You asked about the PayPal online money transfer service. You wanted to know (1) some general information about PayPal, (2) how Connecticut regulates PayPal, and (3) how to address a problem with PayPal.

SUMMARY

PayPal is an Internet-based service enabling its customers to transfer money to individuals and businesses. In addition to its money transfer services, PayPal also offers customers automated teller machine (ATM) debit cards and money market funds. Connecticut granted PayPal a money transmitter license in September 2002, based in part on determinations by the Federal Deposit Insurance Corporation (FDIC) and New York's Banking Department that PayPal is not a bank. PayPal details the grievance process for dissatisfied customers on its website at www. paypal. com, and its customer service department can be reached at (402) 935-7733.

PAYPAL SERVICES

PayPal's user agreement states that it is a "payment processing service," not a bank, and that it acts only as an agent and custodian of customer funds, not "a trustee, fiduciary, or escrow. " It receives and disburses payments for online transactions, from simple person-to-person money transfers to auctions and other Internet business.

PayPal offers three types of accounts: personal, premier, and business. All accounts allow customers to (1) send and receive money online from a credit card or checking account, (2) earn money market returns on their PayPal balances, and (3) qualify for FDIC pass-through insurance up to $ 100,000. Personal accounts are free and allow customers to send and receive funds with other customers. Premier accounts entitle customers to (1) send money for free, (2) unlimited receipt of credit card payments, (3) low fees for receiving money, and (4) ATM debit cards for select users. Business accounts include the same features as premier accounts and also enable accountholders to do business under a corporate or group name and access multiple logins. PayPal charges business and premier accountholders for receiving money. The fees vary by the vendor's sales volume, from 2. 9% + $ 0. 30 for the Standard Rate to 2. 2% + $ 0. 30 for the preferred Merchant Rate.

PayPal offers ATM debit cards and money market funds to its customers. ATM debit cards are only made available to select business and premier customers in good standing. Cardholders can withdraw up to $ 400 daily from their PayPal accounts and pay for purchases up to the available account balance, to a maximum of $ 3,000 per day. These cards are offered through a third party bank.

For customers who opt to participate, PayPal will also buy shares of its money market fund in a customer's name, using the money remaining in his account at the end of the day. The customer receives the interest earned on his investment. If a customer does not want to participate in the money market fund, PayPal maintains his balance in a pooled account at a third party bank. This account, held for the benefit of PayPal's customers, qualifies for FDIC "pass through" insurance. While the money market fund is not guaranteed and may gain or lose value, the FDIC protects a customer's balance in the pooled account in case the bank fails, just as it does for a regular bank account.

CONNECTICUT REGULATION OF PAYPAL

PayPal received a money transmitter license under Connecticut law in September 2002. The Connecticut Department of Banking, after reviewing PayPal's application and the FDIC and other state determinations that PayPal is not a bank, concluded that PayPal qualifies as a money transmitter in this state because it receives and sends, but does not take possession of, money.

As a money transmitter, Connecticut law requires PayPal to meet a net worth requirement of at least $ 500,000. At the time of its application, PayPal's net worth was over $ 150 million. Money transmitters must also procure a surety bond of at least $ 300,000, and PayPal obtained a $ 1 million bond. In addition to ensuring it met the financial requirements, the statutes also required the banking commissioner to evaluate PayPal's business experience, character, and general fitness, all of which he found to be satisfactory. Because the state licenses PayPal to do business with Connecticut customers, Connecticut residents may contact the Banking Department about any problems they have with PayPal.

DISPUTE RESOLUTION

In addition to contacting the Banking Department, PayPal customers may resolve problems through PayPal's complaint process. If a buyer does not receive the goods he ordered, PayPal recommends he first contact the seller to try to resolve the problem. If that does not work, the buyer can initiate an investigation by filing a Buyer Complaint Form, which must be done within 30 days of the payment. PayPal will investigate the complaint and attempt to recover the buyer's funds, but it does not guarantee fund recovery. It does, however, offer a Money Back Guarantee Program for goods transactions up to $ 1,000 from selected sellers. There is a fee for this program. PayPal will indemnify sellers from liability resulting from a buyer's unauthorized use of a credit card or false claims of non-shipment of goods.

PayPal customers may also contact the customer service department for assistance at (402) 935-7733.

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