PayPal Pays for Freezing Accounts

Gretchen Gallen
SAN JOSE, Calif. – Payment processor PayPal Inc. has been ordered by a federal judge in the Northern District of California in San Jose to arrange a $9.25 million fund for consumers who allege that the processor randomly froze their accounts between 1999 and January 2004.

Two separate lawsuits were filed in 2002 by Roberta Toher and Jeffrey Resnick claiming that the company was in the habit of restricting, freezing or closing customer accounts without a legitimate reason. The case was then consolidated and turned into a class action suit.

On July 12, the court preliminarily approved the proposed settlement and directed that class members be given notice of the settlement.

In recent years, PayPal has become a popular method for transferring and receiving monies over the Internet.

Per the judge's order, consumers can log onto a "PayPal Litigation Settlement Website" to redeem part of the money they claim was frozen by PayPal.

According to the attorney representing the plaintiffs in the case, consumers who log on to the site will be required to document their experience with PayPal in order to redeem a portion of any related funds.

As part of the judge's ruling, PayPal was required to notify its customer base via email of the new website, although some users claim the mass emailer more closely resembled a solicitation from a spam hoax than a legitimate corporate correspondence.

In the email, PayPal representatives continue to deny any wrongdoing against its more than 45 million consumers.

Recovered funds can range from between $50 to up to $1 million, depending on the experience of the user and whether the complaint is filed via a long form or a short form.

"We believe that based on the information we've been provided that it's a fair settlement," said A. J. De Bartolomeo, an attorney for one of the plaintiffs.

The settlement includes users who feel that PayPal either treated them unfairly or did not respond to their complaints in an efficient manner, De Bartolomeo stated.

By Monday, PayPal was warning users that the settlement website was experiencing delays and other problems due to an extremely high volume of traffic.

The website also states that the deadline to submit an online claim is Oct. 23.