CHI Company Investigation · Finance
PayPal
Wallet · Checkout · Merchant processing · Foreign exchange · Buyer & Seller Protection · San Jose, California
Ten research streams · Verdict: weakly supports · No numerical score assigned
PayPal absorbs more than a billion dollars a year in fraud and protection losses.The finding is in the terms that decide who carries the risk once PayPal decides a customer is the risk.
This investigation tested whether PayPal systematically places costs, delays, information gaps or restrictions on its customers and merchants that go beyond what running a payments network requires — especially where PayPal writes the rule and also decides the case. The contract answers much of that question in PayPal's own words. What the record cannot answer is how often the discretion it grants is used against people who did nothing wrong. The verdict sits in the gap between those two things.
The transaction What PayPal gets right
A buyer protection most payment methods do not offer, paid for largely by PayPal.
PayPal covers unauthorised activity in full when the customer follows its procedures, gives buyers 180 days to claim for an item that never arrived — longer than the roughly 120-day card-network norm — and since September 2025 can refund a buyer temporarily while it investigates. Its Seller Protection has covered intangible goods since 2020. It booked roughly $1.3 billion of transaction losses in 2025 — fraud, protection programmes and chargebacks — at 0.07% of payment volume.P11
Standard transfers to a bank are free, there is no US inactivity fee, and PayPal's standard dispute fee is waived when the seller wins — more lenient than Stripe's.P5P26
The exception When PayPal's risk systems act
The same company writes the rule, applies it, and reviews its own decision.
If PayPal believes a customer has engaged in restricted activity, it may act “at any time in our sole discretion”, including holding the balance “for up to 180 days”. Decisions “may be based on confidential criteria” and PayPal has “no obligation to disclose the details of our risk management”. Money under restriction earns the customer nothing. An account under a hold, limitation or reserve cannot be closed.P1
Around that core sit pricing terms that are each disclosed and each defensible alone, but that run in one direction: the full fee kept on refunds, a dispute fee charged even when a high-volume seller wins, a 4% currency spread built into the rate, and a contract that can change on five days' notice for a business.P5P1
Both columns describe the same product at the same time. The first is why most PayPal payments end well. The second is where this investigation's finding sits — and it is written almost entirely from PayPal's own User Agreement, fee pages and annual report, not from complaints.
What CHI investigated
The question was not whether PayPal is useful. It was who carries the cost when something goes wrong, and who decides.
The scope was PayPal's core consumer and merchant payment ecosystem, with PayPal, Inc. — the counterparty to the US User Agreement — as the primary subject. Venmo, Braintree, Xoom, Honey, PayPal Credit (issued by Synchrony Bank), Pay in 4 (lender PayPal, Inc.), Pay Monthly (lender WebBank) and PayPal's European, UK and Australian entities were treated as distinct wherever the product, legal entity or customer group differed. Nothing about one was assumed of another.
Hypothesis under test: PayPal systematically creates, maintains or benefits from mechanisms in which customers or merchants bear costs, risks, delays, information disadvantages or restrictions that materially exceed what would reasonably be required to provide the underlying service.
Ten research streams worked from a common brief and a four-tier evidence hierarchy — primary documents first, anecdote last. The User Agreement, the merchant fee page and the policy-update archive back to 2019 were captured in full on 18 September 2026, the consumer fee page and PayPal's annual report as extracts of the relevant passages, and the immediately preceding User Agreement was recovered for a clause-by-clause comparison. Two independent adversarial audits then checked 319 propositions; every correction they required has been applied, and a final closeout pass re-verified the three claims most likely to be challenged. Fraud and anti-money-laundering controls were not treated as hostility. Unpopular was not treated as hostile. Profitable was not treated as hostile.
“Mixed” means the stream found a narrow supported element alongside a larger body of evidence that pointed the other way. Disputes: outcome-independent fees for one tier of sellers, against a protection programme PayPal largely funds. Fees: disclosed and mostly peer-standard, with a one-directional pattern for merchants since 2019. User agreement: several documented asymmetries, while the most widely repeated criticism — the 2022 “misinformation fine” — did not survive.
The distinction this page turns on
A hold is not the finding. The terms around the hold are.
A payments company that moves money between strangers must be able to stop it. Money transmitters are legally required to verify identity, screen for sanctions, monitor for money laundering and act on what they find; a seller who has been paid for goods that never arrive creates a loss someone has to fund. CHI does not treat a hold, a limitation or a reserve as customer hostility, and this page does not argue that PayPal's restrictions are generally improper. Most of the powers examined below have an obvious fraud-control purpose, and several are standard across the industry. The finding concerns the breadth of the discretion, the absence of a published route to challenge it, and who bears the cost of the time it takes.
The strongest documented mechanisms
Ten mechanisms survived adversarial audit. Every one is written in PayPal's current terms.
Ranked by severity, scale, repeatability, economic benefit to PayPal, transparency, avoidability and recourse — not by the number of complaints. Status and confidence are shown separately: a term can be certain while its real-world frequency is unknown. Status labels here are the finding-level scale used in the evidence ledger, not the overall verdict.
Sole-discretion balance hold of up to 180 days, with no stated release procedure and no interest on any balanceTriggered by PayPal's belief that restricted activity occurred or that liability risk exists. The Acceptable Use Policy it enforces is its own.
Consumers and merchantsSupported (terms)High · misuse inconclusiveAccount limitations with no time cap, including “permanent” ones, and no published appeal routePayPal's help centre: phone agents “can't remove your limitation”.
Consumers and merchantsPartially supportedHigh on termsBusiness reserves set on confidential criteria, changeable on notice, sometimes never fully removableA standard industry tool; what is distinctive is the absence of a published appeal route, which Stripe and Shopify both publish.
MerchantsPartially supportedHigh on termsA 4.00% / 3.00% currency spread inside a PayPal-set exchange rate; PayPal conversion is the default for card-funded payments and unavoidable for balance-funded onesDisclosed as a percentage; never shown against a reference rate.
Consumers; merchants on conversionSupported (spread)High · default moderateThe entire original processing fee is kept when a US seller refundsCurrent US policy since 11 October 2019; before 2019 PayPal returned the percentage. Peer-standard today.
