When consumers use a popular PayPal service to donate money to small charities, the company often hands the money to different organizations without telling the donors. The result is charities are deprived of millions of dollars in donations, while donors are not acknowledged for their support.
These claims are set out in a class action lawsuit, filed Tuesday in Chicago, accusing PayPal and its charity operation, the PayPal Giving Fund, of systemic deception when it comes to donor dollars. The lawsuit does not say PayPal is pocketing the money, but instead that it is diverting it to other charities without telling the donors.
Terry Kass, the lead plaintiff in the case, claims she used PayPal’s platform to give $3,250 to thirteen charities, including ten local ones. The platform is billed as an efficient form of philanthropy that lets consumers find and make donations to trustworthy organizations. In many cases, PayPal offers to add an extra 1% to the consumers’ donations.
Kass, however, claims PayPal failed to distribute the money to her ten local charities, and instead withheld $3,150 of the money. According to Edelson PC, which filed the lawsuit, the money will be given to other organizations if it is not claimed after six months. Meanwhile, PayPal emailed tax receipts to Kass that said the money had gone to the intended recipients.
In response to the allegations, which have not been proven, a PayPal spokesperson said the company is prepared to defend itself in the case.
“PayPal only recently became aware of this filing and we are reviewing the contents. PayPal and PayPal Giving Fund foster positive change and significant social impact by connecting donors and charities,” the spokesperson added.
According to the lawsuit, PayPal’s practice of swapping out recipients affects hundreds of thousands of local charities, many of which appear on PayPal’s website without their knowledge:
While many national and international charities have established PayPal Giving Fund accounts, hundreds of thousands of smaller charities (those that have the hardest time fundraising) have not. Yet, PayPal Giving Fund nonetheless lists those same charities as potential donation recipients without their knowledge or consent. To make matters even worse, as a general practice, neither PayPal nor PayPal Giving Fund notify the unregistered charities that a donation has been made to them or that they need to create an account in order to receive the money.
In her complaint, Kass says small charities do not receive their donations if they fail to set up a special PayPal “Giving Fund” account, and that the company doesn’t inform they must do so.
One such charity, called Friends for Health, is also part of the lawsuit. The organization claims that PayPal’s practices not only deprive it of donations the organization would have received, but also hurts its ability to build relationships with donors.
“By failing to provide this information, as requested by the donors, Defendants rob the charities of the ability to cultivate their donors …Likewise, in many instances, the failure to thank a donor or include them on their donor lists, though not the fault of intended recipient charity itself, can be perceived negatively by donors and dissuade them from making future contributions,” the complaint says.
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The Chicago-based Friends for Health charity is seeking to represent what it says are thousands of other U.S. organizations in the same position.
The complaint also states that, if a local charity does not have a “Giving Fund” account, PayPal puts their donations into an interest-bearing account for six months. According to Chris Dore of Edelson PC, it’s unclear what PayPal does with the interest from the accounts.
If the allegations are true, PayPal may be forced to account for millions of dollars of misdirected donations. Dore says he hopes PayPal will itself compensate the local charities for the missing donations, rather than clawing back the money from other organizations in order to redistribute it.
The lawsuit says PayPal’s actions amount to unjust enrichment, conversion, and a violation of consumer protection laws. It also accuses the company of misusing the brands and trademarks of the local charities.
This story was amended at 11:55pm ET to state Kass’s donations to local charities has only been withheld. An earlier version said it had already been distributed to other organizations. The story was updated to include PayPal’s response.