PayPal Drops Payment Protection for Crowdfunding

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PayPal has announced revisions to the PayPal user agreement , effective June 25, 2016. The biggest change in the new list of revisions is that payments to crowdfunding campaigns are no longer eligible for Purchase Protection . The Purchase Protection program allows PayPal users to request a refund if…

PayPal has announced revisions to the PayPal user agreement, effective June 25, 2016. The biggest change in the new list of revisions is that payments to crowdfunding campaigns are no longer eligible for Purchase Protection. The Purchase Protection program allows PayPal users to request a refund if there's a problem with the transaction. Some PayPal users were using the service to recover their money from failed Kickstarter or IndieGogo drives.

The issue is the refunded money isn't coming from the Kickstarter drive, it's coming from PayPal itself. Most of the time, that money is gone, spent by those behind the Kickstarter drive in pursuit of their goal. Given how expensive some Kickstarter tiers can be, it was probably non-trivial amount of money coming out of PayPal's pocket.

"In Australia, Brazil, Canada, Japan, United States and other countries, we have excluded payments made to crowdfunding campaigns from our buyer protection programs," said PayPal in a statement. "This is consistent with the risks and uncertainties involved in contributing to crowdfunding campaigns, which do not guarantee a return for the investment made in these types of campaigns. We work with our crowdfunding platform partners to encourage fundraisers to communicate the risks involved in investing in their campaign to donors."

Kickstarter changed its terms and conditions in 2014 to make creators a bit more accountable for where the money goes in a crowdfunding campaign. The updated Terms of Use says that creators have to "demonstrate that they've used funds appropriately and made every reasonable effort to complete the project as promised", with posted updates on the status of projects. None of that is legally binding though.

As it stands, you should only offer money to crowdfunding if you're willing to part with that money completely. Kiss that $20-30 goodbye and be pleasantly surprised when the creators actually deliver, two years down the line.

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