US merchantsSupported (structural)High · not an outlierA 60-day deadline for businesses to catch PayPal's own fee errorsA materially identical Australian term was declared unfair and void by consent in 2024. The US term remains.
US business accountsSupportedHighA $30 High Volume dispute fee charged even on disputes the seller wins, and a $20 chargeback fee “regardless of whether the buyer is successful”
Merchants in two populationsPartially supportedHighThe 14 September 2026 dispute-resolution rewrite: a new arbitration regime applied to earlier and, on its wording, pending disputes, purporting to override the previous clause's own protection for filed claimsThe stated route for declining it — closing the account beforehand — is one the agreement withholds from accounts under a hold, limitation or reserve.
Consumers and merchantsPartially supportedHigh on text · untestedNo liability for losses from “a suspension or other action taken with respect to your PayPal account”; users release PayPal from disputes with other users
Consumers and merchantsSupported as textUnusual vs peers: inconclusiveA lien on all account funds and set-off across PayPal, Venmo, Xoom and Braintree debts
Consumers and merchantsPartially supportedOrdinary in merchant acquiringSources for every row are given in the sections that follow. The complete evidence ledger (92 findings, each with counter-evidence and a confidence rating) is preserved with the research package.
Account control & held funds
Four kinds of hold sit in PayPal's contract. Three are ordinary risk control. The fourth is the finding.
PayPal's User Agreement separates holds by trigger. Read together, they show where the contract ties PayPal's power to an objective event — a delivery, a dispute, a court order — and where it ties that power only to what PayPal believes.P1
Up to 21 days
Risk-based payment hold
New sellers, high-risk categories such as electronics or tickets, and sellers with high dispute rates. PayPal may release it early; its help centre says release typically follows about 24 hours after the courier confirms delivery.P1P30
Disclosed, bounded, releasable — risk control
Until resolved, max 180 days
Disputed-transaction hold
Funds equal to a challenged payment are held “until the matter is resolved (but no longer than 180 days)”, then released or reversed.P1
Tied to a specific claim — risk control
May exceed 180 days
Court order or legal process
Garnishments and regulatory requirements. PayPal “do[es] not have an obligation to contest or appeal” an order.P1
Legal compliance
Up to 180 days, whole balance
Restricted-activity or liability hold
“If we believe that you've engaged in any of these activities, we may … at any time in our sole discretion” hold the balance “for up to 180 days if reasonably needed to protect against the risk of liability or if you have violated our Acceptable Use Policy”.P1
Discretionary authority — the finding
What the discretionary power actually says
The trigger is PayPal's belief, and one of the two stated grounds is breach of an Acceptable Use Policy that PayPal writes. The contract caps this hold at 180 days — longer only under court orders, regulatory requirements or other legal process — but states no release procedure and no duty to account for the hold when it ends. On closure, PayPal makes available only “unrestricted funds”. The general clause covering holds, limitations and reserves adds that decisions “may be based on confidential criteria”, that PayPal “may use proprietary fraud and risk modeling”, and that “you agree that we have no obligation to disclose the details of our risk management or security procedures to you.”P1
Limitations — which can stop a customer sending, receiving or withdrawing — have no stated duration. The agreement contemplates a “permanent limitation”, and even after a customer supplies everything requested, PayPal may keep acting “if we reasonably believe a risk still exists”. PayPal's help centre says that “in most cases, our customer service team can't remove your limitation over the phone”.P1P9 The route offered is the Resolution Center; no published appeal to a separate decision-maker, and no published review timetable beyond a help-centre statement that document review “usually” takes three business days, was located.
The closure bar. “In certain cases, you may not close your PayPal account, including: To evade an investigation. If you have a pending transaction or an open dispute or claim. If your PayPal account has a negative balance. If your PayPal account is subject to a hold, limitation or reserve.”P1 A customer whose money is held cannot leave with it, and cannot leave without it. The same clause appears in the May 2026 version.P2
The interest term. Balances outside PayPal's FDIC pass-through programme are pooled and invested; “PayPal owns the interest or other earnings on these investments” and “You will not receive any interest or other return on the funds held with PayPal.”P1 That applies to every such balance, held or not. See customer-balance economics for what can and cannot be said about it.
What the record does not show
How often any of this happens. PayPal does not publish hold, limitation or reserve statistics; its balance sheet does not separate restricted customer funds; and complaint databases have no denominator. Incidence cannot be determined from available evidence. Complaints to the US Consumer Financial Protection Bureau classed as “trouble accessing funds” rose from about 6% of PayPal complaints in 2023 to about 17% in 2024–26, partly because the Bureau re-mapped its issue categories — a signal about which mechanism generates grievances, not a rate at which it misfires.P28
That the power is misused. Every US lawsuit since 2022 challenging a 180-day hold or an Acceptable Use Policy deduction located by this investigation was sent to individual arbitration, and none reached the merits; in Evans v. PayPal the Ninth Circuit affirmed the order compelling arbitration on 18 September 2023.P18 The allegations in those suits remain allegations. An earlier class action, Zepeda v. PayPal, settled in 2017 with a $3.2 million fund and two years of disclosure commitments, without any admission of liability.P17
That is the strongest counter-evidence on this mechanism. Of five UK ombudsman decisions on PayPal holds and limitations read for this investigation — all concerning PayPal UK Ltd under its UK agreement — four were not upheld; the fifth was upheld in part, with £100 awarded because PayPal missed a release date it had itself promised.P27 The 180-day figure mirrors the outer buyer-dispute window, and in two of the adjudicated cases PayPal released before day 180, at about 100 and about 120 days.
Bucket: legitimate fraud-risk control at the core, wrapped in discretionary authority whose breadth, opacity and recourse gap are documented. Status: the power and its terms are supported at high confidence; routine or systematic misuse against legitimate customers is inconclusive, because the frequency is not knowable from outside PayPal.
Merchant reserves
Every major processor holds reserves. PayPal's criteria are confidential, and it publishes no way to contest them.
