We wrote about Diaspora looking to raise funds a bit ago. Sadly, they chose PayPal. Yesterday the project reported that PayPal had frozen its account after raising about $45,000. The good news is that they've got a new system up and running but not before PayPal froze the current donation for 180 days.
As the Diaspora post points out, this is nothing new.
- Read the account of a legitimate eBay seller, Shelly Michaels who had nearly £2,000 frozen for 180 days despite proof of legitimacy.
- PayPal froze about $750,000 from when MineCraft creator Markus Persson was using it for MineCraft.
- PayPal froze donations to Something Awful when it tried to raise funds after Hurricane Katrina.
- PayPal froze payments to Xenonauts just a few weeks ago when it raised about $54,000 for game pre-orders.
- The company also hosed Cryptome in 2010 when operator John Young used it for donations and raised about $5,000.
- Last year PayPal froze donations to open source project TortoiseSVN after it raised funds via SourceForge's (PayPal-powered) donations button. That one's really fun, demonstrating that PayPal's employees don't even understand its Terms of Service.
- A group raising money for WikiLeaks Bradley Manning had its account frozen, though PayPal surprisingly backed down quickly after public outcry. (I'm surprised at this one, given that PayPal actually had some defense that the organization hadn't exactly complied with PayPal policy.)
- The X.org folks have also lost funds to PayPal to the tune of $5,000 or more.
- In 2004, PayPal cut off the account for FreeNet.
- Last year, the Burning Man Temple Crew had its funds frozen by PayPal.
I suppose somewhere there's a counter-example of a group using PayPal to raise significant funds without a glitch. But there are simply too many instances of PayPal arbitrarily freezing accounts for anyone to seriously consider it a viable option. Bottom line: If you need to fund something, find a way – any way – to raise funds other than using PayPal. It should be obvious by now, but I guess it bears repeating.