Why Paypal Freezes Or Limits Accounts And How To Prevent This From Happening To You

A few months ago, I posted an article about Paypal Website Payments Pro Vs Authorize.Net where I provided a detailed comparison of two different credit card processing solutions. And almost immediately after posting it, I started receiving an abnormally large amount of email feedback from Paypal haters. In fact, I’ve never encountered such strong anti-feelings for any service before.

Having used both services in the past with no problems whatsoever, I was very surprised to hear the overwhelming negative feedback towards Paypal.

I will never use Paypal again. After being a loyal customer for over 3 years, one day they decided to place a 6 month hold on my money for no reason. I couldn’t access over 20k in my account which I needed to pay my bills!

The above quote was just one of many emails I received in the past few months since my article went live. In the interest of full disclosure, I use Paypal Website Payments Pro to accept payments for my online store and I’ve never had any problems with them in 4+ years. But the fact that so many readers have such strong anti-Paypal sentiments made me a little paranoid about my business. After all if you can’t process credit cards, you can’t make any money.

Paypal Horror Stories From People I Know

Most of the horror stories I’ve read about Paypal through surfing the web have to do with Paypal randomly limiting accounts or freezing funds. Most of the complaints I’ve come across seem to indicate that Paypal will rarely hold your funds for longer than 6 months, but 6 months can be a long time if you need access to your money. And once they freeze your funds, it doesn’t make sense to continue accepting money through Paypal if you can’t access it. In other words, once your account is frozen, you are pretty much screwed.

All of the stories that I’ve read online are from people that I don’t know personally or from people that I’ve never heard of before so I’ve been taking them with a grain salt. However, I do have a few fellow blogging friends that have had their accounts frozen for no reason so I asked them for their side of the story.

In both cases with my blogging buddies, they had their accounts frozen after a big product launch. For one of them, Paypal limited their account by only allowing them to process $10,000 per day. The other blogger had over 40K in funds frozen for 180 days. It seems as though Paypal doesn’t like seeing huge spikes in money being received into your account.

In the case of my online store, the revenue we receive is pretty steady and consistent from month to month but occasionally we get spikes of revenue when we hold a sale. So, I decided to call my dedicated account manager at Paypal to get the story straight and here’s what I found out.

Why Paypal May Limit Or Freeze Your Account

After talking to my Paypal rep for over 30 minutes, they reassured me that it’s extremely rare that they ever place holds on user accounts. They also told me that there were no limits on my account whatsoever and that I could process as much money as I wanted to in any given day. When I brought up the stories about my blogging friends and how they had their accounts frozen, the representative assured me that the reasons for limiting an account vary greatly from user to user and largely depends on the situation.

Under the following circumstances, Paypal has certain triggers in place as a safeguard against fraud. Here are some reasons why some of these safeguards might be triggered

  • You’ve received an abnormally large amount of money in your account that is way above your average
  • Someone has filed a complaint to Paypal about your business
  • A series of chargebacks have been placed against your account
  • Your website has questionable content
  • You are in violation of Paypal’s use policy. For example if you sell drugs or anything illegal, you may get banned
  • Your account information is not up to date or your account is not fully verified
  • Someone has logged into your Paypal account from a strange location.
  • Your credit score is low or something with your background history makes you a higher risk customer
  • They have detected fraudulent activity on your account.

Preventing Paypal From Ever Limiting Your Account

Towards the end of my conversation with Paypal, they assured me one last time that only a very small fraction of a percent of people get their accounts frozen and that accounts are rarely frozen for the full 180 days. They also recommended the following guidelines to greatly reduce the chances of this happening.

  • If you are expecting to receive a large sum of money, then you should call Paypal ahead of time so they expect to see the extra funds. In other words, if you are planning a large product launch, make sure you let them know ahead of time
  • When you first signup for Paypal Website Payments Pro, there’s a survey that you have to take. Make sure that you check off higher numbers in terms of how much money you anticipate making every month
  • Contact Paypal to make sure that your account is not limited in any way in terms of how much money you can accept per day. Sometimes limits are placed depending on various factors relating to your credit history or background checks
  • Make sure your name or the name of your business is on your Paypal account and that it exactly matches your bank account and credit cards.
  • Use the exact same addresses and phone numbers that match your bank account and credit cards
  • Always use trackable methods of shipping if you ship physical goods in case a dispute is filed against you
  • Make sure that your FEIN or social security number exactly matches the name of your business on the account
  • Link both a credit card and a bank account to Paypal

Does This Sound Like Too Much Trouble?

