, MasterCard, or American Express. The OP bought gift cards that for whatever reason, had no value. The credit card banks would have charged the transaction back to Ebay or Paypal.

  • Flatlander

    I don’t trust Paypal because it’s basically an unregulated bank. I have an account for EBay but I keep a zero balance. That said…$180 in gift cards? Hmmm. I don’t know if there is any fire but there is smoke. It’s plausible everything is legit but that’s an awful lot of funny money to have lying around. I’m curious about the other side of this story…

  • eBay/PayPal, Amazon, and Starbucks all flagrantly violate the laws regarding gift cards. Of course, there is money to be saved via gift cards—particularly with eBay gift cards that can be bought with Target or Best Buy gift cards, and actually go on sale often (e.g., Target’s 10% off sale on eBay gift cards in August 2015).

    However, no matter what their Terms of Use say, every state has laws against changing the terms of a gift card after it is issued, particularly with respect to enforcing an expiration date on the gift card. These laws do not apply to promotional gift cards (which may be received as a promotional incentive) or coupons, but the gift cards Mr. Thomas had were not promotional gift cards.

    When it comes to eBay/PayPal, my recommendation is to only use an eBay gift card if you are using 100% of the balance at once. If you use it partially, it becomes permanently tied to your PayPal account. Particularly with business PayPal accounts, you could be permanently limited at any time. There is no gift card balance to lose if you are only using gift cards on orders where you can use 100% of each gift card.

    And of course, always immediately withdrawal any money that comes into your PayPal account. This way, you can avoid losing access to your funds for 180 days.

  • It’s actually not really a lot—verified eBay/PayPal users are allowed to use up to $5000 in gift cards per rolling 180 day period, and that’s per PayPal account; individuals are allowed to have (2) PayPal accounts (one business and one personal), so that’s up to $20,000 of eBay gift cards per year that are allowed to be used.

    It is easy to even do things such as buying bullion below spot price with eBay gift cards. eBay gift cards often go on sale—even from eBay itself who will often offer a 2.5% or 5% discount (and you can buy eBay gift cards with eBay gift cards on eBay). Further, eBay gift cards are sold in many stores—one can rack up 5 Chase Ultimate Rewards points per dollar by buying them at Office Depot or Staples with their Chase Ink business credit card, for example.

    Therefore, there are plenty of legitimate reasons to have eBay gift cards, even when you are buying them for yourself.

  • Flatlander

    But would the scenarios you brought up have caused PayPal to freeze a customers account? Yes, it’s possible everything was legit and Paypal made a mistake but without knowing the details it’s also possible something suspicious was going on. In the end however, I do agree the customer should have been allowed to unload their gift cards unless Paypal has indisputable evidence that some sort of fraud is taking place. It’s scary that they are able to operate as an unregulated bank that can seize the money of a customer on a whim.

  • Yes—using a lot of gift cards quickly can result in your account being permanently frozen (“limited” as they call it), especially if it is a business account. Their risk evaluations result in many “false positives.” There is an entire website,, dedicated to complaints about PayPal limiting accounts and seizing or holding funds. (Of course, some complaints on there are from customers who were committing illegal activities or acting in violation of PayPal’s terms, but many complainers do not do these things.)

    PayPal won’t discuss details with outsiders, and often, not even with the customer, so it is impossible to get both “sides” of the story, but that doesn’t necessarily mean the customer “deserved” to have gift cards stolen. In fact, it is outrageous that so many corporations (eBay/PayPal, Amazon, Starbucks, and sometimes Target) treat gift card holders with such contempt.

  • Chad Silverston

    I agree, I have been shut down by PayPal with no rhyme or reason. I called them several times and not a single rep was helpful.

    They wasted so much of my time that I just gave up never really knowing why I was limited.

    I read an article by Auction Essistance on the reasons why PayPal may limit your account. Not sure if it is accurate or true, but the nature of PayPal seems to make me believe it is true.