In Case the Buyer Wants It Back

The stated reason for the freeze is that the buyer might one day take the payment back. Under the same contract, taking the payment back is precisely what neither party is permitted to do: a hold makes the money “not available to either the sender or the recipient.”

And in Canada, money PayPal places under reserve is expressly carved out of the trust protections that cover everybody else’s balance.

Every factual claim in this article is drawn from PayPal’s own user agreement, its filings with the U.S. Securities and Exchange Commission, published Bank of Canada supervisory material, or a United States federal court record. Quotations were verified against the source documents. Sections marked as analysis are clearly identified as such.

PayPal Holdings reported net revenues of $33.2 billion in 2025. Buried inside that figure, in a line item the company reports separately from its main profitability metric, is $1.23 billion of interest earned on customer balances — money that belongs to PayPal’s users, sitting in PayPal’s accounts, earning a return that PayPal keeps in full.

This is not a secret and it is not an allegation. It is disclosed in the company’s annual report and set out in a single sentence in its contract with Canadian users.

What is less examined is the machinery that governs how long PayPal may keep hold of any individual user’s share of that money, who decides, on what evidence, and subject to what review. The answers, taken from PayPal’s own documents, are: up to 180 days, PayPal, undisclosed criteria, and none.

“PayPal owns the interest”

The PayPal Canada User Agreement — the version currently in force, last updated 10 June 2026 — contains a section titled Holding a PayPal Balance and Safeguarding Your Funds. It states:

“PayPal owns the interest, and you will not receive any interest on the funds held with us.”

And immediately after:

“Upon receipt (or by the next business day if processing is delayed), PayPal will combine the funds we receive from you, or on your behalf, with those received from, or on behalf of, other users and place them into one or more pooled accounts at eligible financial institutions which are not used for any other purpose (‘Safeguarded Funds’).”

An earlier edition of the same Canadian agreement described the arrangement more directly, stating that PayPal “combines your balance with the balances of other users and invests those funds in liquid investments. PayPal owns the interest or other earnings on these investments.”

Users are told plainly that they will receive nothing: “You will not receive any interest on the funds held with PayPal.”

What the float is worth

PayPal’s Form 10-K for the 2025 financial year, filed with the SEC, sets out the scale of the money involved.

Roughly $14.5 billion of customer money is invested in bonds. A further $16 billion sits in cash and cash equivalents, and $94 million in time deposits.

PayPal’s market-risk disclosure in the same filing identifies the exposure without ambiguity. The company states it is subject to interest rate risk arising from “interest-rate sensitive assets underlying the customer balances we hold on our consolidated balance sheets as customer accounts.”

The company also removes this revenue from its headline profitability measure and explains why in its fourth-quarter 2025 earnings release: it excludes interest on customer balances “because the impact of changes in interest rates on customer balances is not within the company’s control.”

That is the language of float income — revenue generated not by selling a product, but by holding other people’s money during the interval before they can take it back.

The 180-day hold

The same Canadian user agreement sets out what PayPal may do to an account. Among the listed actions:

“Holding your PayPal balance for up to 180 days if reasonably needed to protect against the risk of liability or if you have violated our Acceptable Use Policy. The hold may remain in place longer than 180 days according to Court Orders, Regulatory Requirements or Other Legal Processes.”

Elsewhere the agreement confirms that a hold may last “no longer than 180 days” while a disputed transaction is resolved, and that where a hold, reserve or limitation results from a court order or regulatory requirement, it “may remain in place longer than 180 days.”

The agreement also describes what a hold does to the money:

“When PayPal places a temporary hold on a payment, the money is not available to either the sender or the recipient.”

The 180-day figure is not arbitrary. It corresponds to the window during which a buyer may open a dispute — the agreement elsewhere directs users to “open a dispute in the Resolution Centre within 180 days of the date you sent the payment.” Holding funds for the length of the dispute window is a coherent way to manage the risk of a payment being reversed after the fact.

Sole discretion, undisclosed criteria

The agreement is explicit that PayPal need not explain a hold, and need not disclose what would resolve one.

“Our decision about holds, limitations and reserves may be based on confidential criteria that are essential to our management of risk and the protection of PayPal, our customers and/or service providers.”

