Photographer: Andrew Harrer/Bloomberg

PayPal Charity Site Accused of Rerouting Funds Minus Consent

Updated on
  • Illinois woman claims she learned of flaw after 13 donations
  • Unregistered groups allegedly deprived of ‘much needed’ money

The PayPal Charitable Giving Fund was accused in a lawsuit of failing to tell donors that their gifts may not reach their intended charities if the organizations aren’t registered with the online payment platform.

An Illinois resident alleged that she used PayPal Holdings Inc.’s charity site to make $3,250 in year-end donations last year to 13 different charities, only to learn that 10 of the groups wouldn’t receive the funds because they weren’t registered.

The company doesn’t tell donors that unregistered charities won’t receive their donations, and it also doesn’t inform those groups that contributions have been made to them, according to the complaint. PayPal issues erroneous tax receipts for contributions when the money isn’t disbursed to the donor’s chosen organization, according to the complaint.

Thousands of organizations don’t even know that PayPal has listed them as eligible charities and that they can’t claim gifts unless they register, according to the complaint. If the groups don’t open PayPal accounts within six months, their donations are confiscated and redirected to organizations of the company’s choosing, Jay Edelson, an attorney who specializes in consumer-privacy litigation, wrote in the complaint filed Tuesday in Chicago federal court.

‘Chosen Charity’

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

PayPal, based in San Jose, California, couldn’t immediately be reached for comment on the lawsuit.

Terry Kass, who brought the case as a national class action on behalf of other donors, said she only discovered the flaw in PayPal’s system when she contacted a legal-aid clinic she had pledged money to and learned that her donation hadn’t been received.

Kass “contacted PayPal on multiple occasions, and was repeatedly told that all of her donations had reached their destination,” according to the complaint. “Only after insisting that this was, in fact, false, did a PayPal employee inform her in writing that the organizations were not registered and provided a list reflecting the status for each donation.”

PayPal added the platform to process and disburse its users’ charitable donations.

Donations through the platform will be delivered to selected charities only if they have already set up a business account with PayPal and a separate account with PayPal Charitable Giving Fund, according to Edelson, the plaintiff’s attorney. Without both types of accounts the donation won’t be received -- even if the groups are listed on the PayPal Giving website, according to the suit.

The case is Friends for Health v. PayPal Inc., 17-cv-01542, U.S. District Court, Northern District of Illinois (Chicago).

— With assistance by Spencer Soper

(Updates with plaintiff’s allegations in eighth paragraph.)
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