PayPal has come to a preliminary settlement with a proposed class of customers who filed a lawsuit accusing the Internet payment processor of failing to communicate "appropriately" why they had frozen a number of customer accounts and transactions.
The agreement doesn't mean PayPal acknowledging any truth to any of the charges, according to several reports, and the deal needs the approval of a federal court in San Jose before becoming finalized.
"In this agreement, PayPal does not acknowledge that any of the allegations in the case are true," the company told customers in an e-mail message. "[We] entered into the settlement agreement to avoid further costs of litigation and to devote resources to more productive areas of our business."
The case, filed in 2002, involved U.S. litigants who held PayPal accounts from October 1999 through January 2003. The deal also involves some account holders receiving payments from a settlement fund of $9.25 million, minus administrative and court costs, according to the reported terms of the agreement.
PayPal had released an approximate $5.1 million in frozen customer funds between June and September of last year, while the suits remained pending, according to a published report. The company said the settlement also calls for changes to some company procedures, but PayPal spokesperson Amanda Pires insisted the company made the changes independent of the court cases.
"PayPal has always been looking for ways to improve customer service," she told reporters. "We have improved our customer service as part of our normal course of business."
It isn't known yet whether some of the litigants put into the settlement class include adult entertainment customers. But adult Internet veteran Cynthia Fanshaw said it was harder to figure out whether PayPal improved its methods of freezing accounts unnecessarily "because every user who has an account limited seems to think it's unnecessary, and reports of unfair persecution by PayPal are difficult to verify."
Fanshaw said most new complaints about frozen PayPal accounts – many of which pop up on anti-PayPal Websites – seem to have either confusing wrinkles or mitigating factors, "such as the user's involvement with adult sites, or the account having a $0 balance at the time."
But she said that, since PayPal deemed adult transactions violations of its terms of service, it can be presumed all accounts in the class action suits would be scrutinized by PayPal's legal team.
"Any accounts that appear to violate the terms of service between the dates the accounts in question were active, will not be settled or receive refunds," Fanshaw said. "However, it will be interesting to find out if adult-related transactions performed before their terms of service had changed will received a refund on their frozen accounts. These issues must be outlined during the settlement process and will directly affect the final sum of the overall legal settlement. It may be cheaper for PayPal to settle them all in one lump than to pay appropriated legal fees to review each account individually."