“In addition, we may be restricted by regulation or a governmental authority from disclosing certain information to you about such decisions. We have no obligation to disclose the details of our risk management or security procedures to you.”

Users are simultaneously required to cooperate: the agreement states that account holders “agree to cooperate with PayPal’s reasonable requests for financial statements and other documentation or information in a timely fashion.”

The structure this creates is one in which a user may be asked to produce documents, may produce them, and has no contractual entitlement to be told what standard those documents were assessed against, why they were found wanting, or what would suffice. The agreement provides no internal appeal to any body outside the company.

The carve-out

Canada’s Retail Payment Activities Act brought payment service providers under Bank of Canada supervision, with ongoing compliance obligations taking effect on 8 September 2025. Among them is a duty to safeguard end-user funds — broadly, to hold customer money in trust, in segregated accounts used for no other purpose, so that users are protected if the provider fails.

PayPal’s Canadian agreement commits to this, defining the protected money as “Safeguarded Funds” and promising to “hold Safeguarded Funds in trust for you unless we use another method permitted by the Retail Payment Activities Act to safeguard them.”

It then sets out what that protection does not cover:

“Please note Safeguarded Funds do not include funds that we: • Place under reserve, as described in the ‘Holds, Limitations and Reserves’ section of this Agreement or as described in any other agreement between you and PayPal; credit to your balance before receiving funds from a transaction; and receive with instructions for immediate transfer.”

Money PayPal has placed under reserve is excluded from the trust protections that cover the rest of customer money.

The Bank of Canada’s supervisory guideline Safeguarding End-User Funds describes the statutory duty as applying to a provider that performs “the holding of funds on behalf of an end user until they are withdrawn by the end user or transferred to another individual or entity.” On its face, that language describes funds being held rather than excluding them.

The guideline separately confirms that providers may keep the interest earned on end-user funds, while cautioning that where funds are held in trust, a provider “should seek legal advice to confirm that retaining the interest earned does not jeopardize or invalidate the trust arrangement.”

Whether PayPal’s reserve carve-out is consistent with the Act is a question for the Bank of Canada. It does not appear to have been publicly raised.

Analysis: the incentive is structural

The following section is analysis, drawn from the facts set out above.

Three propositions, each taken from PayPal’s own documents, combine into a fourth.

PayPal earns interest on customer money it holds. PayPal retains that interest in full, and the user receives none of it. The amount earned rises with both the size of the balance and the length of time it is held.

It follows, as arithmetic rather than accusation, that PayPal has a financial interest in holding customer money, and in holding it for longer. Each day a balance remains locked is a day it earns for the company rather than the account holder. This is a description of the product’s structure, not a claim about anyone’s motives.

The sums involved are trivial at the individual level. At an implied yield of roughly 4.0% — derived by dividing the $1.23 billion reported for 2025 by approximately $30.5 billion of interest-bearing customer assets — a balance of $1,000 held for the full 180 days would generate in the region of $20 for PayPal. No individual account is worth freezing for that.

The relevant question is therefore not about any single decision. It is a governance question: why does a company that earns more the longer a hold lasts also serve as the sole, unreviewable judge of how long it lasts, applying criteria it is not obliged to disclose, with no external appeal?

Elsewhere in financial regulation, that combination is treated as a conflict requiring a structural remedy — independent review, disclosure obligations, time limits subject to challenge. Under the terms of PayPal’s user agreement, none of those applies.

It should be noted that PayPal does not disclose what proportion of the $1.23 billion is earned on funds under hold, reserve or limitation, and no public document establishes that figure.

Analysis: the refund question

The following section is analysis.

The stated purpose of the 180-day hold is to cover the period during which a payment may be disputed or reversed. That is a real risk and a coherent reason to retain funds.

It is also a circular one.

The event PayPal is protecting against is the money going back to the buyer. The remedy PayPal declines to offer is sending the money back to the buyer. These are the same event. One is a catastrophe requiring six months of custody; the other is a button the platform already has.

A refund to the sender would extinguish the risk entirely, because there would be nothing left to reverse. The buyer would hold their money — the identical destination a successful chargeback produces, and the precise outcome the 180-day mechanism exists to guarantee — achieved on day one instead of day 180. The stated objective would be met in full, immediately, at no cost to anyone.

