Ask HN: Is Braintree as evil as PayPal?

Yep, definitely understand that, which is why I specifically pointed out I don't have an issue with Paypal (or any clearing house/bank) enacting an initial hold, even for an existing and ongoing business when the transaction volume is vastly different then say some rolling monthly average as that is a potential sign of fraudulent behavior.

What I have absolute contempt for is after going through business validation with Paypal (sending incorporation documents, owners details, passport copies proving US citizenship etc), proving the orders are real and even having suppliers provide signed notarized documents proving product is ready to ship, Paypal will still hold the funds. They will also ask for tax documents and many other banking documents that in all fairness they don't really need to make a determination, but they will still hold the funds. Hence, IMO, the policy stops being fraud protection when the business has proven it is legitimately charging clients for services provided or products shipping.

Paypal is a business that has frankly been totally dishonest with their customers as the lawsuit has highlighted. Which is, at least in part, why they are being forced to change their terms of service pointing out they will freeze funds for 180 days if they deem the transaction to be potentially fraudulent. A point on this, IANAL, but from how I read the findings the transaction doesn't have to be fraudulent to be held, just if Paypal "feels"/"deems" it could be, they can hold the funds for 180 days, as long as their TOS say they do this.

It also doesn't take a financial wizard to figure out that Paypal is almost surely profiting from the funds they place on hold. Just think about it, its not $50k they are holding in mass, it can be easily millions of dollars day to day that they have full control over, it is essentially a no interest loan they get to have. And do you not think it is interesting that Paypal was (don't know about now) sending out pre-approved loan emails to the very same businesses they were actively holding funds from? Seems like double dipping and a totally immoral business practice.

In fairness, I think these policies were originally created to protect consumers and implemented in good faith, but they found it to be an easy profit center which has created the problem.

1) I agree, settling a basic lawsuit doesn't mean you are the "loser" necessarily, sometimes it simply is the smarter choice over spending money on attorneys and wasting a lot of valuable time. However, two big differences in this case. 1. A judge reviewed and granted a class action status to this suit which meant s/he felt there was enough evidence that a jury could conclude that Paypal was wrong and that there were significantly enough people "injured" to warrant a class action status. 2. When a company settles to reduce risk, they almost never admit anything or pay damages to the class. They may pay court costs and agree to make non-material changes, but essentially they are just capitalizing the small risk to reduce paying attorney's fees etc. On the contrary here though, when a company agrees to change their TOS in a material way and pay damages to the entire class, it is not a minor thing and it is a signal that they also felt the risk was reasonably substantial.

2) I am glad you have such great success with Paypal. But it isn't the truth for others, so being righteous and saying other people must be doing something wrong or illegal is just really out of touch.

3. False. The truth is simple, when product sells it has to be replaced so it is available for the next order. If demand is rising it has to be replaced in greater quantities to keep up. So yes, product is going out the door, but now there are reorder points to fulfill to maintain inventory and satisfy new orders, shipping bills which must be paid, employee wages, sales tax to governments, employment taxes, rent, insurance etc, all which must be paid well before the 180 days are up. So if money is being needlessly held for long periods, a business can easily be put in jeopardy. Most e-commerce companies don't run on huge margins, so they do not have 12 months reserves saved to work from, which is essentially what it takes if they get a 6 month hold put on their funds. Worse, if they are really growing it will take much more then 12 months of reserves, which was true for a number of the business I was working with. And no, bank loans (or even factoring) to replace/purchase product are not "easy", "fast" or "low cost" for a small business, even with proven sales traction and new orders coming in. Instead these loans are generally treated as moderately high to high risk.

My point about Paypal and their offering loans to the same people whom have had funds held, stands separately and on its own. It is a horrid business practice and while not illegal that I can imagine, it sure does seem immoral. Again, I do not know if they are still doing this today, but you can search google and find examples within the last year of it taking place.

I really do hope you continue to have success with Paypal and your business. I also hope Paypal stops their "held funds" behavior as it relates to small businesses and give people their funds timely. I do not think it is too much to ask, banks and other clearing houses do it everyday and still provide solid fraud protection for everyone involved. As for anyone who asks me, I will continue to steer them to any provider other than Paypal, until I see that Paypal has made a change in reality not just in media speak.

I've seen posts like the ones you described, but I've also seen cases where Paypal did something stupid/unethical.

I also happen to know a lot of people that run Ebay businesses that have had a variety of legitimate issues with Paypal.