There's no magic to Paypal's cash freeze trick

Matthew Wright was shocked when he was told he'd have to wait six months for his money.
  • @simonnread

E-money pioneer PayPal has been up to its old trick of freezing innocent people's accounts putting them into financial difficulties in the process. This time it was Independent reader Matthew Wright, a professional magician, who was the victim.

"I am a small, one-man business so don't have access to lots of cash," he said. "PayPal's actions put my business in shreds and forced me to borrow money to pay my mortgage."

The trouble started when Matthew invented three new tricks that he sold to a large magic wholesaler, a very well-known and respected firm across the world.

That was cause for celebration, especially after the company paid the money they owed – £12,000 – into his PayPal account. But then Matthew got a big shock.

"PayPal decided that I was a major risk account and withheld €4,000 (£3,397) in reserve. I was told that I couldn't get any access to the money unless I close my account and then it would only be refunded after 180 days."

Matthew was astounded. "Surely this is criminal, he said. "How can they get away with it?"

It's not criminal. PayPal acts in this way to fight fraud and criminal activity. When it sees unusual transactions – such as the much higher than normal amount flowing into Matthew's account – they are flagged as possible, high-risk transactions. The company's standard response then is to freeze the cash pending an investigation.

How long should an investigation take? Under PayPal's terms and conditions, they can keep cash for 180 days. But logically you'd expect that once provided with evidence that all is above board, they would release it.

In Matthew's case, it took The Independent to get involved before PayPal saw sense. After our intervention, the company has handed over Matthew's cash, allowing him to carry on with his business.

Matthew was also told he could not appeal against the decision for six months. PayPal admitted he should not have been told that.

The company explained: "PayPal's risk systems flagged Mr Wright's account for review after a number of unusual payments were received.

"Unfortunately, the agent who reviewed the account misunderstood the nature of Mr Wright's business, and as a result applied reserves that were not justified by the low-risk nature of the business."

In the past, The Independent has reported several cases where people were left disadvantaged by PayPal's bizarre policy of locking cash away for six months even after uncovering evidence that all was well.

In one extreme case, dogs looked after by a rescue service faced being destroyed after PayPal froze the company's account. But after The Independent's challenge, the firm unblock the cash.

After the latest blunder it has agreed to finally act. "We're reviewing our procedures in the light of Mr Wright's experience," PayPal said.