Cleaning Up PayPal

Shar Rednour has been a PayPal customer for several years. But recently she received a series of confusing e-mails from the company stating that her account with PayPal violates its new acceptable-use policy. She'll have to close out by June 12. This could put a serious dent in Rednour's business. And it's all because PayPal -- a company whose reputation is hardly untarnished -- doesn't want to do business with adult-industry entrepreneurs anymore.

Rednour's company, SIR Video, makes erotic movies for and by lesbians. She and her partner, Jackie Strano, sell a lot of their videos online, and for that they use PayPal, a company that acts as an intermediary between online vendors and customers' banks or credit card companies. A merchant or buyer sets up an account with PayPal, credits money into it, and then pays out to the vendors of his or her choice. Unfortunately, a lot of customers experience problems when it comes to the "pay out" part. But Rednour, like numerous other vendors who sell adult-oriented material, turned to the occasionally shady PayPal because few credit card companies will open merchant accounts for people in the porn business.

There's a good reason for credit card companies to be wary. Certain adult Web sites have wound up being more trouble than they're worth to their credit card companies because customers frequently demand charge-backs. The typical scenario goes like this: hubby buys a month of xxxcumpix at; wifey finds the charge on their Visa statement and freaks; hubby pretends it was a mistake and demands a charge-back from Visa right away. After several thousand iterations of this process, Visa shies away from taking on adult customers. And the nice Webmaster of LickMySoggyHole opens an account with PayPal, which was until recently one of the only alternatives for entrepreneurs who deal in adult materials.

PayPal is hardly an appetizing alternative. While it's a popular service with millions of members, it has suffered from numerous legal problems. A huge class-action suit has been filed against the company in Santa Clara County over its refusal to deal with a massive backlog of more than 100,000 customer complaints. Last year a U.S. District Court judge in San Jose ruled that it was illegal for PayPal to force customers with complaints to travel to Santa Clara for private, binding arbitration rather than allowing them to sue in court. PayPalSucks, a heavily trafficked site, is packed with customer comments about how the company owes them money. According to the site, PayPal's lousy security allowed cyberthieves to rob an account belonging to AbiWord, a small group that makes an open source software word processor. PayPal has refused to restore the money to AbiWord.

So it's fairly ironic that PayPal has decided to wash its dirty hands of the adult industry. Is going porn free really going to help its sullied public image? According to Kevin Purselove, a representative for PayPal's new parent company, eBay, the decision was purely a business one. "There are financial risks and costs associated with staying in mature audiences," he says -- that being the term eBay uses to describe the adult industry. "There are charge-backs and other concerns." But SIR Video has never had a problem with charge-backs, nor do most adult companies that sell shippable items rather than, say, monthly memberships. It's hard to demand a charge-back on an item you've received. Purselove admits this is true but says "we decided to implement a policy on the entire [mature audiences] category." Why not simply target adult vendors with lots of charge-backs? Says Purselove, "We realized it would be hard and complex for people, so we decided on one unified policy."

Purselove thinks the mature audiences category at PayPal makes up no more than 1 percent of its business, and he adds that the company is expanding in a lot of new directions. But I think this is a desperate P.R. move to make the remaining nondisgruntled PayPal customers -- and as I said earlier, there are millions of 'em -- think PayPal is cleaning up its act.

But PayPal is still as dirty as ever. Not only is it damaging legitimate small businesses like Rednour's, but its customer complaint process is as murky and disturbing as ever. Last month PayPal shut down the account for International Terrorist, an antiwar Web site where you can buy T-shirts emblazoned with the words "International Terrorist" over President George W. Bush's face. According to the e-mail PayPal sent to K, owner of the offending site, the account was terminated because "you may not sell an item containing the image, likeness, name or signature of another person unless the product was made or authorized by that person." K pointed out to PayPal that several sites selling T-shirts with Saddam Hussein's face on them use PayPal too. Purselove says that the account was initially suspended because of the name of the Web site but that it was recently reactivated. Hmm. What I want to know is, why can't PayPal get its story straight?

Annalee Newitz ( is a surly media nerd who used PayPal once, to buy something dirty. Her column also appears in Metro, Silicon Valley's weekly newspaper.

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