PayPal Sued For Redistributing Donations

March 1, 2017       Mark Hrywna      

A class action lawsuit against PayPal and PayPal Giving Fund claims that the digital and mobile payment portal misrepresents its charitable giving platform, requiring charities to create accounts to access donations and ultimately redistributing funds elsewhere in some cases.

The 36-page complaint was filed Tuesday in U.S. District Court for the Northern District of Illinois, Eastern Division. Plaintiffs are Terry Kass and the Friends For Health: Supporting the North Shore Health Center, a nonprofit based in Highland Park, Ill. The full complaint can be accessed here.

The plaintiffs claim that PayPal promises to deliver 100 percent of the donations through the giving platform to a donor’s chosen charities yet those that are not registered with the site are not notified that donations are made, despite prominent profile pages in some cases. Plaintiffs are seeking a full accounting of transactions and restitution of all monies that PayPal “unjustly received” as a result, including donations and accrued interest, as well as statutory damages of $1,500 per violation, punitive damages and attorney’s fees.

San Jose, Calif.-based PayPal represents that it is affiliated with more than 1 million charities yet it does not have any relationship with most charities represented on its giving platform, according to the lawsuit. The suit cites PayPal’s 2015 Securities and Exchange Commission (SEC) filings that only 29,000 charities had registered accounts with the giving fund. While most large, national charities might be registered with the sites, the lawsuit claims that hundreds of thousands of smaller charities — “those that have the hardest time fundraising” — have not.

In a statement, PayPal said it only recently became aware of the filing and is reviewing the contents. “PayPal and PayPal Giving Fund foster positive change and significant social impact by connecting donors and charities. We are fully prepared to defend ourselves in this matter.”

In an updated statement issued Thursday, PayPal added that the Giving Fund has not redirected any charitable gifts donated during the holiday campaign nor does it hold donations in interest-bearing accounts. “We work to ensure as many charities as possible can benefit from our global donation campaigns. When PayPal Giving Fund receives a donation to benefit a charity that hasn’t enrolled, we contact the charity to notify them of the gift and help them enroll.

“We are disappointed by the lawsuit and we are fully prepared to defend ourselves vigorously in this matter.”

The Washington, D.C.-based PayPal Charitable Giving Fund is a registered 501(c)(3) nonprofit that raises money primarily through PayPal, distributing funds to other charitable organizations, according to its Form 990. According to a press release, PayPal exceeded $971 million in charitable giving processing this past holiday season and $7 billion in 2016 as a whole. The Charitable Giving Fund distributed almost $37 million in 2015, according to its most recent Form 990.

“Defendants refuse to deliver any donations to a charity unless it first opens a business account with PayPal and a separate account with PayPal Giving Fund. Even charities with active PayPal accounts are ineligible to receive funds unless and until they create a separate PayPal Giving Fund Account and subsequently claim those funds,” it is alleged in the lawsuit.

The Giving Fund’s donation delivery policy spells out how donations are handled if they cannot be distributed.

If an unregistered charity does not create the requisite accounts within six months, the lawsuit claims that the donations are “confiscated” by PayPal and “redirected to unknown organizations of their choosing.” Even when unregistered charities discover that donations are being withheld and register for accounts, PayPal continues to hold the money, accruing interest.

“The primary reasons that defendants created the giving platform were to force charitable organizations that might not have otherwise created PayPal business accounts to open and utilize such accounts in their daily business, thus generating revenues for PayPal,” the plaintiffs claim in the lawsuit.

Kass represents all people in the United States who donated money to an organization through PayPal’s giving platform while Friends For Health is bringing the suit on behalf of organizations to which a donation was made but is not registered and those that are displayed on the giving platform but not registered.

In November 2016, Kass received an email from PayPal encouraging her to make year-end donations through the Giving Fund, and received another message on Dec. 30, 2016. She searched more than 20 organizations, 13 of which appeared in the results with a corresponding profile page created by PayPal. Each page included the charity’s name, mission statement, Employer Identification Number (EIN), and assurances that 100 percent of funds would be delivered to it.

Upon donating to a legal clinic, Kass received emails from PayPal saying that she had made a donation via PayPal Giving Fund for the specific charity and promised that it would send the donation to her chosen charity, and even directed her to save the receipt for tax purposes.

In total, Kass donated $3,250 to 13 charities, both local and national, but only $100 was delivered to three organizations, the suit claims. Friends For Health was one of 10 charities that Kass tried to donate to and among thousands featured on PayPal’s website that have never registered accounts with its Giving Fund.
At the time of the donations, PayPal and its Giving Fund did not inform Kass or any of the 10 organizations that they were not registered and would not receive the donations.

According to the court documents, Kass only learned by chance that the legal clinic did not receive her donation after speaking to an employee. Despite being registered for a PayPal account, the legal clinic was not notified that Kass’s donation was made. Only after notifying PayPal and repeatedly being told the donation reached her organization, Kass received notification from the company that organizations were not registered and provided the status for each contribution.

Kass notified Friends For Health that she donated $100 via PayPal and that the Giving Fund would withhold the funds until the organization registered. That information was not conveyed to the nonprofit until more than a month after Kass’s donation, according to the lawsuit.

Editor’s note: This story was updated on March 2 at 3 p.m. Eastern to reflect PayPal’s most recent statement.

  • Friends For Health
  • Paypal
  • PayPal Charitable Giving Fund