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Ever donated to charity via PayPal? Then you might want to read this

Why it matters to you

If you've ever donated to a charity via PayPal, you'd surely want to know if the money actually got there or not.

Kindhearted folks who have made charitable donations via PayPal’s Giving Fund platform may have had their funds diverted, according to a lawsuit filed in a Chicago court this week.

The federal class-action suit was brought by Chicago resident Terry Kass. She first used the online service last year after receiving an email from PayPal that promised to add an additional 1 percent to any donations, the Guardian reported.

Incentivized by the message, Kass searched the service’s listed charities before settling on a mix of 13 local and national organizations to which she donated a total of $3,250. However, when she happened to contact one of them a while later, she was told her financial gift hadn’t showed up. After looking into the matter, Kass discovered that although the charities had been listed on the PayPal Giving Fund site, 10 out of the 13 were not registered with PayPal and therefore were unable to receive the money.

The suit claims that PayPal failed to inform Kass that many of her donations never reached their intended destination, and that PayPal had allegedly declined to tell those organizations that they should register to receive the funds. However, on its website, PayPal states that it contacts an unregistered charity “at regular intervals for a period of at least six months in order to enroll them” in the case where a donation has been offered. If it receives no response, PayPal says it “may reassign their funds to another charitable organization.” This is despite the service’s promise that “100 percent of your donation goes to the charity you choose.”

It certainly seems that many organizations could be missing out on potentially vital funds. After all, PayPal Giving Fund encourages people to “choose from over a million charities,” but the suit points out that, according to PayPal’s own data published in 2015, only 29,000 charities had at that time registered with the service.

In cases where the organization fails to register, it may be that givers would rather have their funds returned so they can make the donation in person rather than have their money sent to a charity they didn’t choose. But it seems the donor is never given that opportunity.

Representing Kass, attorney Chris Dore told the Guardian, “There are thousands of people out there who believe that their money has gone where it’s supposed to go. Most people will never find out that their money never got where it was supposed to go and the organizations are none the wiser, either.”

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The lawsuit alleges that “as a general practice,” unregistered charities don’t receive any contact from PayPal Giving Fund about donations being held for them, despite PayPal’s statement on its website that it tries repeatedly to get in touch.

The suit presents the idea that, in instances where it does make contact, PayPal’s plan is to “force charitable organizations that might not have otherwise created PayPal business accounts to open and utilize such accounts in their daily business, thus generating revenues for PayPal” via the fees that the company imposes on transactions.

In a statement, PayPal said it “only recently became aware of this filing” and that it was “reviewing the contents.” It added: “PayPal and PayPal Giving Fund foster positive change and significant social impact by connecting donors and charities. We are fully prepared to defend ourselves in this matter.”

[Updated on March 2 with a more expansive statement from PayPal:]

“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. PayPal and PayPal Giving Fund have a long history of fostering significant social impact by connecting donors and charities. 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.”