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July 12th, 2007 by Jamie Estep

What to do when your Paypal account is frozen…

Filed in: 3rd Party Processors | 7 comments

This is probably the single most common question that I come across in discussion forums. Someones Paypal account gets frozen and they want to know what to do to get their account unfrozen and get their money back.

While I can’t do anything to get your money back, I have been in this situation more times than anyone I know and I have a bit of knowledge about how the system works. Prevention is always the best bet but sometimes account freezes are completely unexpected or unavoidable.

The first thing you need to realize is that Paypal freezes funds on the same grounds as Visa and Mastercard, and they can hold your funds for 180 days from the date of the transaction (Paypal will hold for 180 days from the date of your account freeze). Unless your funds are frozen for fraud or for some legal reason, you should get your money back after 180 days (worst case scenario). If you committed fraud, or obtained the money illegally, don’t count on getting any of it back, ever!

Why Paypal limit’s accounts:
Paypal is financially liable for funds that you accept, so if they feel your account may cause problems for them or other customers, they will freeze your account. Paypal has an automated system as well as a human managed system for fraud control. If they hold funds, it is because something with your account set off an alarm and either automatically or after human review, they decided that it is in Paypal’s or Paypal’s customer’s best interest to put a hold on your account. It nothing personal, and most of the time it was probably a computer that froze the account based on some fraud algorithm.

Some reasons an account may be frozen:

  • Increase in transaction volume (IE: More Transactions).
  • Increase in single transaction amount (IE: Larger Transaction).
  • Increase in disputes from customers.
  • Increase in refunds to your customers (with our without any disputes).
  • If a certain percentage of your transactions are disputed over a period of time.
  • If fraud was reported against your account.
  • Logging-in from multiple IP addresses (* Speculation).
  • Withdrawing over a certain threshold amount (** Speculation).

In my experience Paypal most often holds funds when a business processes many more transactions, or when they process much larger transactions that previously in their account. Also when a business sees an increase in disputes or refunds it is often an indication that something is not right. I have no idea of the thresholds that Paypal uses to freeze accounts or how often a human is the person who presses the button, but most of this goes along the lines of credit card processing risk management.

* – The IP address theory I have heard many times, but I have never seen anything official from Paypal. I also haven’t witnessed it on a US paypal account, so it may be an international problem, or a problem with people logging in from restricted or close-to restricted countries. I’ve heard three IP’s is what it is based on, but I’ve personally logged into more than one account from at least 20 IP’s and have never had any problem. The other thought which seems most likely is when an account is accessed in a completely different area than normal (IE: Login from Russia, when the business is in California).

** – My large withdrawal theory is based on the fact that I have had an account held three times on different accounts, and the hold occurred almost immediately after I made a large withdrawal from the account. My guess is that this threshold is at most $5,000 per day, which would be on par with some long standing Federal Reserve regulations. It is may be less than $5,000 or it may vary depending on your history, but I’m 99% sure that it does exist.

Now if your account gets frozen:
The first thing you will get is an email from paypal stating that your account has been frozen. You probably already get ten spam versions of these messages every day, so most likely you will actually learn that your account is frozen when you log-in one day. Anyway, when you log-in to your paypal account you will get a big nasty screen stating that your account has been frozen, and that you need to visit the resolution center to clear up the issue.

Limited Paypal Account

In the resolution center, you will have a list of the steps that you need to complete to get your account limitation lifted. You will also have a summary of what you can and cannot do with your account in a limited status. This status varies depending on why your account is being held, and for how long it has been on hold. As for requirements, Paypal will normally have you fax documents to them, and they may be additional steps that you have to do within paypal. The internal steps will normally be confirming a bank account, or credit card.

Commonly Requested Documentation:

  • Proof of business existence (Utility bills, DBA registration, Tax license).
  • Proof of shipping (Tracking Numbers).
  • Proof of person (Drivers license, Social Security Card, Passport etc.).
  • Proof of products (Normally your supplier’s name and phone number).

After you fax Paypal the information, you have to wait for their response. They will typically send you an email the next day stating that they received your information. You will receive another email a few days later stating the results. The email will either announce that your account limitation has been lifted, or that they are unable to lift the limitation. If you account remains frozen, they will either ask you to provide more information, or they will tell you to wait 180 days to get your money back. In either case you can call paypal directly and talk to a customer service rep. In most cases they won’t be able to do anything for you, but they may be able to give you other options if you don’t have some documentation that is requested. I can’t stress enough, not to act aggressively with whoever you email or talk to at Paypal. This is the same with any Risk Management situation, yelling at the person on the other end will guarantee a 180 day hold of your money. Yes you’re pissed, but be nice until they hold your money anyway, then complain away!

If you can provide all of the documentation that Paypal requests and you were not reported for fraud or illegal activity there is a good chance of getting your account freed-up. However, Paypal will not always unfreeze an account even if you are doing legitimate business and you provided them with the proper information. It’s unfortunate but is simply a risk of using Paypal at the current time.

