A Chicago, Ill. federal court lawsuit filed on Monday accused PayPal Inc. and several of its officers of unilaterally seizing funds from clients’ accounts without cause and without due process in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The complaint also states several claims under the Racketeering Influenced and Corrupt Organizations (RICO) Act arguing that PayPal illegally operates as an unregistered bank.
The plaintiff, proceeding pro se, contends that PayPal has a widespread practice of freezing then seizing client account funds when it suspects a violation of its acceptable use policy. The Illinois man claims he was a victim of PayPal’s practice and that the company transferred the plaintiff’s balance to its own account and forced him to engage in a protracted process to free the funds.
The complaint says that PayPal’s terms of service contain a liquidated damages clause that amounts to an illegal contract of adhesion and claims that transferring funds to its own account constitutes conversion. Further, it asserts that PayPal then invests the money and earns interest on it while depriving people like the plaintiff of much needed liquidity.
The plaintiff is not the first PayPal customer to complain over fund seizure. Several users filed a class action in January, and another suit, filed by a college tutor was shunted to arbitration around the same time.
As for the plaintiff’s RICO claim, he asserts that PayPal operates as an unlicensed and therefore illegitimate bank by accepting and transmitting funds. Its “pattern of racketeering activity” reportedly consists of unlicensed money transmitting and money laundering for unlawful purposes, including intentionally depriving the plaintiff his account funds.
The suit states two claims for relief under RICO against defendant Daniel H. Schulman, the president and CEO of PayPal and PayPal Holdings. It states a third claim for violation of teh state’s consumer protection act and seeks damages and injunctive relief putting an end to the company’s allegedly illegal conduct.
