House competition organisers in the UK haven’t had it easy lately, demonstrating just how careful one needs to be when organising a property competition. With quite a number having had to halt or cancel their competitions due to direct intervention by the Gambling Commission, the overall issue of regulatory compliance seems to have also affected some payment providers’ willingness to process transactions for such competitions.

Part of the eBay group, PayPal is an e-wallet system that lets anyone with an email address securely send and receive online payments. Choosing Paypal as a house competition payment provider seemed a judicious choice for many competition organisers, given its brand recognition and comparatively low cost.

However, using Paypal has turned out to be more problematic than many anticipated, with numerous reports of abrupt stoppages in service and monies withheld.

Unexpected problems

Before long, we started hearing of unexpected disruptions in services. Suddenly, people became unable to process payments or even access their account on PayPal. Initially, many concluded this must be a temporary technical glitch and tried to contact the payment processor to find a solution.

Judging from what one finds reported online, PayPal seems fairly notorious for how difficult customers find it to resolve issue with customer service when things don’t work out. Unfortunately, from what one reads, many house competition organisers seem to have experienced similar difficulties.

Reports indicate that people are finding it very difficult to get through to a PayPal representative that could actually help them resolve this issue. Inexplicably, all funds seemed to be locked in their account, and all payment processing had ceased. Time passed without any communication, forcing many people to suspend their competition.

Many property competitions affected

According to the statement on the Have my Home website dated 26th January, PayPal ceased offering its services as a result of the discussions the Gambling Commission was having surrounding the Devon property with fishing competition, together with other similar house raffles:

The Gambling Commission has written to the promoters of a similar competition (www.winadevonpropertywithfishing.co.uk) causing a halt to the promotion of other competitions - the technical problem we have had is that PayPal then informed us that we could no longer use their services for our competition due to this position.

The competition remains suspended with 426 out of a maximum of 27,600 entries collected so far.

As we mentioned in our recent post regarding recently cancelled property competitions; despite not being contacted by the Gambling Commission, the organisers of the Nice House no Mortgage competition were also forced to cancel their plans due to issues with PayPal. According to the statement on their website, the unfortunate couple had no choice but to cancel their competition and postpone their draw until the funds are released by PayPal:

The competition has been suspended as PayPal are no longer accepting payments online and are currently holding the funds collected to date. Our lawyers have written to PayPal in an effort to get the funds released so that we may bring the competition to a conclusion. We would like to add that the Gambling Commission has not contacted us about the competition.

We had set a provisional date of 7th December 2008 for the draw from the successful entrants, however until the funds are released the draw has been postponed. Unfortunately due to the amount of time that has been lost as a result of PayPal's action and our consequent inability to receive the many more entries that we had anticipated, the winner will be receiving a cash prize from the funds collected and not our house as we had hoped; as we have not been able to meet the reserve target.

We are completely devastated that we cannot realise someones dream of owning our house outright (thus enabling us to move on with our lives), nor will we be able to make the large donation to Oakhaven Hospice. […]

We would like to thank you all for your patience, understanding and support during this extremely frustrating and stressful time for us. When we have more information about the situation with PayPal, we shall post an update on the website. […]

According to the statement on the Northern Island’s £100 Home competition dated 12th January, the competition was cancelled due to their payment processing company changing their terms and conditions some months after their competition had already started (back in October 2008).

The statement also suggests that the organisers of this competition felt comfortable they met the payment provider’s policies when first they announced their competition. While it should be stressed that no particular payment provider is named in the statement (and we have no record of who was used for this competition); it does indicate that the couple were not able to find a replacement service in time:

As many of you are aware this competition has been on hold since just before Christmas, due to the fact that our payment processing company informed us that they were not prepared to take any more payments on our behalf. Reason being, they stated they had reviewed their terms and conditions and are now not prepared to offer their services for competitions where the prize is a property. As you can appreciate this has been a massive disappointment.

For your own information, when we signed up to our payment processing company, they were happy with what we were doing and we met their criteria at that time around October. However they are within their rights to review their terms and conditions at any time and as a result we are now left in limbo. We have tried a few similar companies and at this stage we are still to reach agreement with one.

Regrettably, we have taken the decision to issue refunds to all the entrants and close the competition for the time being. Should we reach agreement with another company in the near future, we will be re-launching a new competition, and hopefully someone will win this fantastic house.