Recommendation on not getting your account frozen:
Risk is all about consistency. You could be accepting a million dollars a month, and as long as your business was consistent, and you didn’t get a lot of returns, there wouldn’t be any problem. When changes occur, especially large changes, red flags go up all over the place. New accounts are also at a much higher risk of getting frozen, as most fraud occurs very quickly after an account is opened.

If you have an average transaction size of $50, you should probably expect your account to get frozen if you take $5,000 on a single transaction. The same thing goes for volume. If you consistently do $1,000 – $2,000 per month, and suddenly you start processing $50,000, you should expect your account to get frozen.

My advice is to slowly ramp up sales (This obviously isn’t always possible), and initially specify an amount in the estimated monthly volume and transaction size higher than what you actually expect to do. Make frequent lower amount withdrawals, and try not to keep a lot of money in your account. Be especially careful of making large withdrawals in a single day.

If you have any related experiences or comments, please feel free to share. However, this thread is not Flame Paypal, so any ‘Paypal Sucks’ or related comments will not be posted.

7 Responses to “What to do when your Paypal account is frozen…”

  1. Classic Movie Store October 18, 2007 at 2:41 pm

    You only have to search the net to find the paypal stories, and it is a shame that they failed so badly with their customer service… no need to flame them!

    Anyone who depends on their online income must spread the risk that this paypal service brings. We use 3 different payment processors at my site, in the hope that if one gives trouble you can still accept money…

    Not to mention there is a growing number of people who will not use Paypal out of principle, so it it good to have other processors..

    I believe this poor customer service comes from having the overwhelming monopoly, they really need some competition to sharpen them up..

    This is why I am such a google checkout fan… If they can get as big it will do us all a favour.

  2. best mineral makeup June 4, 2008 at 2:36 pm

    I have personally had several accounts frozen, given paypal everything that they ask for, had zero complaints and they still hold my money for 180+ days. I honestly think that this is part of the business plan, to hold these funds interest free. The merchant accounts are no better either. I think that Congress needs to take a serious look at this problem instead of steroids in baseball.

  3. water damage restoration detroit January 25, 2009 at 1:39 pm

    Paypal has hosed me several times.

  4. donna woodhead February 26, 2009 at 10:19 am

    payapl have limited my account and done all necessary steps they want driving licence or passport now dont have these think unfair been ebay seller 3years paypal shouldnt interfere

  5. Drew January 30, 2010 at 9:04 pm

    I’ve been using paypal as my transactions processor for 3 years or so, and have been pretty active the entire time, since I sell a lot of stuff on multiple sites.

    Anyways, During January 2010, i sold 150 items for under $20 on ebay… not one single issue and apx 130 of the 150 had already left positive feedback. not a single negative feedback, chargeback, or problem whatsoever.

    Everyone’s happy. … Except me.

    I wake up Friday morning (January 29, 2010), planning to transfer the funds to my bank account, since all sales for the month had been completed… Low and behold, my Paypal account is frozen.

    Paypal is asked for inventory descriptions, vendor invoices, and receipts.

    I sent Paypal my vendor invoice (sales agreement), inventory listed of all the details.

    Nope…. After providing what they wanted, now they want more, and stuff there is no way I can provide, like written rights for being a reseller of the products by the manufacturer and even copies of my vendors contracts and sale agreements with their supplier (illegal as sin).

    What? I don’t need rights to resell what i purchased wholesale from a distributor and Paypal sure does NOT have the right to require me to get a copy of my vendors contracts with their supplier.

    Needless to say, it’s now a paypal horror story on the tune of $2,455.63. It took them 1 whole day to say they will hold my money for 180 days….

    Great way to start off 2010…. If you are a merchant and use paypal, this WILL be you soon. AVOID. Paypal is a scam, and is operating a criminal organization.

    Me, most likely my online business is going to be annihilated, unless i can get back up to par fast. The entire amount in my paypal is what pays for my vendor balances. If I can’t get that paid, i am through. No job, no money, etc. I have signed up for moneybookers as a merchant, but am still awaiting a response for a few days now.

  6. Bill April 23, 2011 at 6:40 am

    We are an online income tax company and Paypal froze our new merchant account at the peak of the tax season. Not only did they deny access to our money, but they also prevented customers from paying for our services. We fortunately had a backup credit card service provider, but we were down for a couple of hours while integrating the other system. This cost us some money! We eventually did get our money, but their actions were unforgivable. We never used them again.

  7. Aisling May 7, 2011 at 1:58 am

    I have been using Paypal for six years and they have shafted me non stop over the years without any cause or reason,i have never had negative feedback on Ebay.Recently i was delighted to find out some of the merchant services could be integrated into my small business online and my other service orientated business,i began telling my customers they could now pay me by credit card etc until one day i woke up and without reason paypal said they would be holding all my money received for 30 days from now on.As a small business owner i can not wait that long for cash flow and i then had to turn around to my customers and explain they now could not pay me online and i had to remove over fifty PAY NOW buttons from my website.I am disgusted and so fed up with this company!!Also i had no real response when i called to complain and they haven’t gotten back to me since!!

 

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