PayPal Accused Of Covertly Redirecting Charitable Donations

Money earmarked for specific charities through PayPal's Giving Fund is often redirected to other causes when the charity it was meant for doesn't have a PayPal account, the lawsuit says.

PayPal tells donors that they can give to more than a million US nonprofits using their web-based interface. According to the complaint, only 29,000 nonprofits had registered accounts in 2015, which matches what the Fund reported on its 2015 Form 990.

Incentivized by the message, Kass searched the service's listed charities before settling on a mix of 13 local and national organizations to which she donated a total of $3,250. Also, PayPal does not "notify the unregistered charities that a donation has been made to them or that they need to create an account in order to receive the money".

"As such, instead of delivering a combined $3,250 to thirteen different charities, defendants only delivered a combined $100, or 3% of her donation, to those three charities". The remaining $3,150-which Plaintiff Kass donated to ten local-level charities-was withheld from the intended organizations. 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. The PayPal donation page for Friends for Health is included in the complaint. But it seems the donor is never given that opportunity.

The lawsuit filed claims that PayPal's fundraising platform holds on to the money that is intended for recipients or organizations that aren't registered with their platform.

The lawsuit was filed in Chicago's federal district court on Monday and accuses the internet payment company of systematic deception and potentially depriving charities of millions of dollars in donations, while donors are not acknowledged for their support.

"On its face, PayPal Giving Fund is an admirable endeavor; however, in practice, it falls woefully short of that mission on numerous fronts", says the lawsuit, which was filed in IL on Tuesday. In that case, PayPal is supposed to contact the charity to let it know there are donations waiting for it and that it needs to register with PayPal (including creating a business account) if it wants to receive them. The complaint notes that this PayPal practice harms nonprofits by not allowing them to build a relationship with donors using the PayPal interface.

The lawsuit illustrates the complexity that belies the simplicity of online donation platforms. Charities must have two accounts - a giving fund account, and a business account - in order to receive donations.

The lawsuit also brings up the thorny issue of how much of a donor's gift actually gets to the intended charity.

PayPal touts its platform as an efficient way to contribute to charities and offers to add one percent to consumers' donations. Kass was also promised the one percent additional gift by PayPal.

PayPal Charitable Giving Fund is operated for the benefit of the nonprofit sector. At the time of the donations, defendants didn't inform Kass that ten of her organizations were not registered, and therefore would not receive the donated funds. The Charitable Giving Fund distributed nearly $37 million in 2015, according to its most recent Form 990.

San Jose-based Paypal "only recently became aware of this filing and we are reviewing the contents", a spokesman told SiliconBeat in an email Wednesday.

PayPal Giving Fund is a failed vehicle for matching donors and recipients, and instead stands as an obstruction to achieving the important goals of thousands of donors and charities worldwide. "We are fully prepared to defend ourselves in this matter".

  • Tracy Ferguson