A reserve keeps part of a business's own money back against future chargebacks and refunds. PayPal may place one “at any time if we believe there may be a high level of risk”. A rolling reserve holds a percentage of each day's receipts for a set period — PayPal's own example is 10% held for 90 days — and a minimum reserve requires a fixed sum to stay in the account, sometimes deposited up front.P1
Legitimate underwriting
- PayPal is liable to card networks and buyers for reversals it cannot recover; a reserve is collateral against that exposure.
- The User Agreement publishes the factors: time in business, chargeback-prone industry, processing history, business and personal credit history, delivery times, and above-average returns or disputes.P1
- PayPal says it will notify the merchant of the reserve's terms and of any change to them.P1
- Stripe, Square and Shopify Payments use the same tools; PayPal says minimum reserves are reviewed within every 180 days; Square reviews after a minimum of six months.
Opacity and asymmetry
- How the factors are weighed is not disclosed; the decision “may be based on confidential criteria”.P1
- Terms can change “due to a change in our risk assessment” with notice but no stated notice period.
- PayPal's help centre: “depending on your industry and your credit history, you might never be able to fully remove a reserve.”P8
- Reserved money earns the merchant nothing. No published appeal route or independent review was located.
Smaller and newer businesses. Two of the published factors — how long a business has operated and its (including personal) credit history — mean that new and small merchants are more exposed to reserves by the terms of the criteria themselves. This is an inference from the published factor list, not a measured distribution: PayPal publishes no data on who carries reserves, at what level, or for how long. Separately, the up-to-21-day holds on new sellers are disclosed, bounded and releasable on proof of delivery, and this investigation does not treat them as hostile.
Bucket: ordinary risk tool with an opaque, unilateral design. Status: partially supported, high confidence on terms. What distinguishes PayPal from peers on the evidence read is not the reserve but the absence of a published route to contest it, which Stripe and Shopify provide.
Foreign exchange
PayPal's currency charge is not a fee on the receipt. It is in the exchange rate, and the rate is PayPal's.
PayPal's consumer fee page says it is “free to use PayPal to … pay for a purchase … unless it involves a currency conversion”.P6 When it does, the cost does not appear as a separate line. The User Agreement explains that PayPal converts at “the transaction exchange rate we set”, which “includes a currency conversion spread applied and retained by us on a base exchange rate”.P1
What the customer sees as a fee
$0.00No fee line for paying a merchant in another currency. The amount shown is simply higher.
What is built into the rate
4.00% · 3.00%4.00% when paying for goods or services in another currency, sending money to someone who receives a different currency, or using Payouts across currencies. 3.00% on “all other transactions”, including converting a balance and withdrawing. Each is qualified “or such other amount as may be disclosed to you during the transaction.”P5P6
How to read this. Costs are modelled as the reference rate less the stated spread, which assumes PayPal's undisclosed base rate equals the ECB reference rate — PayPal does not promise that.P24P25 Third-party measurements between 2020 and 2023 (low-tier sources, timing uncertain) found all-in gaps of 4.1–4.6% against mid-market rates; they are consistent with the disclosed spread and do not establish a hidden margin beyond it. On a sale that is later refunded, the refund is converted again at that day's rate, so a cancelled cross-currency purchase can cost the buyer the spread twice.
The default, and when there is no alternative
For a payment funded by a debit or credit card, the User Agreement says “you consent to and authorize PayPal to convert the currency in place of your debit or credit card issuer”; the customer “may have the right” to choose the card issuer instead, where that is available for the card and network.P1 In practice PayPal's conversion is presented as the default at checkout, the alternative is chosen card by card or transaction by transaction, and the issuer's rate cannot be seen at the moment of choice.P10 For payments from a PayPal balance or a bank account there is no choice at all: “PayPal will always perform the conversion.” A US account “may only withdraw the funds in U.S. dollars”, so foreign-currency receipts carry the 3% spread on the way out.P1
No reference rate is shown. The User Agreement does not define the base exchange rate; a PayPal help article describes it as based on “rates within the wholesale currency markets”. PayPal states the spread as a percentage and shows its exchange rate before a payment is confirmed, which is genuine disclosure — but it does not show the customer what the same conversion would have cost at a reference rate, which is the number an ordinary customer would need to compare. Whether PayPal's European entity meets EU currency-conversion transparency rules for wallet conversions could not be verified and is not alleged here.
The spread rose, then held. PayPal's archived policy notices show the consumer spread on purchases and person-to-person payments moving from 3.25% (May 2019) to 3.75% (September 2019) to 4% (November 2020), and unchanged since.P4 PayPal's annual report lists currency conversion first among the revenue it earns from consumers; it does not disclose the amount.P11
Bucket: aggressive-but-disclosed pricing with a PayPal-favouring default. Status: the spread and its economic weight are supported at high confidence; the default mechanics at moderate confidence. No regulator has found the presentation deceptive, and this page does not call it a dark pattern.
Refund economics
When a US seller refunds a sale, PayPal keeps the whole fee. That has been the rule since October 2019.
The 2019 change is often described as a controversy. What matters for a merchant today is what the current terms say, and those are clear.
Historical policy
- Before 2019
On a refund PayPal returned the percentage part of its fee — often 2.9% — and kept the fixed fee, often 30 cents.P22
- 7 May 2019
“If you refund (partially or fully) a transaction … the fees you originally paid as the seller will not be returned to you.”P4
- 2019
Rolled back after seller reaction. Reported by trade press; exact date not verified; no archived notice.P23
- 11 Oct 2019
Reinstated; PayPal said it aligned “more closely to our cost structure … and to industry practice”.P23
- Mar–Apr 2020
Temporary waiver, 21 March–30 April 2020. Secondary source.
Current policy · 18 September 2026
US commercial and invoicing transactions: “If you refund a Commercial Transaction or an Invoicing Transaction payment, there are no fees to make the refund, but the fees you originally paid to receive the payment are not returned to you.” The same sentence covers partial refunds.P5
The User Agreement: “If you refund a transaction, we'll retain the fees you paid.” A seller who loses a buyer claim also forfeits the fee.P1
Example: refunding a $1,000 PayPal Checkout sale in full leaves the seller $35.39 down in retained fees (3.49% + $0.49).
Elsewhere: PayPal's European entity, on its German fee page, keeps only the fixed fee and returns the percentage.P29 UK treatment was not verified.