Here’s the bottom line how I see it. If you are in the business of selling informational or digital goods and your revenues are extremely lumpy, then I would go with a regular merchant account and gateway like Merchant Plus. If you have low credit scores or any history of fraud or criminal activity, then go with a regular merchant account and gateway like Merchant Plus. If you never want to deal with the possibility of getting your account frozen or limited, then go with a regular merchant account and gateway.

The main reason my wife and I use Paypal is because they offer an extremely convenient way to ship packages and accept Paypal payments with one easy to use interface. Paypal’s fees are higher than a traditional merchant account but the perks are worth it for our store. But if you do decide to go with Paypal, it’s probably a good idea to give them a call to make sure that there aren’t any artificial limits on your account.

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48 thoughts on “Why Paypal Freezes Or Limits Accounts And How To Prevent This From Happening To You”

  1. The obvious solution is to NOT use PayPal. If you are an incorporated business get a real merchant account.

    We only use PayPal as a connivence for customers who use it, but isn’t our primary method of getting paid.

    1. Back in 2003 for no reason at all Pay Pal closed my account. I found out later on why, but it doesn’t matter. They had stopped accepting companies in my industry, but of course I never knew that at the time
      They also allowed a customer to commit fraud & I relied upon their “Verified Pay Pal” status which is BS. They do allow customers to commit fraud & then they will claim they can’t do anything about it. They wouldn’t even investigate my side of the story, they just gave the money back to the customer & stole the money in my account.

      This is why you should NEVER EVER rely ONLY on a Pay Pal account. Always get yourself a REAL merchant account along side your Pay Pal account so you don’t risk losing it.

      Because of all the stress I went through with Pay Pal, I’m now a merchant services consultant & I help high risk businesses get a real merchant account which will almost NEVER be closed down unless you are committing fraud.

      NOW they refuse to let me even pay someone’s invoice with my credit card (not a pay pal account) because of what happened years ago & this has NOTHING to do with the company I had back then. I just lost 5 hours of my work day yesterday dealing with the stress of trying to pay someone’s Pay Pal invoice.

      Bottom line, Pay Pal still haunts me 11 years later.

  2. I’ve also experienced a bit of frozen money. Only 21 days, but still I needed the cash. They listed possible 8 ways on why my money was frozen. Drag. I’m fine with getting paid by check and not giving any % to paypal anyway.

  3. I also make sure that I transfer my money out to my bank account and leave not too much in Paypal. That way if something were to happen, it wouldn’t be with my largest source of income.

  4. David Howard says:

    More likely than not, you will have to accept Paypal for your store so these guidelines were very helpful. Thanks!

  5. Jen says:

    I agree with Christie. Transfer money out as soon as you receive it. I’ve had a few holds placed on my account, as a result of buyers opening cases with Ebay. I’ve learnt my lesson.

  6. I always transfer my money out of paypal as soon as it comes in, and I have a firewall bank account so that Paypal doesn’t have access to my every day checking. So if i need to pay for something with paypal i’ll transfer money over and then to paypal.. Safer..

  7. I’ve been using Paypal 4+ now and I never encountered such problems. But my friend’s account had been frozen. He needed to wait 180 days before being allowed to withdraw the money. Paypal says they detected multiple accounts with almost the same password. It’s scary when you might be the next person who will encounter this ‘limit’ and ‘frozen problems.’ I went to a coffee shop last week and used their wifi service to browse the web. Then I remembered I need to send some payment to an employee. I opened my account with their IP (stupid of me). Paypal asked me a couple of questions since I’m using a public wifi. I thought they’d limit my account, thankfully, they never did it.

  8. Personal I would just go with a authorize.net account, paypal just sounds like alot of risk to me.

  9. thanks for assurance that paypal is safe to use. but i do get a few of those random frozen paypal account spam emails. Never quite sure whether they’re real or not so i log on to my paypal after i receive these emails just to make sure nothing is frozen. kind of annoying.

