Market Pioneer PayPal Must Deal With Disgruntled Users

Computerworld - First came the notices to customers that their primary e-mail account addresses had been changed. Then the money was drained from their PayPal accounts. When that was gone, their credit cards were maxed out. Then the thief hit their debit cards.

When Carl Koresdoski, Michelle D'Souza and at least four others alerted PayPal Inc. and stopped payments on Jan. 26, PayPal's fraud-prevention system sprang into action. It froze their accounts and the funds within them (the charges had been successfully reversed off their credit cards) and told the victims to fax copies of their driver's licenses, bank statements and other proof-of-identity documents. They did so multiple times, but so far only half have resolved their problems.

"It's now mid-March, and PayPal's just reimbursed my full $700," said D'Souza, who uses PayPal to buy and sell Beanie Babies. "I wrote them, e-mailed them and tried to find every number I could to reach them."

At issue is Palo Alto, Calif.-based PayPal's homegrown antifraud system -- something it needs if it's to be successful.

But judging from the thousands of postings on at least five PayPal complaint Web sites, too many innocent users are getting caught in the middle of an overly aggressive antifraud system and an ineffective customer service setup.

PayPal's nonpaying customers, who generate the bulk of online complaints, are encouraged to seek help through PayPal's Web site and self-help links. Users who hold free accounts say the toll phone support number that the company offers them is hard to find and subjects them to long waits, which is the reason for a lawsuit filed March 13 in San Francisco claiming that PayPal violates the Electronic Funds Transfer Act's customer service requirements.

A PayPal executive acknowledged that the toll line may require "a wait time" on the part of callers. But he said that any customer can make use of the number, which is posted on the company's Web site.

Customers have complained of PayPal locking them out of their accounts and of their inability to reach anyone to resolve the problems or to provide an explanation about what's going on. And some users said that even when they repeatedly faxed documentation, they still couldn't get their accounts unlocked to withdraw their funds.

Founded in 1999, PayPal took on a market in which others feared to tread and made it simple for small-time traders to process their transactions via e-mail. In return, PayPal scoops a fee of 1.5% to 3% for each transaction, far below the 7% that credit card