Why this is not ranked higher. The rule is plainly disclosed, and PayPal's claim to industry practice holds today: Stripe states that processing fees “from the original transaction are not returned”, and PayPal's own Braintree does the same.P25 What keeps it on the list is its direction and its interaction with other terms — PayPal reversed a more generous practice of its own, still applies the more generous one in Europe, and a US seller who loses a dispute can lose the sale, the fee and a dispute fee on the same transaction.
Bucket: aggressive-but-disclosed pricing, now industry-standard in the US. Status: supported as a structural, unavoidable cost shift to merchants; not supported as a PayPal-specific outlier.
Disputes
PayPal is the payment network, the protection insurer and the judge. For most sellers the fee follows the outcome. For some it does not.
When a buyer opens a claim, PayPal decides it — “in its sole discretion” on eligibility, with its determination treated as final and an appeal available only on new or compelling information or where the buyer believes the decision-making process was in error.P31 The seller pays a dispute fee under one of two schedules depending on its dispute ratio over the previous three months.P1
| Seller is not charged when the dispute is… | Standard fee $15 | High Volume fee $30 |
|---|---|---|
| An inquiry never escalated to a claim | Waived | Waived |
| Resolved directly with the buyer | Waived | Waived |
| An unauthorised-transaction claim | Waived | Waived |
| Covered by Seller Protection | Waived | Charged |
| Under twice the Standard fee in value | Waived | Charged |
| Decided in the seller's favour | Waived | Charged |
High Volume applies at a dispute ratio of 1.5% or more with over 100 sales in the prior three months. Source: US User Agreement, “Dispute fees”; US merchant fee page.
Two populations therefore pay a fee on disputes they win: sellers on the High Volume schedule, and merchants on PayPal's unbranded card processing, who pay a $20 chargeback fee “regardless of whether the buyer is successful”.P1P5 The User Agreement also lets PayPal charge High Volume fees “irrespective of your dispute ratio or sales volumes” to a seller it finds engaged in restricted activity — a pricing tier that doubles as a sanction.
Does PayPal profit from every dispute? No.
That claim is common and does not survive the terms. For sellers on the Standard schedule the dispute fee depends on the outcome, and it is waived when the seller wins — more lenient than Stripe, which since June 2025 has charged every merchant a non-refundable $15 fee for each dispute received.P26 Where a buyer's claim for a missing item or unauthorised payment is covered by both Purchase and Seller Protection, PayPal refunds the buyer, lets the seller keep the money and, for a Standard-tier seller, charges no dispute fee: PayPal bears the loss. The supportable statement is narrower: PayPal keeps its processing fee on every refunded or reversed sale, and charges outcome-independent dispute fees to two defined groups of sellers.
Protections that are real. Purchase Protection gives buyers 180 days to claim for an item not received; since 2 September 2025 PayPal may refund a buyer temporarily during an investigation; Seller Protection covers intangible goods. Limits that are also real. Claims that an item was significantly not as described must be opened within 30 days of delivery (from 20 May 2024), a change not reflected on at least one PayPal marketing page that still cites 180 days; “not as described” claims fall outside Seller Protection; a seller who does not respond in time loses by default. Whether PayPal's adjudication favours either side in practice could not be tested: no outcome data is published.P4
Bucket: the Standard tier is ordinary risk control; the High Volume tier and chargeback fee are aggressive-but-disclosed pricing. Status: the outcome-independent fees are partially supported at high confidence; the structural asymmetry of PayPal adjudicating its own programme is documented, but bias in outcomes is inconclusive.
Contractual asymmetry
On 14 September 2026 PayPal replaced its arbitration clause. On its wording, the new one reaches back further than the old one said an amendment could.
Notice was posted on 29 June 2026 — 77 days ahead, well beyond the contractual minimum — that a new “Dispute Resolution” section would replace the Agreement to Arbitrate.P3 This investigation compared the new text with the immediately preceding User Agreement, last updated 19 May 2026, clause by clause.P1P2
What is not new. Both versions already applied arbitration to claims that had arisen before a customer accepted them, and both carry a class-action waiver. Arbitration of existing claims is not the finding; mandatory individual arbitration and mass-arbitration procedures are now common across consumer platforms.
What is new. The May 2026 clause promised that any future amendment to it “shall not apply to any claim that was filed in a legal proceeding against PayPal or you prior to the effective date of the amendment.” The September clause states that “any filed or pending arbitrations between you and PayPal will be subject to this Arbitration Agreement”, and that it applies “notwithstanding any provision in any prior Agreement to Arbitrate to the contrary” to “all Disputes, including all Disputes that arose before the effective date”.
shall not apply to any claim that was filed in a legal proceedingbefore they take effect.
any filed or pending arbitrationsand to disputes
that arose before the effective date, overriding any prior clause
to the contrary.
you may close your PayPal account within the 30-day period and you will not be bound by the amended terms.
you must close your PayPal account prior to the effective date.No new opt-out window for existing customers.
at your request, PayPal will pay all AAA or arbitrator fees.
governed by the JAMS Rules and fee schedule; parties may
engage with JAMS regarding the reduction or deferralof fees. The prior PayPal-pays commitment does not appear.
original handwritten signatureand a good-faith calculation of relief; a 60-day informal process that is
a condition precedent to initiating arbitration.
New York County, New Yorkhave exclusive jurisdiction over non-arbitrable disputes and over challenges to the arbitration agreement.
The route out, and who cannot take it
The agreement's stated route for declining the new terms is to close the account before 14 September 2026. The same agreement says an account may not be closed while it is “subject to a hold, limitation or reserve”, has a negative balance, or has “an open dispute or claim”.P1 Read together, the route the contract offers is one it withholds from customers who are, at that moment, under restriction by PayPal or in an open dispute or claim. That reading is CHI's interpretation of the two clauses side by side. The agreement does not address the interaction expressly, whether the superseding clause can displace a forum for a claim already filed is a question of contract law and the Federal Arbitration Act, and no court or arbitrator has ruled on either for this text. This page does not describe account closure as the only escape; it describes it as the only route the agreement states.