  10. I have been using paypal since 2008 and before I even opened my account, I asked them with these questions and assured me that my paypal won’t be frozen or closed and told them that my funds will come most from affiliate commissions and I have given them an expected amount so they be aware. Thanks for sharing this article and keep up the great work.


  11. Vincent D says:

    Paypal randomly freezes customer’s accounts for 180 days so that they can use the money to invest without paying any interest to the account holders. It seems to me that most accounts that were frozen have the funds in between $500 to $20,000. This is a considerable amount to be used and not big enough so that the owner won’t hire a lawyer for a lawsuit. I’m waiting for my 180 days to be up and get my frozen money out too. They froze my account for just the reason of I’m being “suspicious” and they don’t explain why?

    I’m actively looking for a better alternative to use and at the same time trying to find a class action law suit to join. It’s probably best for all of my online selling fellows out there not to use PayPal at all or keep withdrawing your money and don’t leave in there too much. They’re profiting on our sweat aside from their hefty fee and commission.

    1. Back right after they closed down my account there was a class action against them (search for it online). They settled to the tune of around $33 million (I’m sure my amount is off, but it was high).

      Pay Pal got a little better after eBay bought them out, but clearly based on my experience yesterday they are control freaks that stop not only me from paying someone, but that vendor from doing business. I am NOT a risk, never have been, I’m an ethical entrepreneur.

      They have TOO much power!

      Any time a competitor of theirs tries to open up, they do whatever they can to take them down. I’ve been privy to that information.

      Again, contact me if you want a real account.

    2. Concerned Observer says:

      With a shady name like ‘Vincent D’ I would deem you as suspicious too. Just what does that ‘D’ stand for…. and why are you hiding it from the world?


  12. Useful information for people conduction business online. But what does “Your website has questionable content” mean? That sounds like an excuse to freeze your account for any reason.

  13. I have been using PayPal for years without any problems, but I’ve heard horror stories as well. Something that I do like about PayPal is that if you have an online business and do everything right, and someone tries to commit fraud, PayPal protects you as the vendor (assuming you have proof of sale, delivery, etc). Here in Mexico, I know that people have had terrible experiences with DineroMail, as in thousands lost and no customer service person to answer their inquiries.

  14. DB says:

    I once had a sale held by Paypal but it was before I shipped out the order so I didn’t lose any money. The money ended up being returned to the buyer.

  15. FG says:

    I do think that PayPal needs more competition, and their fees are quite exorbitant and add up over time. A small price to pay for convenience? Perhaps… but it would be even more convenient to have some real competition in this space. Hope that someone else can stand up to the challenge.

  16. I too is the victim of this Paypal freezes accounts. I’m not receiving a large amount from any illegal works and yet they frozen my account. I am working as an Article Writer and weekly I received the payment of not more than $200. I was surprised that they freezes my account. This brought some inconvenience to to me and to my employer. And they gave back the money to my employer. To make the story short, paypal really is not that good in servicing.

  17. Useful information for people conduction business online. I do like about PayPal is that if you have an online business and do everything right, and someone tries to commit fraud, PayPal protects you as the vendor.

  18. After losing my job in June, I decided to start selling a small product to help organize your home that I make. I have run a tight ship and researched all eBay and Paypal policies, etc… and have established a really good rating in a short period of time. I only have a few hundred dollars in my paypal account at any given time. Nothing in my activity is questionable. I’ve educated myself in that area. Today my Paypal account is frozen and I have auctions closing tonight. I am not concerned abut the money because of the level of business I am currently at. My concern is customer satisfaction (“you won the auction but I can’t accept your payment right now”)…AND…being at the mercy of something that clearly doesn’t assess risk efficiently! Get this – the representative at Paypal today said (quote),”This happens to about 1 in 5 people who are eBay sellers”.I asked her to repeat it also. I really hope she does not have accurate info. 1 in 5 is too big of a risk for a seller to take, especially if they are established sellers and numbers are much higher! I love the possibilities on eBay. My wish is that eBay and those affiliated with them (i.e. Paypal) realize that respecting sellers is very important.Thanks for listening!

  19. Thanks for the information! I recently had a customer who didn’t trust paypal so I’m looking for alternatives anyway. Not because of me but because I don’t want to lose the opportunity that people can pay me even if they don’t like paypal.

