Last I heard, Paypal is not considered a "bank" and is not regulated like one.
-JavaJones
It seems to depend on the region where they are based.
PayPal in the UK briefly set up offices in the UK and the government imposed full Financial Services restrictions on them (ie. all the restrictions that banks and insuracne companies are subject to). Unsurprisingly shortly after that PayPal decamped to Luxembourg for its European operations.
Luxembourg is in the EU but as I understand it has far fewer restrictions on financial service providers.
What we really need is a campaign for financial regulation enshrined in law for companies that hold money for customers.
Someone above suggested using Google Checkout - but in what way is that any better than PayPal - presumably they are also subject to their own policies without outside regulation.
I will continue to use PayPal for small sums of money and I always withdraw all funds as soon as they are deposited and don't keep a balance in my PayPal account. If I have problems I will simply stop using PayPal as a potential way to receive payment. Actually I am considering using my Banks payment service which allows me to process credit cards directly - it is slightly more expensive but at least it is regulated in the UK and there are independent regulators who will allow appeals if you encounter problems.
Some interesting info on WikiPedia:
Bank status
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.[31] PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.[32] On May 15, 2007, PayPal announced that it would move its European operations from the UK to Luxembourg, commencing July 2, 2007 as PayPal (Europe) S.à r.l. & Cie, S.C.A.[33] This would be as a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA.[34] PayPal Luxembourg will then provide the PayPal service throughout the European Union (EU).
and
Regulation
In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sarl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, the Commission de Surveillance du Secteur Financier (CSSF)[42] (note that all of the company's European accounts were transferred to the PayPal's bank in Luxembourg on July 2, 2007.[43]) Prior to this move, PayPal had been registered in the UK as Paypal (Europe) Ltd, an entity which was licensed as an Electronic Money Issuer with the UK's Financial Services Authority (FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg,[44][45] however the Luxembourg entity is still regulated by the FSA, as it is an entity from the European Economic Area which conducts regulated activities in the UK.[46]
see
http://en.wikipedia.org/wiki/PayPal
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