The difference between the two outcomes is not where the money ends up. It is who holds it, and earns on it, for the intervening six months.

There is a reasonable argument against. Refunding the buyer is a substantive outcome favouring one party. Where goods have shipped, a buyer might receive both the goods and a refund. A processor may prefer not to adjudicate, and to hold the funds neutrally while the window runs.

That argument is weaker in two circumstances. Where an account has been permanently limited and the commercial relationship ended, there is no continuing merchant relationship to balance and no future transactions to protect. And where the account holder themselves requests the refund, the neutrality rationale largely falls away: both parties would consent, the buyer would be made whole sooner, and the reversal risk would be eliminated outright.

Refunding within 180 days is a standard function of the platform, used routinely by sellers. Under PayPal’s terms, a hold renders the money “not available to either the sender or the recipient” — a state in which neither party to the transaction can direct the funds, and the agreement does not identify who can.

Precedent

In Zepeda v. PayPal, Inc., brought in the United States District Court for the Northern District of California, users alleged that PayPal placed holds, reserves and limitations on accounts without adequate notice, and in some cases suspended or closed them. The case settled.

The court granted final approval on 24 March 2017 to a settlement fund reported at $3.2 million, with a total cost to PayPal of approximately $4 million. Contemporaneous reporting by Courthouse News Service records that at least $1.84 million was allocated to class members who had lost interest on money in frozen accounts. PayPal denied wrongdoing and agreed as part of the settlement to improve its disclosures around holds, reserves and dispute resolution.

The relevant point is not the sum. It is that a court-approved settlement has already treated interest forgone on frozen funds as a cognisable loss to users. The underlying arrangement — the company decides, the company holds, the company keeps the interest — remained in place.

Five questions PayPal has never publicly answered

None of the following is addressed in PayPal’s user agreement, its investor disclosures, or its published help documentation.

1. When a seller whose account has been permanently limited asks PayPal to return a held payment to the sender, why is that request refused, given that a refund would extinguish the reversal risk the hold exists to cover?
2. Does PayPal’s exclusion of reserved funds from “Safeguarded Funds” place those funds outside the trust protections required by the Retail Payment Activities Act, and on what legal basis?
3. What proportion of the $1.23 billion in interest on customer balances reported for 2025 was earned on funds under hold, reserve or limitation?
4. Does PayPal track the average and median duration of holds and limitations, and will it publish those figures?
5. What recourse does a Canadian user have when they have supplied every document requested and a hold is not lifted?

Sources

• PayPal Canada User Agreement, currently in force, last updated 10 June 2026, at paypal.com/ca/legalhub — “PayPal owns the interest”; pooled accounts; the Safeguarded Funds reserve carve-out; holds of up to 180 days; the 180-day dispute window; sole-discretion and non-disclosure clauses. Every quotation in this article was verified against the live text of that version. The same wording appears in the 25 August 2025 edition, indicating the provisions have been stable across at least two revisions.
• PayPal Canada User Agreement, archived earlier edition — “invests those funds in liquid investments. PayPal owns the interest or other earnings on these investments.”
• PayPal Holdings, Inc., Form 10-K, FY2025, filed with the SEC — consolidated balance sheet; composition of funds receivable and customer accounts; interest-rate risk disclosure; description of revenue from “interest earned on certain assets underlying customer balances.”
• PayPal Q4 and FY2025 Earnings Release — interest on customer balances of $1,230M (2025) and $1,284M (2024); stated rationale for excluding the item from transaction margin.
• Bank of Canada, Safeguarding End-User Funds, supervisory guideline — scope of the safeguarding duty under s. 20(1) RPAA; provider retention of interest earned on end-user funds.
• Retail Payment Activities Act (Canada), s. 20 — safeguarding obligations; ongoing compliance requirements in force 8 September 2025.
• Zepeda v. PayPal, Inc., N.D. Cal. — settlement fund reported at $3.2 million, final approval 24 March 2017; approximately $1.84 million allocated to class members who lost interest on frozen funds, per contemporaneous reporting by Courthouse News Service.

PayPal Holdings financial figures are in U.S. dollars as reported to the SEC. The 4.0% implied yield and the $20 illustration are TNN’s calculations from the reported figures and are identified as estimates.