Not upheld: unreasonable account reserves and fund restrictions complaint against PayPal UK Ltd

Decision detail

Summary

U, a limited company, complained that PayPal unreasonably placed a £4,000 reserve plus a 10% 60-day rolling reserve on their merchant account in April 2025, restricting access to funds without adequate justification despite U's low 1.01% dispute rate. PayPal explained the reserves were to mitigate chargeback and reversal risks and indicated they would be reviewed in October 2025. The ombudsman found that placing reserves is standard industry practice and that PayPal's terms permit such action when high risk is identified. The ombudsman concluded that PayPal has broad commercial discretion in risk assessment and that their decision was reasonable and within their contractual rights, even though full details were not disclosed to U. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found that placing reserves on merchant accounts is standard industry practice to mitigate chargeback and reversal risks. PayPal's terms permit reserves when they believe there is high-risk associated with an account. While PayPal did not provide full details of their risk assessment, they have broad commercial discretion over what transactions they process and what risk levels they accept. The ombudsman was satisfied that PayPal's decision was a legitimate commercial judgment within their terms, and that U as a limited company cannot rely on certain consumer protections. The ombudsman noted that complaint handling issues did not impact the reserve decision itself.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website