PayPal is one of the biggest success stories of the fintech era. Since the company was founded in 1998, it has gone on to be an online payment and money transfer giant.
It’s now used in more than 200 countries, with over 325 million active user accounts. The service is incredibly fast and convenient to use, giving users the chance to pay for goods and services almost instantly.
However, with this convenience comes the potential for people to get into debt.
A negative PayPal balance can be a troublesome thing. If you have automatic payments set up through the service, you can soon find that things spiral. If this happens, you may find that PayPal contacts you asking for repayment of the debt.
If you’re unable to, they’ll likely pass it over to a debt collection agency. We take a look at what you need to know about PayPal debt collection.
It’s not your fault. Complaints to the Financial Ombudsman have risen this year from 830 to 2,006, so it’s safe to say that you’re not alone.
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PayPal Debt FAQs
We’re going to start by looking at some of the frequently asked questions about PayPal’s service. Many people aren’t quite sure how their account works, which can lead to them owing money without realising. Many of us sign up without reading the terms of service, meaning we agree to these terms without knowing what they are.
Can I go into debt on PayPal?
One element that often surprises users is that it is possible to have a negative PayPal balance. This effectively means you then have a debt with the company. Any payments you make into your account will come off that balance, and any further payments you make will increase your negative balance.
There are several ways that you can go into debt on your PayPal account:
- You make a payment using PayPal, but they cannot take payment from your bank account. This will usually only happen if you have insufficient funds in the account linked to PayPal. You will also be charged a fee if this happens.
- Someone puts in a claim or dispute against you. If someone purchases something from you using PayPal and they’re unhappy, they can raise a claim. PayPal will then hold the disputed amount while the dispute is settled.
- A bank or credit card company reverses a payment you received.
As you can see, each of these is on the surface fairly innocuous. However, if you don’t realise your account has a negative balance, it can soon accumulate. It’s particularly dangerous if you link your PayPal account to a service that you use regularly. Payments will continually be taken, whether you have the funds or not.
Don’t worry, here’s what to do
You could get rid of debt collectors by writing off your debt. I’ve put together a 4 question debt calculator which will tell you if you’re eligible:
What about PayPal Credit?
One of PayPal’s newest services is PayPal credit. This is effectively a short-term loan that you can use to pay for various things. It may seem like an appealing prospect as there is four months’ worth 0% interest. However, after this grace period, interest goes up to 17.9% APR, and late payment fees are £12 each time. As you can imagine, this can soon mount up, especially if you can’t afford the repayment.
What happens if you go into debt on PayPal?
It’s never pleasant accruing debt with a company, and PayPal operates in a fairly similar way to many other businesses. So, if you go into a negative balance with them, there are a few outcomes. The most positive one is when you pay back the balance. You’ll have to keep making payments into your PayPal account until you reach the £0 mark again.
Unfortunately, PayPal has a time limit on how long you have to pay it back. Most sources agree that you have 90 days to pay back the debt. If you don’t either repay the amount or contact PayPal to explain your situation, they will then refer your account to a debt collection agency.
Generally, this is an automated process. They will send you either a letter or call you to notify you of their action. You will then receive contact from the debt collection agency. This can signal the start of a long and drawn-out process.
Your best bet is to always contact PayPal if you have an outstanding debt and you’re having difficulties repaying it. They may be able to help you come up with a repayment plan that works for both parties.
Will PayPal send debt collectors?
This one depends. Of course, your natural instinct might be to fear a PayPal debt collection agency turning up at your front door. However, it’s unlikely that this will be the first step.
When you first have a negative balance from PayPal, you should receive a notification from them. Usually, this will explain that either you didn’t have enough funds in your bank or that someone has contested a payment they made to you. It’s therefore worth keeping on top of the activity on your PayPal account.
After the 90 days of negative balance pass, your account will be automatically passed over to a debt collection agency. It is then their responsibility to try and recover the debt for PayPal. In some circumstances, the agency will purchase the debt, which means you now owe them directly.
Initially, the debt collection agency will only contact you by the available details associated with your account. So expect calls, letters, and maybe emails. If you do not contact PayPal or the debt collection agency directly, these will persist.
If you ignore their attempts at recovering the debt, they may then try and visit your house. They usually have to give you seven days’ notice of such an event. However, they have no legal right to enter your property and must leave if asked to do so.
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What debt collectors do PayPal use?
PayPal is a global entity, and as such, they will use a variety of other companies when it comes to debt collection. Generally, they will pass over your account to an agency that specialises in debt recovery. Sometimes, they may also sell your debt to a debt collector. This means they secure some of the money they’re owed, while the risk for the rest is the responsibility of the agency.