PayPal Acceptable Use Policy

For many, this issue has remained unresolved. Despite months passing by and numerous attempts to discuss the issue with the payment provider, we continue to hear stories of people simply being redirected to PayPal’s Acceptable Use Policy, without any clear advice provided. Recently updated, the policy outlines activities that are prohibited by PayPal. In particular, it mentions that:

You may not use the PayPal service for activities that: […]

5. involve gambling, gaming and/or any other activity with an entry fee and a prize, including, but not limited to casino games, sports betting, horse or greyhound racing, lottery tickets, other ventures that facilitate gambling, games of skill (whether or not it is legally defined as a lottery) and sweepstakes unless the operator has obtained prior approval from PayPal and the operator and customers are located exclusively in jurisdictions where such activities are permitted by law.

[Source: PayPal Acceptable Use Policy, Prohibited Activities, paragraph 5, 10 November 2008]

The way I read this is that Paypal is generally not very comfortable processing payments for such competitions. After all, some of you might recall a whole group of payment providers being pursued by the US government for processing payments by US players to online casinos. Hence each case is considered individually within its jurisdiction. Given that legal compliance is dependent on jurisdiction, organisers will only be able to offer their competition to customers in a given jurisdiction, in which such competitions are allowed.

However this paragraph also raises a few interesting questions. Does Paypal actually have an opinion on what is legal in different jurisdictions? Can they advise or does the onus lie with competition organisers to prove that their competition is legal? If so, what is the process, and what proof is needed? In the UK, just how aligned is PayPal’s policy with the Gambling Act 2005?

In the regard to the latter, it is worth noting despite certain competition organisers seemingly confident that they are compliant, they continue to face difficulties using PayPal.

With many people still unsure about how to structure their competition to the satisfaction of the UK’s Gambling Commission, this issue has only served to confuse things even more. The fact that PayPal stopped processing payments in a relatively abrupt manner despite seemingly working well at first has obviously created a lot of uncertainty.

On top of this, it appears PayPal’s policies are not being applied in a consistent fashion. Indeed, various prize competition websites still seem to regularly use PayPal to process payments, apparently without any difficulty. While some of these are not designed to give away properties, others explicitly intend to market house competitions. One would assume that they sought and got prior approval.

What is certain is that any competition organiser is probably best advised to obtain approval before opting for Paypal, and committing to integrate it into their website.

Seeking approval seems reasonable enough. However, one person that I’ve spoken to has indicated to me that the process lacks any kind of feedback. He simply received an email several weeks later stating that his website was not compliant, without any kind of feedback as to why. Although one cannot expect Paypal to provide complete guidance, some kind of feedback would probably have been useful. After all, if you have the expertise to assert that a site is not compliant, you also know why.

What next?

Although reports of people finding it difficult to speak to someone at PayPal abound online, the difficulties for prize competition organisers appear relatively recent. Reading forum posts on the subject, some people suggest there could have been a shift in policy within PayPal – occurring around the same time property competitions were first halted by the Gambling Commission.

While this could help explain some of these inconsistencies and a somewhat blunt approach from the payment provider, it is difficult to determine at this stage if any potential clarifications on this topic by the Gambling Commission could in turn help clarify PayPal’s own policies.

I personally think Paypal is a great payment provider and competitively priced. Given their customer base, I’m surely not the only one. However, those organising competitions require clarity to move forward. Are any Paypal Compliance Department employees able to provide more information that could help people along? A constructive discussion could help everyone resolve this issue.

What are your experiences using Paypal, or seeking approval to do so?

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Comments & Opinions

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Payment providers

Paypal isn't the only one that has issues with house competitions. I hear google checkout and others are being careful with this. I'm sure there are others that are ok though, considering how many cater for poker etc...

Jimmy , 08 Mar 2009

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PayPal

I think the payment providers cannot be blamed. From what seems to have transpired with the Wilshaws, it seems the Gambling Commission is fairly clueless. If that is so and the regulator can't provide a predictable trading environment, how can we expect the payment providers to do any better? Nonetheless, PayPal should get its act together on the customer service side, and at the very least be reactive to its customers!

James , 08 Mar 2009

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Pay Pal

Totally ludicrous !! Do PayPal even know , what is a legal payment , and what is not ?

Vann Jeanes , 05 Apr 2009

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