PayPal and the Lawsuit over Charitable Donations

$10 million sought in damages

PayPal (PYPL) is facing a class action lawsuit filed in Chicago that’s seeking ~$10.0 million in damages. What’s that all about? The allegation is that PayPal collected donations for charities from its users and didn’t give those donations to the charities, as promised. Let’s take a closer look.

PayPal and the Lawsuit over Charitable Donations

In 2013, PayPal decided to tap into its user base to support charities. It set up a platform to collect, process, and remit donations to charities. The company has 197.0 million active user accounts as of the end of 2016. The number has grown steadily over the years, as you can see in the above graph.

One plaintiff’s claim

According to a Fortune report, some donors later discovered that their preferred charities weren’t receiving the donations they made through PayPal. It’s alleged that PayPal didn’t make any effort to notify charities that didn’t have PayPal accounts that donations had been made to them through the platform. It’s also alleged that PayPal didn’t inform the users who made those donations that their contributions wouldn’t reach charities that didn’t have PayPal accounts.

The lawsuit cites donor Terry Kass, the lead plaintiff in the case, who says she contributed $3,250 to 13 charities in 2016. Most of those charities didn’t have accounts with PayPal, and allegedly only $100 was released to the ones that did have accounts. Kass claims that she had no idea her donations didn’t reach the intended recipients until she followed up with the charities.

The cost of the problem

The lawsuit against PayPal could cost the company in several ways. An award or settlement up to $10.0 million would make a serious dent in PayPal’s financials. It would come as the company is struggling to fend off growing competition from Square (SQ), Apple (AAPL), Samsung (SSNFL), and Alibaba (BABA). PayPal also wouldn’t want anything to taint its reputation.