PayPal Accused of Diverting Charity Donations

CHICAGO (CN) – A class claims PayPal misled tens of thousands of customers about their charitable donations made on its giving platform and redirected money meant for unregistered charities to groups of its own choosing.

Lead plaintiffs Friends for Health: Supporting the North Shore Health Center and Terry Kass sued PayPal Inc. and PayPal Charitable Giving Fund in Chicago federal court Tuesday, claiming the online payments giant diverted money away from charities that did not have accounts with the company.

In 2013, PayPal added a new platform to its website, making it easier for customers to donate money to their favorite charities around the world, according to the class-action complaint.

When the new platform was created, PayPal also created PayPal Giving Fund to process and disburse charitable donations made through its platform.

Friends for Health and Kass say PayPal Giving Fund is an admirable endeavor, but in practice falls short of its mission on numerous fronts.

According to the complaint, PayPal Giving Fund lists charities on its website that are not registered to receive donations and donors are not told that their donation will not be received.

“The money donated by PayPal’s customers through the giving platform will only be delivered to their chosen charities if, and only if, those charities have already set up a business account with PayPal and a separate account with PayPal Giving Fund,” according to the lawsuit. “If they don’t have both of these accounts, or don’t set both of them up, they will never receive the donation, despite being listed on the PayPal Giving website.” (Emphasis in original.)

Instead of notifying the unregistered charities that donations have been made to them, PayPal allegedly redirects unclaimed donations from unregistered charities to organizations of its own choosing.

“Tens of thousands of generous individuals after placing their trust in PayPal, have made donations, that, unbeknownst to them, have never reached their chosen charity,” the 36-page complaint states. “Likewise, thousands of charities have been deprived of much needed funds they never knew were even intended for them.”

While numerous national and international charities have set up PayPal Giving Fund accounts, Friends for Health and Kass say hundreds of thousands of smaller charities have not.

“Yet, PayPal Giving Fund nonetheless lists those same charities as potential donation recipients without their knowledge or consent,” the lawsuit states.

Kass says she donated $3,250 to 13 different national and local charities that had profile pages on PayPal’s giving platform, but only three of them were actually registered with PayPal.

“As such, instead of delivering a combined $3,250 to thirteen different charities, defendants only delivered a combined $100, or 3% of her donation, to those three charities,” the complaint states. “The remaining $3,150 – which Kass donated to ten local-level charities – was withheld from the intended organizations.” (Emphasis in original.)

According to the complaint, PayPal states on its Giving Fund website that customers can choose from over a million charities. The company also allegedly promises its customer, in no uncertain terms, that 100 percent of their donations will go to whichever charity they choose.

PayPal said in a statement that it is reviewing the complaint.

“To be clear, PayPal Giving Fund has not redirected any of the charitable gifts donated during our holiday campaign. PayPal and PayPal Giving Fund have a long history of fostering significant social impact by connecting donors and charities,” the company said. “We work to ensure as many charities as possible can benefit from our global donation campaigns. 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.”

Friends for Health and Kass – on behalf of a proposed class of donors and charities – seek actual, treble and statutory damages for alleged violations of the Lanham Act and District of Columbia Consumer Protection Procedures Act.

They also seek a complete accounting of all transactions involving any funds that were donated to PayPal with the intent that they be received by the charities class.

They are represented by Benjamin Richman with Edelson PC in Chicago.

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