PayPal Bank Run!

The fallout from the PayPal "glitch", whereby they announced they would debit customer accounts up to $2500 directly for publishing "misinformation", continues.

Do not take their $15 bribe. Delete your PayPal account. https://t.co/lFd7QBxG7M

— Ian Miles Cheong (@stillgray) October 13, 2022

Despite this, however, it sounds as though PayPal has been experiencing an effective bank run:

Following the trend to boycott PayPal, some users were having a problem closing their accounts.

One user commented, “Endless hours chatting with the support here. Some people are able to close it in seconds. Others it takes weeks. Criminal.”

Another said, “Looks like they’ve disabled Account Closure over at Paypal to prevent customers exiting their platform. No doubt there’ll be the usual corporate-speak on “temporary technical issue” inbound.”

Well, consumers aren't stupid. When I began to research this issue, I discovered information that was already in the public domain: PayPal's Acceptable Use Policy was a risk to businesses long before they mooted the "misinformation" clause:

As a business owner, you want to make it easy and convenient for customers to pay with their method of choice. That’s why it’s so important to find a reliable payments partner that allows you to securely accept credit and debit card payments.

However, not all payment processors are created equal. Some of the biggest names in payments are notorious for their poor treatment of merchants. From Stripe’s restrictive list of prohibited businesses to PayPal’s extreme fines and bans, there are plenty of reasons to steer clear of these payment processing giants.

In fact, running your business through PayPal could cost you everything. Whether you’ve heard the PayPal horror stories or have been a victim yourself, this article will help you protect your business from any further catastrophe.

. . . PayPal’s Acceptable Use Policy is notoriously vague. This allows them to shut down your account or freeze your funds at their own discretion. PayPal can fine your merchant account somewhat arbitrarily, including charging $2500 per violation of the Acceptable Use Policy.

Well before the "misinformation" kerfuffle, the Acceptable Use Policy already listed "the promotion of hate, violence, racial or other forms of intolerance that is discriminatory" as activities that could result in $2500 fines or cancellation of an account. The link continues,

. . . Not only is $2500 a significant fine for small businesses, but there’s also no clear list of violations that result in the fine. So, many business owners are operating somewhat blindly, hoping that they aren’t breaking any of PayPal’s ill-defined rules.

Perhaps the biggest problem with PayPal’s Acceptable Use Policy is that it’s open to interpretation. PayPal uses vague language to define “acceptable use” so they can freeze or charge your business account at their own discretion.

. . . Furthermore, if PayPal decides to ban your account altogether for violating the Acceptable Use Policy, they can hold the funds in your account hostage for up to 180 days. That’s almost six months during which not only is your account closed down, forcing you to look for alternative methods for customers to pay you, but your cash is tied up for no good reason. Unfortunately, that’s often enough to cripple a business and force you to close up shop.

. . . To make matters worse, there is no defined appeals process. They can ban you without warning, potentially without allowing you to cash out your account balance for six months. Plus, they can fine you multiple times to deplete your balance—and there’s not much you can do to stop them.

At minimum, the site's recommendations include withdrawing funds from PayPal as soon as possible after payments are deposited and beyond that, for a business, moving to a more reliable payment processor. The "misinformation" issue is only the most recent and most visible risk associated with its product.

At this point, though, the misinformation flap is starting to metastasize into a textbook corporate crisis for PayPal:

Congressman Darrell Issa (R-CA) is demanding PayPal provide answers about new language added and then removed from its user agreement — asking specifically if the payment processing giant consulted with the Biden administration on the policy.

PayPal this week announced that it would deduct $2,500 from users who violate its policy on “misinformation,” “hate,” or speech the company deemed “unfit for publication,” but then quickly pivoted to reverse the move following backlash.

, , , Issa asks PayPal how they intend to “adjudicate the ambiguous term ‘misinformation’,” asking specifically if COVID misinformation would be included, as well as gender pronouns.

. . . Former top management at PayPal, including Elon Musk, David Sacks, and David Marcus, spoke out on social media against the announcement.

Markus called the policy “Insanity,” to which Musk replied “Agreed.”

David Sacks warned, “Get your money out of paypal right now.”

I use PayPal primarily to order through eBay, which has much better prices on many items than Amazon. As such, I'm using it exclusively as a payment processor. In the past, as a freelance writer, I sometimes got payments through PayPal, and I withdrew those balances immediately to my normal checking account. As such, for now, I don't intend to make any changes. But clearly the "misinformation" issue has alerted consumers, and especially online small businesses, to the risks of dealing with PayPal, and this in turn could threaten PayPal's ability to continue as a viable operation.

Where's the crisis management team? Typical advice would include:

[I]n the age of social media, the truth – or a version of it – will always come out. If you don’t tell the truth, and get found out (and you will), it will be far more damaging than getting the issue out in the open, on your own terms. Never, ever lie. . . . If you don’t communicate, someone else will – and they may not have your best interests at heart. . . . Put right what’s gone wrong, and tell people (or even better, show them) what you’re doing to make things right.

Rep Issa's letter, quoted in the link above, asks PayPal to

detail the offices and/or departments within PayPal that approved of the updated Acceptable Use Policy language that was posted on the company’s website, with a planned implementation date of November 3, 2022. . . . What categories of “misinformation” did PayPal contemplate needed censorship that were not already covered by the previous policy?

These questions are inevitably starting to emerge, and PayPal is going to need to come up with answers. I suspect this case will wind up in future PR textbooks.