Other terms that run one way
Liability for account actions. PayPal limits its liability to direct damages and excludes loss resulting from “a suspension or other action taken with respect to your PayPal account” — the very actions described in the holds section. Users also release PayPal from claims arising from disputes with other users.P1 The text is certain; whether it is unusual against peers' terms was not established, and whether it would be enforced has not been tested.
Notice of changes. Personal accounts receive at least 21 days' notice of amendments; business accounts at least five. Continued use is acceptance.P1 PayPal in practice has often given far more — the 2026 rewrite had 77 days — and a stated minimum is arguably more transparent than peers' unquantified “reasonable notice”.
Lien and set-off. Customers grant PayPal “a lien on, and security interest in and to, funds held in your PayPal account”, and PayPal may debit an account for past-due amounts owed to it or its affiliates, including amounts owed “by using our various products such as Venmo, Xoom or Braintree”.P1 Ordinary in merchant acquiring; notable when applied to a consumer wallet.
Bucket: industry-standard dispute architecture with PayPal-specific flags — the override of the prior filed-claim carve-out, the closure bar, the added formalities, the removed fee commitment and the single venue. Status: partially supported; high confidence on the text, now that both versions have been captured; legal effect untested.
The 60-day fee-error term
A term Australia's Federal Court declared unfair and void, by consent, remains in the US agreement for businesses. That does not make the US term unlawful.
US business accounts have “sixty (60) days to notify PayPal in writing of any errors or discrepancies with respect to the pricing or other fees applied by PayPal. If you do not notify PayPal within such timeframe, you accept such information as accurate, and PayPal shall have no obligation to make any corrections, unless otherwise required by applicable law.”P1 PayPal's policy archive shows the term entering the US agreement at 90 days in July 2020 and cut to 60 days on 21 September 2021.P4
The Australian record. In ASIC v PayPal Australia Pty Limited [2024] FCA 762 (Moshinsky J, 4 July 2024), the Federal Court of Australia considered PayPal Australia's “Fee Error Term”, which is materially identical to the US wording. The proceeding was brought by the Australian Securities and Investments Commission — not the ACCC — under the unfair-contract-terms provisions for small-business standard-form contracts in the ASIC Act.P13
How it ended. On an agreed basis, the court declared the term unfair within s 12BG(1) and void from the start under s 12BF(1), restrained PayPal from applying or enforcing it, and ordered PayPal to pay ASIC's costs. The judgment records that “PayPal admitted that the Fee Error Term was an unfair term and void (in standard form contracts with small businesses) under the relevant provisions of the ASIC Act.” No penalty was sought. PayPal removed the term from its Australian contracts on 8 November 2023, two months after ASIC began proceedings and before judgment.P13P14
What the court did not find. “There is no allegation in this case that PayPal has in fact retained any fees or charges erroneously charged. PayPal is not aware of any instance where it has caused a consumer to suffer loss or damage by relying on the Fee Error Term and ASIC's investigation has not uncovered any instance of PayPal having done so.”P13
Why the comparison has limits. The Australian finding was made under a statutory unfair-terms regime that assesses imbalance, necessity and detriment and voids an unfair term. The United States has no federal equivalent; a challenge to the US term would proceed under state law and, for PayPal users, in individual arbitration. No US challenge to the term was located. The Australian declaration does not establish that the US term is unfair or unenforceable under US law.
What the comparison does establish is narrower and still relevant: a materially identical term was examined under Australian law and conceded to be unfair there, and PayPal removed it in Australia once ASIC had sued, while retaining the comparable limitation in its US business agreement. The court's reasons — that PayPal is better placed than a small business to detect its own fee errors, and that no reciprocal limit applies to PayPal recovering undercharges — describe the same structure the US text contains.
Bucket: customer-unfavourable contract term. Status: supported at high confidence as a term in force in the US; the Australian determination is recorded as Australian law only.
Customer-balance economics
PayPal earns more than a billion dollars a year on customers' balances. How much of that comes from money it is holding back is unknown.
This section is context, and it is written carefully because it is the easiest part of the record to overstate.
PayPal's annual report states that it earns revenue “from interest earned on certain assets underlying customer balances”, and its User Agreement tells customers so in plain words.P11P12P1 The pooled money is held apart from corporate funds and invested in liquid assets under state money-transmitter rules; PayPal says it will not use it for operating expenses or voluntarily make it available to its creditors in bankruptcy, and holds eligible liquid assets equal to at least 100% of balances where regulators require it. (In Europe, with its regulator's agreement, PayPal has designated about 26% of European customer balances to fund credit.) Balances placed at partner banks for customers using the PayPal Debit Card, direct deposit or crypto are eligible for FDIC pass-through insurance and sit off PayPal's balance sheet. Non-interest-bearing stored value is the normal model for US payment apps.
What this page does not say. It does not say customer balances are frozen: nearly all of that $40.2 billion is money customers can move. It does not say the $1,230 million came from restricted balances: PayPal does not break the figure down and the share attributable to held funds is unknown. It does not say PayPal holds money in order to earn interest on it: no evidence of that was found, management guides investors on margins that exclude this income and describes it as outside its control, and the figure has been falling with interest rates.P12
What the record supports: the contract assigns the return on every pooled balance — including balances a customer cannot withdraw — to PayPal, and pays the customer nothing for the time a restriction lasts. That incentive exists and is structural. Whether it influences any decision is not shown.
The regulatory and legal record
Regulators have circled the same three themes for a decade. None has found PayPal's US holds, reserves, refund terms or currency presentation unlawful.
