The correct part of the PayPal user agreement that governs payment holds is section 4.3: 4.3 Payment Review. Payment Review is a process by which PayPal reviews certain potentially high-risk transactions. If a payment is subject to Payment Review, PayPal will place a hold on the payment and provide notice to the seller to delay shipping the item. PayPal will conduct a review and either clear or cancel the payment. If the payment is cleared, PayPal will provide notice to the seller to ship the item. Otherwise, PayPal will cancel the payment and the funds will be returned to the buyer. All payments that clear Payment Review will be Seller Protection Policy eligible if they meet the Seller Protection Policy requirements. PayPal will provide notices to you by email and/or in the Transaction History tab of your PayPal account. The issue is NOT whether there was a dispute filed as per section 10.2. The issue is exactly what constitutes 'high-risk' and whether PayPal is interpreting this clause to allow PayPal to hold funds solely for the purpose of using moies so held for the sole benefit of PayPal. There are no published guidelines for 'high-risk' and PayPal is interpreting solely as they wish. More importantly, section 4.3 states that "PayPal will place a hold on the payment and provide notice to the seller to delay shipping the item.". Yet PayPal is requiring many sellers to receive positive feedback (requiring that they ship prior to receiving payment) before releasing the hold!!! This is a blatant violation of the PayPal user agreement section 4.3. Use of funds for which PayPal was instructed by buyer to remit to seller that are held in violation of the PayPal agreement, and for which PayPal receives a benefit, is fraud. In addition, the storage of those funds is comingling of funds (PayPal's versus User's) and the entire situation is a breach of contract. This is NOT an FTC issue - its fodder for a class action lawsuit.
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