In Q3-2005 we discovered the power of online sales and started to market Wapsol's products extensively online. Just as importantly we decided to get into the trading business for WLAN accessories (antennae, cable, connectors etc) which entails buying from manufacturers and selling on online-retail. Needless to say ebay's 26 worldwide markets were lucrative points of sales.
We used Paypal for collecting most of payments from customers outside Germany. The numbers ticked up fast and we were hecticly building up infrastructure for shipping, online-support, product-portfolio and payment-systems.
One morning as I woke up in Germany I found that Paypal decided to lock up our account without any specific reason. There were no disputes or complaints from buyers or anything that suggested provocation. They just locked it. In it a few thousands of dollars of cash-flow and the account was listed as a favored payment option for some 100 pending auctions - now customers couldn't pay for purchases and we couldn't ship without payments. The business ground to a halt!
We of course rushed to contact the telephone-operators at Paypal (their official titles are something like Support-staff or Level-one Support, but they are useless otherwise except for answering the phone and collecting information). Overnight apparently Paypal decided to inform us that they need our supplier information as to where we purchased our product. As also they demanded names and phone numbers of our suppliers. Quoting..
1. Fax copies of the original bills of sale or invoices referencing your purchase or acquisition of the items you are selling along with the name and telephone number of your supplier(s).This is illegal in Germany (and I presume in other countries as well), where Data Protection laws protect customer and supplier information.
So not only did Paypal decide out of the blue to cut-off our payment-system, they were now demanding us to break the law in the country we are based in.
We replied to the (effectively useless, at least in our case) support staff that we are not prepared to break German laws, and would like to consider our options for possibly not using Paypal. It would be sufficient if we could free up the funds and takes steps to errect other payment-systems ex. CC clearing. To this we got the reply that Paypal will not allow us to close our account. If we wished we could apply for closure and the funds would be released after 180 days.
The amount in question was large enough that we decided to comply - that is, break the law in this country and face the consequences. Fortunately we have a couple of suppliers who wouldn't mind letting the information be given out, and hence in a effort to free up cash-flow and continue business we complied.
I am still waiting for response, and am mentally preparing to take another ridiculous surprise.
This is a protest post.
I recommend customers around the world not to signup with Paypal unless it is registered as a business entity in your country. In our case we had to deal with Paypal Europe Ltd, which in incorporated in UK. Laws in UK and Germany are obviously different. So if they aren't registered to do business in your country, you can forget about having any rights over your money - notwithstanding the fact that even if you could sue, your ability to bear legal expenses is likely not more than Paypal's.
Bear in mind that just the fact that Paypal can associate your account to a bank in your country, doesn't mean their practices comply laws in your country.
For our part, we are going to discourage our customers from using this ridiculous operation for payments. I'm not a lawyer, but I think there is significant evidence that Paypal's business model and business practices are illegal in most countries, including most of Europe.
For other people's woes, read: