PayPal Under Fire for Allegedly Redirecting Charitable Donations

Paying for anything online through PayPal is a breeze. It makes checking out quick and easy and avoids us having to pull out our credit cards from our wallets that seem to always be misplaced—at least mine always is.

In 2013, PayPal created its Charitable Giving Fund as a convenient way to donate to your favorite charities. Seems like a simple enough transaction, right? Unfortunately, Friends for Health and Terry Kass recently slammed PayPal with a class action lawsuit for allegedly redirecting charitable funds to other nonprofit organizations without notifying the donor (or the organization that the donation was originally intended for).

In order for an organization to receive donations, the organization has to set up a business account and a separate account with PayPal Giving Fund; otherwise, the organization will not receive the donation—regardless if they were listed on the PayPal Giving website. According to PayPal, if the organization does not registered for an account within six months, PayPal "may reassign their funds to another charitable organization."

Kass donated a total of $3,250 to 13 organizations, three of which were registered under PayPal’s Giving Fund. Approximately $100 of her donation was donated to the three registered charities, while $3,150 was donated to local-level organizations that were not registered. PayPal failed to notify Kass or the 10 local-level organizations that the donations would not go through unless the organizations created the necessary accounts.

“[Friends for Health and Kass] are just two of thousands of individuals and organzations that have been deprived of their goal of helping charitable organizations, knowing their supporters or much needed fund to which they are entitled," the complaint said. "As such, 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 donors and charities nationwide.”

Kass is requesting that PayPal reimburse her and others in the same situation for the donations that have been withheld from unregistered organizations. She is also requesting appropriate interest, 1 percent additional donation and a declaration that she and others identify charities that they had intended to donate to on their state and federal tax forms.

On behalf of all organizations that have been withheld donations, Friends for Health is requesting “actual and statutory damages against defendants, including the delivery of donations they have unlawfully withheld with interest where appropriate, with the promised 1 percent additional donation.”

In response to this allegation, here is what PayPal said in a statement to Mic:

"PayPal recently became aware of this filing related to our holiday giving campaign, and we are reviewing the contents. To be clear, PayPal Giving Fund has not redirected any of the charitable gifts donated during our holiday campaign. When PayPal Giving Fund receives a donation to benefit a charity that hasn't enrolled, we contact the charity to notify them of the gift and help them enroll. PayPal Giving Fund does not hold any donations in interest bearing accounts, and therefore, earns no interest on any charitable donations. We are disappointed by the lawsuit, and we are fully prepared to defend ourselves vigorously in this matter."

If these allegations against PayPal are true, PayPal will be forking out millions of dollars to compensate all the individuals and organizations who were affected by its error.