A class action lawsuit against eBay's subsidiary PayPal, filed in a Northern California district court in March 2002, will likely be settled in the next two weeks. Attorneys for PayPal and the plaintiffs have been in settlement talks, and filed for an extension in May to allow them to work out some details.

Some of the accusations by the plantiffs were that, as of early 2002, PayPal was understaffed, hid its customer service phone numbers to save money, had rude and unhelpful phone staff, did not answer customer service email, and "without notice or warning, erroneously and unnecessarily" limited or closed accounts and then made it difficult to restore the accounts.

One plaintiff claimed that a frozen PayPal account locked up, interest-free, $181 he still hasn't gotten back. Another plaintiff, not a PayPal customer, said PayPal twice caused money to be wrongfully transferred from his bank - the company returned the money, but not the more than $200 in insufficient funds charges the mistake cost. A third plaintiff reported that PayPal transferred her money to four different accounts it shouldn't have. All three plaintiffs had trouble with PayPal customer service.

The class action would include everyone who opened a PayPal account, or had money transferred to or from an account in connection with PayPal, between October 1, 1999 and March 12, 2002.

What to expect from a settlement

Since the "class" includes thousands of people, it's possible that many PayPal users will soon receive a small check. How small remains to be seen.

It's also reasonable to expect some improvements to PayPal customer service. "They are, in our view, changing some of their policies," said Robert Finkel, an attorney for the plaintiffs. While PayPal did not respond to our request for information, it seems like it has already made one big change by making its customer service phone number and email address easily accessible from PayPal.com. Users can now locate either piece of information in two clicks from the front page, so clearly PayPal isn't hiding them.

It's tougher to figure out whether PayPal has improved its methods of freezing (officially, "limiting") accounts "unnecessarily." That's because every user who has an account limited seems to think it's unnecessary, and reports of unfair persecution by PayPal are difficult to verify. Most new complaints about frozen accounts on anti-PayPal Web sites seem to have a confusing wrinkle or mitigating factor, such as the user's involvement with adult sites, or the account having a $0 balance at the time.

The settlement, when reached, will be a public filing in the Northern District of California US District Court (Case 02-1227). PayPal is also expected to issue a press release.