Consumer complaint received 2022-06-09
Company: Paypal Holdings, Inc
State: CT
Product: Money transfer, virtual currency, or money service
Sub-product: Mobile or digital wallet
Issue: Unauthorized transactions or other transaction problem

Complaint:
tl ; dr : Instead of cancelling payments when a card is declined, Paypal is then defaulting to your bank account, even if it was not clear in the payment steps that would happen.

I'm not sure how to categorize this or whether this is a true complaint that would incur CFPB action, but here goes. I have been using Paypal for years with BANK ACCOUNT # XXXX for internet purchases. I recently received a debit card for BANK ACCOUNT # 2, which was not previously associated with my Paypal account. I started using Paypal 's Billpay service in late XX/XX/XXXX with this new debit card, after adding it to my Paypal account. I did a few test transactions and confirmed that Paypal was pulling from the debit card for payments. 

On XX/XX/XXXX, I initiated a {$3200.00} payment to my mortgage lender with my debit card via Paypal 's billpay service. Within the payment steps, I clearly selected the debit card and submitted. Since this was a new card, I didn't know the card had a daily spending limit, so the payment was declined - and here is the issue. Rather than the payment being cancelled due to the selected payment method being declined, Paypal proceeded to select BANK ACCOUNT # 1 as a payment method. Since I wasn't planning to use BANK ACCOUNT # 1 for this payment, I didn't have the funds in that account.

I spoke with Paypal and let them know that as a consumer, when you pay with a debit or credit in a retail store, if you're over the daily spending or total limit, your card gets declined and you are given the option to select another payment method or cancel the transaction altogether. This is not the case with Paypal. I was told that Paypal fronts the money to the bill payee regardless of whether your chosen payment method is accepted or not, and they then proceed to cycle through all of the bank accounts and debit cards associated with your account in order to debit the funds your used for billpay.

So my questions are, why are they sending the money to the payee BEFORE doing a POS-type balance check when you select a debit card as your bill payment method? Why are they proceeding with a bill payment when your selected debit payment method is declined? It is not clear to the consumer that this is happening, as they are selecting a single payment method. I can understand when doing a payment from a bank/ACH, as there is a delay in balance info there, but it should be clear from the outset that a debit card payment will be declined and then the transaction ends there. And They also offer zero help in trying to clawback funds from the payee ( I ended up paying my mortgage lender separately, not realizing the payee was actually paid despite my bank not having a sufficient balance, resulting in the payee being paid twice ) or cancelling repeated attempts at debiting funds from a bank account that has insufficient funds, resulting in multiple fees from the bank.

Company response to consumer: Closed with explanation