The recurring subjects are disclosure around holds and limitations, defaults that steer customers into PayPal-favouring funding or credit, and vague prohibited-activity and sanctions terms. Penalties have been modest, remedies mostly by consent, and — because of the arbitration and class-waiver structure — almost nothing has been tested on the merits in the United States. Settlements and consent orders below are not admissions unless stated.
| Date | Body | Entity | Subject | Outcome | Status |
|---|---|---|---|---|---|
| May 2015 | CFPB (D. Md.) | PayPal, Inc.; Bill Me Later | Alleged enrolment in PayPal Credit without consent, preselection as default payment, mishandled promotions and disputes | $15m redress + $10m penalty | Consent order; not a finding of violationP15 |
| Mar 2017 | N.D. Cal. · Zepeda | PayPal, Inc. | Class claims over holds, reserves and closures imposed without adequate explanation | $3.2m fund; two-year disclosure commitments | Settled; no admissionP17 |
| Feb 2018 | FTC | PayPal, Inc. (Venmo) | Funds shown as available, then frozen or reversed on later review; public-by-default privacy settings | No monetary penalty; compliance obligations | Consent order; in force (assessments to c. 2028); no admissionP16 |
| Jun 2022 9th Cir. Sep 2023 | N.D. Cal. · Evans | PayPal, Inc. | Alleged seizure of balances as Acceptable Use Policy damages | Individual arbitration compelled; affirmed | Merits never reachedP18 |
| Jan 2023– | Bundeskartellamt, Germany | PayPal (Europe) | Merchant terms banning surcharges and requiring parity presentation of PayPal | — | Open; no decision reportedP11 |
| 4 Jul 2024 | Federal Court of Australia (ASIC) | PayPal Australia | 60-day Fee Error Term in small-business contracts | Declared unfair and void; injunction; costs; no penalty | PayPal admitted unfairness under the ASIC ActP13 |
| 16 Jul 2024 | UOKiK, Poland | PayPal (Europe) | Unclear prohibited-activities list and unlinked sanctions, including a USD 2,500 damages clause | PLN 106.7m | Non-final; appeal status unverifiedP20 |
| Jan 2025 | NYDFS | PayPal, Inc. | Cybersecurity failures exposing tax-form data | $2m | Closed; low relevance here |
| 9 Jul 2025 | UOKiK, Poland | PayPal (Europe) | Fees introduced through a unilateral-change clause | Commitments: 150% refunds | Closed; clause/fee chronology not fully reconciledP19 |
| 2022–2025 | FTC; CFPB | PayPal, Inc. | Civil investigative demands: payment facilitation; merchant onboarding; Regulation E error resolution; PayPal Credit and “backup payment options” | — | Open; nothing public beyond PayPal's own disclosureP11 |
| Jun 2026 | N.D. Cal. · Honey | PayPal, Inc. (Honey) | Alleged diversion of creators' affiliate commissions | Motion to dismiss denied at pleading stage | Pending; allegations only |
| Aug 2026 | N.D. Cal. · Sabol | PayPal, Inc. | Consumer antitrust claim against anti-steering rules | Dismissed with prejudice on standing | Not a merits ruling on the rules |
Scroll the table horizontally on narrow screens
Complaint data, read as a signal only
The US Consumer Financial Protection Bureau's database records 42,064 complaints naming PayPal Holdings (which includes Venmo) since its inception: 4,143 in 2024, 7,412 in 2025, and 8,912 in 2026 to early September. The largest categories are wallet account management, fraud and scams, unauthorised transactions and trouble accessing funds.P28 Complaint volume rose across the sector over the same period, the database is self-selected, and PayPal's 439 million accounts worldwide are not a US complaint denominator. No rate is derived from these numbers. They are used only to identify which mechanisms generate grievances — and they point at the same ones the contract analysis does.
The 2022 Acceptable Use Policy episode is covered under what did not survive, because the most repeated version of it is not accurate.
What did not survive scrutiny
We tested the most repeated criticisms of PayPal against the primary record. Several failed.
An investigation that only reports what it found is not an investigation. These are the claims CHI examined and could not support in the form in which they usually circulate.
“PayPal fines users $2,500 for spreading misinformation.”An Acceptable Use Policy update adding “misinformation” circulated in October 2022 with a 3 November effective date. PayPal said on 8 October that the notice “went out in error” and withdrew it before it took effect. The pre-existing $2,500-per-violation damages sentence was removed from the policy on 29 October 2022 and is absent from the current User Agreement. No evidence was found that anyone was charged under the misinformation item. The older damages clause did exist; Poland's regulator fined PayPal (Europe), in a non-final decision, over terms that included it.P7P21
Not supported“PayPal profits from every dispute, whoever wins.”Outcome-independent dispute fees apply only to High Volume sellers and unbranded chargebacks (PayPal does keep its processing fee on any refunded sale). Standard-tier fees are waived when the seller wins, and PayPal bears the loss on protected claims.
Not supported as stated“PayPal's 21-day holds on new sellers are a trap.”Disclosed, bounded, released on proof of delivery, and comparable to competitors' first-payout delays.
Not supported“Pay in 4 is pre-selected at checkout.”No primary or reputable secondary evidence was found. Pay Later buttons appear by eligibility unless a merchant turns them off, which merchants can do.
Not supported“PayPal spends your balance first on every purchase.”The agreement provides balance-first funding for automatic payments only. For ordinary purchases the customer's preferred method applies.
Not supported“PayPal makes subscriptions hard to cancel.”Automatic payments can be cancelled in a few self-service steps; PayPal accepts liability for stop orders it fails to honour. A customer may still owe the merchant under the merchant's own terms.
Not supported“PayPal makes $X a year in interest on frozen accounts.”No such figure exists. The held share of customer balances is not disclosed.
Not supported“PayPal's holds and reserves are unusual in payments.”Stripe, Square and Shopify use the same tools. What differs is the absence of a published appeal route (Stripe and Shopify publish one) and of any incidence data.
Not supported“The ACCC won a case against PayPal.”The Australian proceeding was brought by ASIC, decided by consent, with no penalty.
Incorrect“The Ninth Circuit ruled on Evans in 2025.”No such ruling exists. The Ninth Circuit's 2023 decision affirmed an order sending the claims to arbitration.
Incorrect“Honey diverts creators' commissions and hides the best coupons.”Allegations in pending litigation. Creator claims survived a motion to dismiss in June 2026; a consumer class action was reportedly dismissed. Nothing is established.
Inconclusive“The paid instant transfer is pushed over the free one.”The fee rose from a flat $0.25 to 1.75% capped at $25 between about 2017 and 2022 and is disclosed each time. No reliable documentation of the app's presentation was found.
InconclusiveThe strongest case for PayPal
Built deliberately, not as a courtesy. Much of what PayPal does protects customers better than the alternatives.
