Reports are coming in from a number of sources that PayPal have begun a review of accounts with UK social enterprises, voluntary organisations, and charities. However, they have taken a very narrow definition which seems to include only organisations registered with the Charities Commission; organisations which fall outside their definition appear likely to have their account frozen without notice. Since there is no mention of the Scottish counterpart, charities North of the border may need to watch out too!

Once frozen, PayPal then embark on a bewilderingly  bureaucratic and autocratic process which seems to require copies of documents which may not exist for many UK social enterprises and voluntary organisations

In December 2007 they froze the account for a well-respected Kenyan AIDS organisation, demanding information which simply didn’t exist and had no need to exist. At this this time they froze a $1,000 donation which was to pay for schooling for an AIDS orphan in the Nairobi slums. After several months of dealing with them, PayPal eventually promised to return the money to the donor - as of May 2008 they had not done so and money remains frozen in the account while Paypal continue to issue contradictory rulings which ensure they continue to earn interest on money which is meant to be working for charities and social enterprises. This is now being passed to the UK's Financial Ombudsman for resolution.

Another organization, a well established UK social enterprise, are having similar problems. In this case PayPal are demanding documents which won't typically exist for a UK social enterprise before they will consider releasing their account - one they have had for more then three years with no problems.

PayPal themselves have so far been unwilling to accept that their definitions for "social enterprises, voluntary organizations, and charities" are too narrow and don't reflect the realities of the UK third sector.

And this is not a UK-specific issue. Donors to the American Red Cross appeal for Hurricane Katrina hit similar problems, and Australian news programme "Today" on Channel 7 ran a feature on Ebay (Paypal's owners) and Paypal.

Until PayPal become more supportive of third sector organizations, the message seems pretty clear: Deal with PayPal at your risk - they may freeze your account at any moment and without warning and may embark on a process which serves no-one except their own short-term, short-sighted business plan. Once you have been caught, it may take months to resolve, during which time any funds in the account will be inaccessible.

Paypal's behaviour is deplorable - there is no other way to describe their actions.