PayPal freezes out other groups, who turn to WePay (UPDATED)

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PayPal has lost customers and credibility after freezing the accounts of Burning Man's Temple Flux – a story we broke this week that triggered an overwhelming response that caused the company to back down – with many of them flocking to the more community-based alternative WePay.com. But the publicity has also unearthed even more stories of nonprofit groups getting their assets frozen by PayPal.

Groups ranging from the National Association of Injured Workers to Burning Man camps Comfort and Joy and Black Rock Diner tell the Guardian they've recently had their assets frozen without warning by PayPal, a multinational company owned by eBay that reported $2.2 billion in revenue last year and makes its profits mostly from interest and other returns from the money it holds for others.

“There was never a time they said this was going to affect our ability to access our funds,” Temple of Flux treasurer Colinne Hemrich said of the group's fairly impersonal dealings with PayPal, which froze the group's funds just as it was leaving for the playa to build the project. Under public pressure, the company freed the funds, letting Temple members know “they were doing us a big favor,” project manager Catie Magee told us, yet the delay soured these burners and others on PayPal.

But smaller groups haven't been so lucky. “It's not on the same scale as the Temple, but proportionately and to us, it's still a really big deal,” Michael Williams said of his Black Rock Diner camp, which is in final preparations for heading to Burning Man and said PayPal recently froze their account, also because they weren't able to prove their nonprofit status.

“It's just people in our camp who have been using PayPal to send us dues, so this is very frustrating,” he said. “I'm never going to use PayPal ever again.”

Sam Gold, founder of the National Association of Injured Workers, a nonprofit that helps workers navigate the complex system for filing nonprofit claims, has been fighting PayPal for months since it froze the group's account, in the meantime learning more about their business practices and preparing to file a lawsuit.

“There are all sorts of people they're doing this to, thousands and thousands of people...And it's all about collecting interest of their money,” Gold said, citing stories on websites such as PayPalSucks.com about how the company falls through the cracks of serious regulation by any government agency and routinely settles legal claims before they grow into larger problems for the company.

“PayPal is taking small charitable nonprofits and making them jump through all kinds of hoops and face long delays to get their money. They can get away with it because nobody knows who's supposed to be regulating these guys,” Gold said. “I want to see their dirty wash on the public clothesline because only then will [Attorney General] Jerry Brown and the district attorneys take note of this scam.”

PayPal spokesperson Anuj Nayar, who spoke to the Guardian earlier this week as the company decided to release the Temple funds, couldn't be reached for comment on the latest allegations and told us he couldn't go into detail on why they freeze accounts, saying only “we are under certain regulations.”

But he did note that the company has 87 million accounts and moves about $2,600 per second. “When there are issues that come up, we do our best to address them as quickly as possible,” he said. That volume of transactions and the difficulty in getting any kind of personal attention from the company (which does not list telephone numbers on its website) is part of the criticism from small groups, and why Rich Aberman (who we reached quickly and easily) says he started WePay (ironically, with funding from PayPal founder Max Lezchin, who Aberman said was concerned that PayPal became too big and impersonal after it was acquired by eBay in 2002).

“At this point, PayPal's main business is setting up purchase accounts for online businesses. So they treat all their customers as if they're businesses,” Aberman said. “Our ideal customer is a normal person who is collecting money for some project.”

While Aberman said he understand PayPal trying to protect its interests by making sure its nonprofit clients have filed all the necessary paperwork, the scale of the company makes it difficult to work with groups doing good things and taking in money from people who clearly want to support those groups.

“Since our customers are different, we handle them differently,” Aberman said, noting how they simply ask for the Social Security number of a project principal in case any tax issues arise later, rather than freezing a group's assets. “At the end of the day, we're just trying to get people set up as quickly as possible so they can do their thing.”

UPDATE: PayPal spokesperson Anuj Nayar just responded to my latest inquiry and said, "There are a number of reasons why we may put a hold on an account, particularly concerning 501c3 [nonprofits]." Yet when I asked for specific regulations and agencies that would require all a customer's assets to be frozen -- rather than holding a smaller deposit or simply reporting the information -- he said that he would need to check on that and get back to me. As to whether the company's practices slip through the regulatory cracks, he said the company operates in 36 states and 190 markets and faces regulations in each one.