PayPal pays for the protection
Transaction losses — fraud, protection programmes and chargebacks — were about $1.3 billion in 2025, 0.07% of $1.79 trillion in payment volume, and rose because of fraud against PayPal products.P11
Buyer rights beyond a card
Full cover for unauthorised activity when procedures are followed; 180 days to claim for an item not received; temporary refunds during investigations since September 2025.P1P4
Sellers are protected too
Seller Protection has covered intangible goods since 2020. The Standard dispute fee is waived when the seller wins — more generous than Stripe's non-refundable fee.P26
The core is free
- No fee to fund or withdraw by standard transfer
- No US inactivity fee
- No late fees on Pay in 4
- Merchants can switch Pay Later off
Complaints get answered
99.9% of CFPB complaints answered on time; 14.7% closed with monetary relief (as reported by PayPal) and 19.4% with other relief — against 0.18% monetary relief at Block. A response profile, not a conduct ranking.P28
Independent review mostly agrees with PayPal
Four of five UK ombudsman decisions on holds and limitations read for this investigation were not upheld.P27
Terms are published
Spread percentages, dispute fees and hold rules are printed on public pages; changes are posted in advance, often well beyond the minimum.P3P5
It corrects when challenged
The damages sentence left the Acceptable Use Policy within weeks of the 2022 episode; the Australian term was removed before judgment; Poland produced 150% refunds by commitment.P13P19
It discloses the float
PayPal reports interest on customer balances each quarter and guides investors on margins that exclude it. Balances can qualify for FDIC pass-through insurance through partner banks, and PayPal Savings, a Synchrony Bank account, pays interest.P12
Direction of travel
Since 2019, protection for buyers widened, pricing for merchants tightened, and recourse became more procedural.
Full processing fee kept on refunds, reversing PayPal's own practice.
Merchants ↓Consumer currency spread on purchases and P2P raised from 3.25% to 4%.
Consumers ↓Seller Protection extended to intangible goods. Dispute fee established (November).
MixedBranded checkout rate to 3.49% + $0.49; instant transfer to 1.75% capped at $25. Fee-error window cut from 90 to 60 days.
Merchants ↓Misinformation item withdrawn; $2,500 damages sentence removed from the AUP; User Agreement clause narrowed.
ImprovedAustralian fee-error term removed after ASIC sued, before judgment.
Improved (Australia)“Not as described” claims limited to 30 days from delivery.
Buyers ↓Pay Later merchant rate raised from 3.49% to 4.99%; merchants can still switch Pay Later off.
Merchants ↓Temporary refunds for buyers during investigations.
ImprovedDispute Resolution rewrite: superseding clause, added formalities, New York venue, fee commitment removed; 77 days' notice.
Recourse ↓The hold, limitation and reserve powers themselves are essentially unchanged in substance since Zepeda. Disclosure around them improved, mainly when a court, regulator or public episode required it. Dates from PayPal's policy archive unless noted.P4
Why the verdict is weakly supports
The asymmetry is in PayPal's own documents. The misuse is not in the evidence.
Why not “supports”
Incidence cannot be established. PayPal publishes no hold, limitation or reserve data, and no complaint source has a denominator.
Much of the power is legitimate. A payments network must be able to stop money; most of the restrictions examined have a fraud or legal-compliance purpose.
No adverse finding on the core mechanisms. No regulator or court has found PayPal's holds, reserves, refund terms, currency presentation or anti-steering rules unlawful. Poland's non-final 2024 decision against PayPal (Europe) concerned the clarity of its prohibited-activity and sanctions terms, not the US contract. The UK ombudsman sample went mostly PayPal's way.
PayPal absorbs real losses and several prominent criticisms failed on the primary record.
Why not “inconclusive” or lower
The asymmetries are documented, not alleged. They are in the current User Agreement and fee pages, in PayPal's own words.
They are structural and run one way. Sole-discretion holds with no interest, confidential criteria with no published appeal, a spread built into a PayPal-set rate, fees kept on refunds and on some won disputes, and a liability exclusion for the account actions most likely to cause loss.
They benefit PayPal in identifiable ways — float, retained fees, spread revenue — even where the amount is undisclosed.
They persist, and in places tighten. The Australian fee-error term was conceded there and kept in the US; the core hold powers are unchanged in substance since Zepeda; the 2026 rewrite purports to override the prior clause's own carve-out for filed claims.
Strongest split: each pricing and risk-transfer term is peer-comparable alone; the combination and the recourse gap are what distinguish PayPal.
Weakly supportsConcentrated in foreign exchange, account control and contractual asymmetry. Interface, subscription and Pay Later allegations mostly failed.
Weakly supportsVenmo shares PayPal's instant-transfer and cross-border pricing but no separate finding; the 2018 FTC order is historical. Honey rests on unproven allegations.
Not supported · InconclusiveA systematically asymmetric architecture that benefits PayPal is supported. Systematic misuse of it against legitimate customers is not established.
Weakly supportsVerdict remains weakly supports after the closeout verification of 18 September 2026, which re-checked the 2026 arbitration rewrite, the Australian finding and the refund-fee chronology against primary sources. No finding was upgraded, downgraded or withdrawn.
PayPal is, for most transactions, one of the safer ways to pay a stranger online — and PayPal pays for much of that safety itself.
Its contract is written for the other transactions: the ones its risk systems stop. There, PayPal decides on criteria it need not disclose, holds money it pays nothing for, reviews its own decisions, and has limited its own liability for the result. Around that sit prices that are each defensible and all run one way — a currency spread inside the rate, fees kept on refunds, a dispute fee even on some disputes a seller wins, and a deadline to catch PayPal's own fee errors whose Australian counterpart was declared unfair under Australian law.
How often any of that goes wrong for someone who did nothing wrong is the one number nobody outside PayPal has.
That is enough to keep PayPal at weakly supports.
It is not enough to call PayPal hostile, and this page does not.
Sources
The primary record behind this page.
