AUSSIE PAYPAL VICTIMS PLEASE READ THIS
I am in Australia. I recently added a bank account to my Paypal membership for the purpose of withdrawing sale funds and paying for purchases. I read the promotional information and Product Disclosure pertaining to this action.
The information headed 'Five Benefits of Adding a Bank Account' included the following statement:
"In the event that there is not enough money in your bank account to make a payment, a debit or credit card acts as a back-up funding method". I have a credit card registered with Paypal as a source of funds so believed that the section of the PDF relating to dishonour fees if the account contained insufficient funds to complete a transaction did not apply as I had in place a back-up funding source. WRONG!!
On 6 April I used Paypal for a US$322.00 payment. My bank account (which is specifically used for internet purchases) contained the equivalent of $228.00 and I expected the balance to be debited against my credit card. When I checked my account on 8 April I found it showing an overdrawn amount and a deduction by Paypal described as an "Automatic Drawing".
I contacted my bank to find out how a third party could overdraw an account that did not have an overdraw facility. They said that it was bank policy to allow overdraws for periodic or AUTOMATIC drawings where they hold a debit authorisation from the account holder as they were usually for loan repayments, medical insurance etc and the account holder would be inconvenienced and perhaps subject to default action if the payment was rejected.
I asked if payments for which they did not hold a debit authority would be paid as an overdrawal and they said no. I then asked if they had a debit authorisation from Paypal and they said they did. I have never signed such an authority - and a signed authority is required under Australian law - and asked for a copy which is being sent. I insisted that the transfer to Paypal be reversed which they did as I think they had a look at the authority and realised it was not valid. They also blocked any further payment requests from Paypal.
I then sent a fraud report to Paypal stating the above and requiring them to immediately reverse the transaction and source the entire payment from my credit card. They replied that my bank account was my Primary Funding Source and they would attempt to debit my account TWICE (with me incurring a $35 overdraw fee from the bank each time) before they would access the credit card. This is because they incur merchant fees and have no control over the exchange rate that applies (no 2.5% currency conversion ripoff for Paypal) if they do that.
I then rang the dispute resolution line and got to spend an hour on the phone with Ron who told me I had not read the conditions, that Paypal could debit my acount for the total amount regardless of the amount of funds available and keep doing it until the transaction processed or the bank advised them that funds were not available. I asked why Paypal used the words AUTOMATIC DRAWING instead of describing the request as payment for goods purchased and he didn't know.
I asked if he - as he assured me he had read the User Agreement hundreds of times - where in it Paypal stated that they would repeatedly access my account instead of using the back up funding. He said it wasn't in there but that was standard Paypal PRACTICE and they didn't need to disclose it.
I asked if he understood Australian financial services law and he said he did not. I asked for a phone number for a Paypal manager in Australia and he wouldn't give one. I found one on the Paypal website and called it but it reverted to their USA head office.
Once I receive the debit "authority" from my bank I will be placing the matter in the hands of the Australian Financial Services Ombudsman who investigates this type of fraud and has the power to recommend prosecution under the Financial Services Act.
I spent many years working in the insurance industry and am conversant with financial services law and obligations that apply to companies which operate on-line and rely on a Product Disclosure Form to validate internet transactions. Basically it is the service provider's responsibility to specify any costs and/or penalties that COULD result from a client's use of their service. The 'Add A Bank Account' form provided on-line by Paypal does not state that completion of the form constitutes an authority for them to debit my account, nor does it state the procedures they will employ in debiting that account.
These areas are the ones I will raise with the Ombudsman, together with Paypal's failure to provide a link anywhere in the form to relevant sections of the PDF.
Would anyone else in Australia with a similar experience please contact me as it will add weight to my attempt to ensure Paypal fully discloses its practices before encouraging people to provide their bank account details. Cliff