PayPal Users Seek Final Approval of $4M Class Action Settlement

PayPal Inc. users are urging a California federal judge to give final approval to a nearly $4 million settlement over claims the company placed inappropriate holds or reserves on sellers’ funds.

The current settlement, granted preliminary approval last year, goes a bit further than earlier attempts.

It creates a $3.2 million settlement fund, with at least $1.84 million of that going to Class Members who lost interest on money in frozen accounts. Another $800,000 would be available for other complaints, bringing PayPal’s total payout to $4 million.

In their motion for final approval, the plaintiffs told the court that only 12 objections were submitted out of over 392,000 claims filed as of Nov. 4.

“The settlement has had minuscule opposition of less than one-tenth of 1 percent of class members, there have been hundreds of thousands of claims filed, and the settlement benefit of repayment of lost interest resulting from holds and reserves is nearly a complete recovery of the type of damages that could be pursued on a classwide basis,” the motion for final approval states.

The putative class action lawsuit was originally filed in 2010 by lead plaintiff Moises Zepeda, who alleged that PayPal and its partner at the time, eBay, “improperly handled disputed transactions relating to user accounts by unilaterally placing holds and reserves thereon.” PayPal still earned interest on the money in those accounts while the sellers were locked out.

That action, plaintiffs argued, violated the California Consumer Legal Remedies Act and California’s Unfair Competition Law. The organizations were also accused of failing to provide annual error-resolution notices and monthly account statements, as per the terms of the Electronic Fund Transfer Act.

After a five years of litigation, PayPal agreed to settle the case in February 2014 for $1.4 million. However, Judge Saundra Brown Armstrong refused to sign off on the first deal, which provided no monetary relief to Class Members. Only the Class Representatives and their counsel would have been compensated.

The parties returned to mediation and added a $3.2 million settlement fund, of which at least $1.84 million would be available to pay Class Members who had holds or reserves placed on their accounts and lost interest income.

The revised settlement also created an $800,000 fund for alternate claims from which Class Members could pursue individual claims for business damages.

But while she found the monetary relief sufficient, Judge Armstrong rejected the second settlement in March 2015, questioning whether it was appropriate to settle claims based on alleged violations of a previous case settlement (Comb v. PayPal) since the judgment in that action specified that any disputes concerning the agreement must be litigated in that action.

Judge Armstrong also noted that the proposed settlement still included individuals who had been accountholders since 2006, though the practices at issue began two years later.

In response, the parties omitted any claims based on the alleged breach of the Comb settlement and provided new allegations to justify beginning the Class period in 2006.

If granted final approval, active PayPal account holders “between April 19, 2006 and November 5, 2015 who had a reserve or hold placed on their accounts during that time, or who had their accounts terminated or suspended, may be eligible” for reimbursements ranging from $3 to $440.

“The payments for basic claims are equal to two-thirds of the average amount of interest at market rates on all funds subject to a hold or reserve, subject to a $3 floor and rounded to the nearest $1 or $10,” the motion stated. “Thus, the significant monetary relief provided by the settlement is based on a rational assessment of the damages available to the claims class members in this action.”

Additionally, PayPal must modify the disclosure of its reserve and hold practices, and clarify its dispute resolution process.

A final approval hearing is set for Dec. 14.

The plaintiffs are represented by Jeffrey A. Leon of Quantum Legal LLC, Mark N. Todzo of Lexington Law Group, Steven R. Jaffe of Farmer Jaffe Weissing Edwards Fistos & Leherman PL and Jonathan Shub of Kohn Swift & Graf PC.

The PayPal Account Hold Class Action Lawsuit is Moises Zepeda v. PayPal Inc., Case No. 4:10-cv-02500, in the U.S. District Court for the Northern District of California.

UPDATE:  On Oct. 26, 2017, Top Class Actions viewers who filed a claim for the PayPal Account Hold class action settlement started receiving checks worth as much as $23.15. Congratulations to everyone who got PAID!