Every major proposition above is tied to one of the sources below. PayPal's User Agreement, merchant fee page and policy-update archive were captured in full on 18 September 2026, and the consumer fee page, Acceptable Use Policy and annual report as extracts; quotations were checked against those captures or, for help-centre, court, ombudsman and peer pages, against the cited source. The complete research package — a 70,000-word dossier, a 92-finding evidence ledger, a 319-row verification report and a 309-source index — is preserved by CHI and is not reproduced here.
PayPal User Agreement (US), last updated 14 September 2026. PayPal, Inc. — sections on holds, limitations and reserves; restricted activities; closing your account; currency conversion; refunds and dispute fees; fee-error notification; indemnification and limitation of liability; dispute resolution; security interest and amounts owed. paypal.com/us/legalhub/useragreement-fullPrimary
PayPal User Agreement (US), last updated 19 May 2026 — preceding version. Agreement to Arbitrate; closing your account. Internet Archive capture of 31 May 2026. web.archive.org capturePrimary (archived)
Policy Updates — notice issued 29 June 2026, effective 14 September 2026. PayPal, Inc. paypal.com/us/legalhub/upcoming-policies-fullPrimary
Past Policy Updates archive (US), notices from 29 March 2019. PayPal, Inc. — including 7 May 2019 (refunds; 3.25% spread), 3 Sep 2019 (3.75%), 9 Nov 2020 (4%; dispute fee), 21 Sep 2021 (fee-error window), 21 Mar 2024 (SNAD window, effective 20 May 2024), 2 Sep 2025 (temporary refunds). paypal.com/us/legalhub/archive-policies-fullPrimary
Merchant Fees (US), last updated 1 September 2026. PayPal, Inc. — commercial rates; refunds; dispute and chargeback fees; currency conversions. paypal.com/us/webapps/mpp/merchant-feesPrimary
Consumer Fees (US), last updated 19 May 2026. PayPal, Inc. paypal.com/us/webapps/mpp/paypal-feesPrimary
Acceptable Use Policy (US), last updated 29 October 2022. PayPal, Inc. paypal.com/us/legalhub/acceptableuse-fullPrimary
“Why is my money being held in reserve?” PayPal Help Center (help392). paypal.com/us/cshelp/…help392Primary
“Why is my PayPal account limited?” PayPal Help Center (help534). paypal.com/us/cshelp/…help534Primary
“How do I send a payment in another currency?” PayPal Help Center (help108). paypal.com/us/cshelp/…help108Primary
PayPal Holdings, Inc., Form 10-K for fiscal 2025, filed 3 February 2026. Items 1, 7 and 7A; balance sheet; Notes 1 and 13. sec.govPrimary
PayPal fourth-quarter and full-year 2025 results (Exhibit 99.1), 3 February 2026. Interest on customer balances. sec.govPrimary
ASIC v PayPal Australia Pty Limited [2024] FCA 762. Federal Court of Australia, Moshinsky J, 4 July 2024 — paras 2, 5, 24, 51–62 and orders. judgments.fedcourt.gov.auCourt
“Court declares PayPal Australia used an unfair contract term”, media release 24-147MR. ASIC, 5 July 2024. asic.gov.auRegulator
“CFPB Takes Action Against PayPal for Illegally Signing Up Consumers for Unwanted Online Credit”. CFPB, 19 May 2015; consent order, D. Md. No. 1:15-cv-01426. consumerfinance.govRegulator
“PayPal Settles FTC Charges that Venmo Failed to Disclose Information to Consumers About the Ability to Transfer Funds and Privacy Settings”. FTC, 27 February 2018. ftc.govRegulator
Zepeda v. PayPal, Inc. — order granting final approval of class settlement. N.D. Cal., 24 March 2017. courthousenews.com (court order PDF)Court
Evans v. PayPal, Inc., No. 22-15979 (memorandum). US Court of Appeals for the Ninth Circuit, 18 September 2023. law.justia.comCourt
“Unauthorised changes to the agreement — refunds and compensation from PayPal”. UOKiK (Poland), 9 July 2025. uokik.gov.plRegulator
“Poland imposes USD 27.3 mln fine on PayPal for unclear contractual terms”. The Paypers, 16 July 2024 (reporting UOKiK's decision of the same date). thepaypers.comSecondary
“PayPal user agreement fining users up to $2,500 for promoting ‘misinformation’ was sent ‘in error’, spox says”. Fox Business, 8 October 2022. foxbusiness.comSecondary
“A New Refund Policy From PayPal Will Stop Returning Fees to Sellers on Canceled Sales”. Digital Transactions, 8 April 2019. digitaltransactions.netSecondary
“PayPal Changes Seller Refund Fee Policy”. PYMNTS, 22 September 2019. pymnts.comSecondary
Euro foreign exchange reference rates, 17 September 2026. European Central Bank. ecb.europa.euOfficial data
Stripe pricing (US). Stripe — conversion and refund treatment; retrieved 18 September 2026. stripe.com/pricingPeer
“How disputes work”. Stripe Docs — dispute fees; retrieved 18 September 2026. docs.stripe.comPeer
UK Financial Ombudsman Service decisions on PayPal holds and limitations, including DRN-5666659 and DRN-5985903 (2025–26). financial-ombudsman.org.ukAdjudicator
Consumer Complaint Database — company “Paypal Holdings, Inc”. US Consumer Financial Protection Bureau; aggregates retrieved 18 September 2026. consumerfinance.govOfficial data
Händlergebühren (Germany), last updated 7 September 2026. PayPal (Europe) S.à r.l. et Cie, S.C.A. paypal.com/de/webapps/mpp/merchant-feesPrimary
“How can I release my payment(s) on hold?” PayPal Help Center (help129). paypal.com/us/cshelp/…help129Primary
PayPal Purchase Protection Program (US), effective 26 January 2026. PayPal, Inc. — eligibility, claim windows, appeals. paypal.com/us/legalhub/buyer-protectionPrimary
PayPal, the PayPal logo and related marks belong to PayPal, Inc. They are used here only to identify the company assessed; no endorsement or affiliation is implied. This page is research, not legal or financial advice.
Reading this beside the rest of the index
Every company here is assessed against the same question. PayPal is the one where the answer is written into the contract rather than the complaints.
Read it against the other finance investigations, which reached the same verdict by different routes, and against the methodology that explains why no number appears on this page.