  20. Payment processing is actually a ‘lending’ product. The processor is making the merchant a loan, in the good faith, against the credit card ‘charge,’ that the credit card company will pay that charge. That makes ever single sale a ‘liability’ for the merchant until the charge back period runs out, which could be up to 6 months.

    This is why traditional merchant accounts go through a full vetting procedure before approving a merchant. They will ask for personal and business; credit reports, tax returns; assets & liablities statements, and income & expense reports. They will also set withdrawal limits, collateral requirements and even rolling reserve requirements.

    The amount of documentation, limitations, and conditions that a merchant account service provider will require from a merchant account for all of the merchant’s history, weighed against the merchant’s industry ‘averages’ for income, fraud risk, and chargeback risk.

    While PayPal is not licensed as a bank or a lender, and therefore does not need to comply with the same laws and regulations that banks and lenders must comply with, they are just as liable for the ‘loans’ they are making to the merchant against the credit card charges that any bank or lender would be.

    Banks and lenders are mandated by Federal law to mitigate their risks. One of those regulations is that they must keep a certain amount of money in reserves for every so many dollars they have out in ‘loans.’ PayPal may not be ‘legally mandated’ to do so, but it is a risk mitigation policy of every lender, and would most likely be adopted as a policy by PayPal as part of PayPal’s agreement with the bank that backs them.

    When an account is limited for an ‘influx’ of too many sales, which our beyond the scope of the ‘industry average’ sales, it’s more money that they have to now keep in reserves… money they can’t ‘lend’ out to ‘make more money on.’ If the industry is already a high risk industry in terms of chargebacks and fraud, they will be far more likely to terminate the relationship in favor of keeping their reserves free to service customers in industries with lower fraud and chargeback risks.

    It’s not just PayPal. Any credit card processing service, is a ‘lending’ service and all will use the same risk mitigation model. A PayPal ‘alternative’ will still bear the same risks… don’t put all your eggs in any one payment processors basket. If you do, and the processor does freeze your acount, they freeze ALL your money.

    I use a payment button rotator to silently direct buyers to pay using different processors. This way, I keep any one account from having ‘too many’ sales, and, if any one processor should freeze my account, they won’t be freezing ALL of MY money. I’ll still have funds in up to 6 other accounts.

    The plugin is called WP Profit Performance and it integrates with at least 4 different affiliate programs, all of which support multiple payment processors, and one incredible network which will even support instant commissions, recurring billing and, is free to list your products in! I don’t worry about PayPal problems anymore.

  21. Jacky Lee says:

    What does “You’ve received an abnormally large amount of money in your account that is way above your average” mean?

    If I were to receive a $700 payment when I usually only get $200ish payments, will my account still get limited?

    1. Paypal does not publish its internal algorithms though your example probably wouldn’t fall into that category. If you are concerned, you should contact PP ahead of time if you are expecting to receive a large sum of money.

      1. James W King says:

        Paypal has done it again. This time they froze the account of a well known Sci Fi writer Jay Lake who is raising money to help pay for his fight against cancer.

        He fought it and as soon as they were exposed Paypal “apologized” and released the funds.


        As for telling Paypal you are expecting a huge spike in sales and giving them a heads up, this is not only not possible many times it is unnecessary from a legal standpoint. The fact is Paypal has violated FTA rules many times and as a lawyer I can attest that I have sent them letters on behalf of clients several times in the last few years. They ALWAYS respond be immediately releasing the funds. This says to me they know they have no legal leg to stand on.

        I am glad you have a successful relationship with them, but please be aware many people do not through no legal fault of their own.

  22. Dimitri says:

    I’ve been using PayPal a little bit, but for several years and never had any problems. Now for the first time I’ve been having problems. They blocked the purchase of an airplane ticket, as well as the purchase of attendance to a workshop. ($200 + $700) They said they were afraid the charges were fraudulent. Then they asked me to verify the credit card number associated with the account. Then they asked me to confirm my security questions and to change my password (five times). Now I cannot log in. They are slow at responding to my e-mail inquiries and vague at explaining why this happened. One of the things they mentioned is that it could be because I’m traveling away from my country of residence. If I answer the security settings like confirming the correct credit card and responding correctly to the security questions, then why does PayPal insist on locking me out all the same? I think PayPal must be paranoid.

