That may be. But it's unethical for PayPal to blindside businesses. PayPal's behavior often appears arbitrary and capricious; at the very least, it's unpredictable from the customer's viewpoint. If PayPal absolutely must cut off the cash flow to its supposedly high-risk business customers, it should do two things:
1) Have a written statement of the criteria for freezing funds, demanding a 100% reserve, etc.. Make the criteria concrete and objective enough that business owners can reliably predict whether this will happen to them.
2) Notify account holders of this policy in a very conspicuous way. Burying it in the TOS isn't good enough for something like this.
It's fine if PayPal wants to be strict about business models it deems high-risk. But they should do a much better job of managing customers' expectations. Right now, it seems that most customers find out about PayPal's draconian risk management practices by unexpectedly losing their cash flow or by hearing from someone else who did. That's unacceptable.
The problem will releasing that information is that it gives a huge advantage to fraudsters with limited benefit to legitimate users. Fraudsters will know exactly how much fraud they can commit to stay below the radar, so they'll max out an account while avoiding detection and then move onto another account and repeat. Paypal will then have to reduce their thresholds to minimize fraud and end up hitting far more legitimate customers.
They could perhaps identify the general risk categories (i.e have a list of businesses-type which are considered high-risk). Most merchant account providers maintain such a list and you can easily find examples by googling, but I'm guessing most people who run businesses in high-fraud industries are already aware of that fact.
1) Have a written statement of the criteria for freezing funds, demanding a 100% reserve, etc.. Make the criteria concrete and objective enough that business owners can reliably predict whether this will happen to them.
2) Notify account holders of this policy in a very conspicuous way. Burying it in the TOS isn't good enough for something like this.
It's fine if PayPal wants to be strict about business models it deems high-risk. But they should do a much better job of managing customers' expectations. Right now, it seems that most customers find out about PayPal's draconian risk management practices by unexpectedly losing their cash flow or by hearing from someone else who did. That's unacceptable.