In the UK, there are two main agencies they tend to use. Wescot Credit Services is one, and Akinika (pronounced a-kin-i-ka) is another. So, if you have debt with PayPal, you may receive a Wescot Credit Services letter or contact from Akinika.
Both companies are registered in the UK and are authorised and regulated by the Financial Conduct Authority (FCA). This means that you can be assured that they’re real companies. Thankfully, it also means that you have certain legal rights when dealing with them.
You may be wondering whether you need to pay Wescot or Akinika debt recovery for PayPal debts. The answer depends a little on how you choose to deal with the debt.
How to deal with PayPal debt collectors
If you’ve received a letter from a debt collection agency on behalf of PayPal, it might seem quite unpleasant. No one likes owing money, and the circumstances surrounding PayPal debt can be varied. However, it’s important you don’t panic. There are several things you can do to deal with the situation:
Don’t ignore it
The most important thing to remember is that you shouldn’t ignore the situation and hope it resolves itself. It’s unlikely that this is going to happen. Debt collection agencies are notoriously persistent when it comes to recovering money, and they can take some fairly substantial steps.
Depending on the severity of the situation, you will want to contact either PayPal or the debt collection agency. In most cases, you’re better off going directly to PayPal. If things are in the early stages, they’ll be able to call off the debt collectors and give you some peace while you make repayments.
If the debt is now owned by the debt collection agency, you’ll want to contact them instead. You can arrange a payment schedule that works out for both of you.
If you genuinely owe them the money, you’ll need to pay it back at some point. Although this may seem hard, particularly if you don’t have the lump sum available upfront, there are ways to manage it. Perhaps your best bet is to offer to pay back in instalments that you can manage. This gives you a chance to make a fixed monthly payment until the debt is paid.
It’s important to remember that neither PayPal nor the debt collectors are obliged to accept a repayment plan. However, if you’re honest with them and have an idea of what you can afford before you call, they’re likely to accept your terms.
Dispute the payment
It could be that you’ve received a letter from a debt collection agency in error. In some very rare cases, they may have mistaken your details, particularly if you live at the address of someone who did have a debt.
If you think that you don’t owe the money they claim you do, you are able to dispute it. However, to do so, you’ll have to be organised and have proof that they have the wrong person. A good place to start is to write to the debt collection agency or PayPal and ask them to prove that you owe money. They legally have to provide you with that information. If they can’t, you might not have to pay.
If they do have some proof and you still think it’s incorrect, you’ll have to use any documents or bank/PayPal statements you have to the contrary. It’s rare that there are PayPal problems, but things like scams aren’t unheard of.
Know your rights
Because debt collection agencies are governed by FCA rules and guidelines, you do have certain legal rights when it comes to dealing with them. Knowing where you stand can make the process of dealing with companies like Wescot Credit Services or Akinika a whole lot easier.
There are a few things worth noting when it comes to your rights when dealing with debt collection agencies:
- Speaking with other people. They can’t approach your friends, families, or employers without your permission. Similarly, they can’t threaten to do so either.
- Adding money. They can’t add lots of extra charges or excessive interest to your debt.
- Lying to you. They can’t pretend to have legal powers they don’t have. This includes threatening you with bailiffs or sending letters that look like court orders. Similarly, they can’t harass or mislead you.
- Visiting you. Although they can visit you in person, they have no extra rights if they do so. Essentially, they have the same powers in person as over the phone. They have to give you appropriate notice if they are visiting you.
If you feel that a debt collection agency has breached these rules, you can lodge a formal complaint against them. If they don’t deal with your complaint in a satisfactory way, you can escalate it to the Financial Ombudsman Service.
Know their rights
Although their powers are limited initially, there are certain things that debt collection agencies can do. Most notably, if you continually ignore them, they can appeal to the courts to escalate matters. There are several potential outcomes from this:
- Register a default against your credit file. This is never a good thing, as it can negatively impact your credit. It will stay on your file for six years from the date it’s issued, even if you pay off the money.
- Issue a CCJ. A Country Court judgement is a court order that shows how much you owe and legally how much you have to pay. It shows the instalments and deadlines. Again, it can stay on your record for six years unless you pay it within a month.
- Petition you for bankruptcy. If your debt is greater than £5000, they can petition for bankruptcy. This means your assets can be sold to pay back your creditors. Again, this can have some fairly catastrophic impacts on your credit file for many years after.