RealTime IT News

PayPal Set to Fine Users

Beginning Friday, PayPal will begin penalizing users who buy things it doesn't want them to: prescription drugs from unverified pharmacies, material with even a whiff of sex and gambling or lottery services.

On August 23, PayPal gave users via e-mail 30 days' notice that it could levy a fine of $500 on those who violate its acceptable use policies. Its compliance team will strictly enforce the new acceptable use policy to implement the monetary fines on both buyers and sellers who use the transaction service to trade in items the San Jose, Calif.-based company has outlawed.

Those policies prohibit a wide variety of things, from stuffed migratory birds to used airbags. But the user agreement revision singles out those who, despite the transaction platform's best efforts, persist in using it to pay for forbidden goods and services in the mature audiences, prescription drugs and gambling categories.

A PayPal spokesperson said the fines were an evolution of its policy prohibiting these activities; she declined to say what percentage of the service's transactions might engage in barred goods.

"There are always people who do this kind of thing. It hasn't gotten worse, we're just very serious about it," she said. She said the prohibitions were a business decision. "There's a higher level of fraud associated with online gambling and adult materials."

PayPal has good reason to ban gambling activity from its service. A year ago, eBay paid $10 million to settle charges by the U.S. District Attorney that it violated the U.S. Patriot Act by transmitting funds earned through online gambling. When it announced the acquisition, eBay said it would stop PayPal's gambling payments. It folded the betting business for good last November.

Merchants using PayPal to sell pharmaceuticals online must be certified by the National Association Boards of Pharmacy's Verified Internet Pharmacy Practices Site program.

Its policy on adult materials is especially stringent, banning not only any material or services suggesting sexual activity but also "non-adult services whose Web site marketing can be reasonably misconstrued as allowing adult material or services to be purchased using PayPal."

Few mainstream sellers have taken note.

" I really don't care if people can't pay for drugs or porn on eBay," said Marsha Collier, author of eBay For Dummies and Starting an eBay Business For Dummies and one of the auction service's top 500 private sellers. "PayPal works really well for sellers who play by the rules."

Collier said she's watched the company's evolution from its early days, when it was operated by X.com. She finds the tighter controls part of a natural evolution process. "And they are also owned by eBay, which stands for community values," Collier said. "EBay goes a long way to keep the mature audiences part of [its offerings] separate."

In fact, PayPal's policy is so stringent that it specifically prohibits its use for any product sold in eBay's Mature category.

Message boards like paypalsucks.com are full of horror stories about PayPal. The perception among some users is that the company freezes accounts arbitrarily, is unresponsive to queries or complaints and takes months to return users' access to their own funds.

In June, PayPal settled a class action suit for $9.25 million. Three customers led the class action, claiming the payment service had frozen or drained their accounts without cause. PayPal didn't admit guilt.