Settlement reached after PayPal froze Knox County woman’s account for over a year

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KNOXVILLE, Tenn. (WATE) — PayPal was taken to court after the online payment system had frozen Sheena Small’s account for months after she had loaded thousands of dollars in unemployment money into her PayPal account. Now a settlement has been reached and both parties are apparently pleased.

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“I can say that it was resolved. And, I think, both parties are happy with how it was resolved,” said Bennett Hirschhorn, Small’s attorney. The case, held in sessions court, never got to trial. Instead, it was settled out of court.

Due to the pandemic, Small lost her job 18 months ago. She was eligible for state and federal unemployment but had no checking account. That’s when she saw an ad from PayPal: use direct deposit for government and payroll payments. She applied and received this debit card from PayPal last year. Within a few days, more than $7,000 in unemployment money was loaded into the account.

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“It seemed fast and easy”, said Small. “Until they froze my account on July the 5th,” Small said they never gave an explanation of why the account was frozen.

For weeks she sent text messages and called PayPal asking when will the account be freed up and why were they holding her money?

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“And then a message came through that they were going to hold my funds for 180 days,” said Small. She had no access to her money when her baby was about to be born, as a result, her bills were mounting. To make ends meet, Small took out a title loan with high-interest rates. Then in January of this year, PayPal informed her they’re freezing her account for another 180 days.

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“I said what for? They said we don’t have that information in front of us,” said Small.

In mid-summer, her attorney filed a lawsuit against PayPal claiming “breach of fiduciary duty and breach of contract.”

“I think the thing to remember in Sheena’s case is they gave her back her money, they released it. Actually, released it pretty quickly at the beginning,” said Hirschorn.

Within days of filing the lawsuit, last July PayPal deposited $4400 into Ms. Small’s new banking account with TVA Credit Union. But Small’s attorney wanted some answers from PayPal, that’s why he continued the suit.

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“They were holding her money, it was government funds. These were state and federal funds that were for unemployment. The whole point of unemployment is to give people money because they don’t have a job,” said Hirschorn.

Shortly after our story in September, other people started calling saying PayPal had held up their account, too. “There are a lot of people in this situation. I received many emails and phone calls from people in other states, in Tennessee, who have had a similar problem,” said Hirschhorn.

“They have something broken, they are a very large company. I’m worried for people in that position that if they don’t sue PayPal, they won’t get their money back,” he continued.

But Hirschhorn said you don’t really need to hire a lawyer to file a lawsuit. You can do it yourself by going to General Sessions, small claims court. “You can fill it out with a pen right there. If you sue PayPal, it will escalate it to the level where they actually do the research.”

Was suspicion of fraud the reason why Sheena Small’s account was frozen? That question was never answered by PayPal. Online services are a target of fraud, so Paypal has certain triggers in place as a “Safeguard” against fraud. Some of these safeguards might be set off when they have detected fraudulent activity on your account.

For example, someone has logged into your PayPal account from a ‘strange’ location. Or, you have received a huge amount of money in your account that is way above your average.

Here are some guidelines to greatly reduce the chances of the triggers being set off. If you are expecting to receive a large sum of money, call PayPal ahead of time, so they expect to see the extra funds. When you first signup for PayPal, website payments pro, there’s a survey. Make sure that you check off higher numbers of how much money you anticipate making every month. Finally, 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.



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