Consumer Alert: PayPal's Never Ending Problems and 50 Percent Failure

Palo Alto, California -- Customer service woes continue to haunt PayPal and eBay users alike. If you are one of the 143 million users who signed up for a PayPal account, you know how convenient the concept of this money transfer service can be. Chances are you've never had a problem up till now.

Eventually, many users end up having PayPal problems where none existed for them before. Users are coming to Paypal, but they are leaving in droves. In 2006, PayPal issued a press release trumpeting the news it had surpassed 100 million accounts. As of 2007, PayPal 's accounts number over 143 million. However those numbers are deceptive. Of the 143 million user accounts today, about 71.5 million of these accounts are inactive -- about half. Why?

Since Paypal claims an industry standard fraud rate of about .5 percent, the average analyst would have to guess that around 700,000 thousand of the 71.5 million inactive accounts were closed to due outright fraud. The remaining 70.8 million inactive user accounts are accounts owned by persons who were apparently not impressed with PayPal's services (bad customer service, problematic transactions brought about by PayPal's constant meddling into users activity) and persons who have become the victims of PayPal's arbitrary account limitations. From whatever angle one analyzes the situation, PayPal has a 50 percent failure rate.

When the average eBay buyer or seller signs up with PayPal to facilitate transactions, that user has, at best, a 50/50 chance of have a problem free experience with PayPal.

Customer service has long been a trouble spot for PayPal. PayPal claims it has improved in this area after settling a 2004 class action lawsuit against it. PayPal admitted to no wrongdoing as part of the settlement agreement. A simple Google search dispels any notion of a supposed improved PayPal service.

Diana Hunter of Tempe, Arizona knows this first hand. She used Paypal for two years with any problems. In March of this year, someone fraudulently accessed her PayPal account and withdrew $3000 from her bank account. She was able to recover half the money through her bank. She needed PayPal's help with the rest. After calling and e-mailing PayPal repeatedly for 45 days, Hunter claims she had received only disconnects and canned replies. After contacting her local "on-your-side" media, PayPal issued Hunter the remaining money. What does that say about a company who only acts when it is exposed to negative publicity? What about those with PayPal problems that do not have the press on their side? Their PayPal problems remain unsolved.

PayPal says Hunter's case was an anomaly, and not typical of the average PayPal user experience. PayPal claims to have added customer service staff. Paypal's vice president of corporate communications now claims 99 percent of all complaints are resolved within 24 hours. That is also a deceptive statement.

When the statement, "99 percent of all complaints are resolved with 24 hours," is quoted, most persons think the complaints are RESOLVED IN THE CONSUMERS FAVOR. This is what PayPal would like you to believe. The statement really means that if a complaint is received, and PayPal acts on it, the complaint is considered resolved.

Consider Mark Washington of Atlanta, Georgia. He filed a complaint against PayPal because PayPal limited his account due to "suspicious activity." While Paypal would not tell him what that "suspicious activity" was, the asked him to fax numerous pieces of documentation. Once Washington did -- within 24 hours -- PayPal considers the complaint "resolved."

In reality, a problem still exists -- Mr. Washington continues his battle to get his money out of his PayPal account in spite of doing everything PayPal instructed him to do. While PayPal considers this a "resolved complaint," the customer, Mark Washington, does not consider his complaint resolved. "All they've done is give me the two-foot run-a-round," Washington said.

PayPal's virtual monopoly over the auction market -- due in part to eBay's practice of banning competing services from its service -- has insured more users will fall into PayPal's web.

Perhaps that will change when eBay is forced by a court to allow free competition on its auction service. Competing services will battle for consumer's business by constantly improving their fees and services. Until that day comes, buyer and seller beware.