  23. Adrian palmer Edwards says:

    I have been using Paypal only for about 12-15 months and using it on a very small scale.My main earner is writing, article writing etc,and it was through a friend that I decided to create a website and sell a product. Don’t get me wrong my writing pays very very well, but I get that money direct to me via checks or payza and solid trust pay which are very good.My Paypal account has not much movement really only maybe $20-$50 now and again when I decide to promote my product, nothing illegal,drugs etc nothing absolutely nothing under hand.I only sell a small simple method that is a digital download,and law and behold last month logged into my paypal account because I wanted to issue a refund to someone,who’d paid me twice by mistake and I couldn’t as my account was limited then I had to pay him myself which makes me look like a flyer to people that don’t know me, and it makes me annoyed, very annoyed!! I’m working now to get my account back to normal and I only have about $30 in there at present.Hope I haven’t rambled on to much for you,if so i’m sorry,just wanted to show you that it happens to any one,money or not.Thanks for reading truly appreciated.

  24. Hi there! I just wish to give a huge thumbs up for the great info you’ve gotten right here on this post. I will be coming again to your weblog for extra soon.

  25. tim says:

    I just signed up for an account, received only $200, and my account has been limited, can’t withdraw the money. They are asking for copies of invoices etc. Paypal is crap, i imagine they are investing peoples money. not happy. I only signed up because ebay wouldn’t let me sell something without a ‘secure payment method’. Too secure, my money is secure even from me. Merry Christmas douche bags

  26. Account holds can be a useful tool in stopping fraud. The true crime with PayPal is the complete lack of communication during the process.

    We had money held. They tried to keep us from refunding customers from the money they were holding, which was given to us by our customers. We had to put a stop on debits at the bank to keep them from stealing further money they would then hold for six months.


  27. Lori E says:

    I was told by a friend of mine who processes through paypal that his account was frozen because of a message a cllient sent back in the payment confirmation email. Would this happen? I didn’t thing paypal was supposed to read emails between buyers and sellers.

  28. Bob says:

    Paypal sucks. I currently have just over $11,000 in my account FROZEN. They want me to provide them with invoices and information about the vendors that I have bought my product from. That is all proprietary information and it is none of their business.

    I am working on opening another merchant account through a different processor. The credit card charges will be deposited in my account within 24-72 hours after the charge.

    I am going to hire a lawyer and sue paypal and probably drag them into court here in New Hampshire.

    The best thing that could possible happen for the world is if paypal someone went bankrupt – who knows, maybe Russia and a few other communist countries will freeze Paypal’s bank accounts – it would serve them right!

  29. Jeremy says:

    My account got frozen/limited as well. I recently sold a bunch of individual tickets on Stubhub so I think that’s what triggered it. I called and spoke with an unhelpful CSR. I escalated to a good manager who actually researched and looked into it. I was on hold forever and had to wait for a callback eventually, but she ended up lifting it. I had to repeatedly explain that I wasn’t doing anything illegal and that the way Stubhub processes payments is on a per sale basis. So if I am selling individual tickets, each will count as a unique sale and will be processed accordingly. I think it triggered a threshold on Paypal’s side purely by # of transactions, because the total lump sum of everything isn’t a whole lot (sub-$500)

  30. Dinkerdos says:

    I have used Paypal and Ebay for close to 15 years with out problem both as a seller and a buyer, but for the last 5 years only as a buyer and for limited amount of purchases. The other day I buy a Paypal Cash Card at the Dollar Store for 70 dollars, (the White Card with paypal on it) so I could pay a couple of sellers, I feel that amount is not a lot of lot of money for an account that is that old and never had any problems.

    Their excuse was that they need to verify my id, social security and finantual information, what for I ask?, I paid for this card cash money and even paid the 4.00 to activate it, I can not see how I would need to verify my ID for money that is already mine and that I am the only one who has a pin number for it, that is insane?
    Like I say, I do not sell only buy so they have no excuse for selling a cash card that they refuse to honor, that is fraud plain and simple, and I have to ask, how many millions of people are they ripping off each day?

  31. Dinkerdos says:


  32. paypal also hold my payment and asking me to resolve the buyers item to verify and clear the amount to successfully shift to my bank account…

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