In my previous article, I talked about PayPal’s recent conflict with and how the smug actions of one representative attracted a great deal of negative publicity for the online transaction service. Bad press aside, this is a prime example of how it may be unwise to allow one company — in this case, PayPal — the power to freeze your cash flow seemingly on a whim at the behest of some fine-printed “company policy” or another.

Of course, PayPal resolved the conflict and returned the frozen funds to Regretsy after the story spread like wildfire across the Internet, but this does not mean that PayPal (or some power-abusing PayPal representative in the middle of a bad day) would not pull a stunt like this again.

After my article was published, my law student friend (whom I quoted in the article) took a look at PayPal’s User Agreement and got my attention with six things people should be wary of when using PayPal:

  • According to Article 10.3 in the User Agreement, PayPal has sole discretion to decide if you have violated anything. That basically means, if [the company] claim[s] you have broken a rule, disputing it really won’t help you if [it doesn’t] feel like giving you the chance.
  • PayPal can block your account for 180 days (at [its] sole discretion). In an instant, you could find yourself without access to your PayPal account, which could also mean you are left without a means to afford necessities.
  • PayPal can close your account at any time. The consequences of this are, of course, a bit more intense than #2. If PayPal is your means of living and the gateway through which you receive your regular income, you could find yourself in a dangerous position in a short amount of time.
  • At PayPal’s discretion, [it] can charge you $2,500 for violating any of [its] rules, or any part of [its] agreements with you. That is like getting fined a ticket for breaking some weird law from the 1800s you never knew about.
  • If PayPal believes you are a risk, [it] can lock your account. [The] worst part is, risk isn’t defined in [its] agreement, so you have to be wary of every step you take.
  • If you have a dispute with PayPal and improperly file it, [PayPal] can claim $1,000. Scary to think that while trying to reclaim lost money, you could possibly lose even more.

6 Reasons to Be Cautious when Using PayPalI have said it before: I avoid PayPal as much as I can. I use debit cards to pay for things online straight from my checking account. In the real world, I use cash (of course). The only time I use PayPal is when a person who wants to send me money has no other option but to send it via PayPal.

The most important thing to remember is that your money is never safe with PayPal. Whenever you get paid, transfer it to a bank or withdraw it as soon as possible. While most people believe PayPal is a federally regulated bank just like Chase or ING, it really isn’t. The fate of your money is entirely up to PayPal.

What should you use when you need to receive money from someone? There’s always Google Checkout (and the complimentary Google Wallet) or Skrill (formerly Moneybookers). Newcomer Venmo also looks promising with its zero-fee approach. And of course, let’s not forget you can still send checks via snail mail; it still works, guys and gals.

How do you spend and receive money online? Do you use PayPal? Did you use PayPal?