Monday, August 17, 2015

Recipe for Paypal Shutdown

For the past several months, my parents have been actively using our various Paypal accounts. This has helped us both (a) meet minimum spend requirements for credit cards and (b) generate a lot of point/mile rewards.

Here's our recipe for success (as defined by being so good at generating fake spend that Paypal shuts you down).

1. Paypal Account
2. Paypal Debit Card
3. Paypal My Cash Reload Card
4. Citi Credit Card

The Recipe
First, we would purchase a Paypal MyCash at a Duane Reade, CVS or 7-11 and load $500 on each card. Including the $3.95 loading fee, we'd be "spending" $503.95 each card. Ideally, we would use our Citi credit card which would post a $503.95 transaction several days later.

Second, we would load the $500 of value onto our online Paypal account. Since our Paypal Debit card was linked to the account, we could use the Debit card anywhere debit cards are accepted.

Third, we would then call up Citi and ask to pay down $500 of our outstanding credit card balance using our debit card. Normally, banks prefer you use a linked checking account (ACH transfers are free for them), but Citi is the only major bank willing to eat the debit card transaction fees to take your payment. The payment posts immediately.

Fourth, we would pay off the residual $3.95 outstanding credit card balance so that we get back to a $0 balance on our Citi credit card. So at the end of the day, you could generate at least 504 points for a net cash outlay of $3.95, which implies a cost per point of 0.8 cents.

The Math
However, my father was using a Citi card that had a special 6 month promotion that earned him 3x Thank You points on any regular spend. Because of this promotion, we actually generated 1,512 points on each transaction, which was worth $18.90 (1,512 points x 3 pts/$ x 1.25 cents/point). So a net profit of $14.95 per transaction.

Multiply this recipe about 8-20x a month for multiple months and you can see how prolific we were in this strategy.

The Shutdown
Unfortunately, last week, we received a notification from Paypal that our accounts were now limited due to unusual transaction activity.
We recently noticed an issue with your account. What's the problem? We would like to learn more about some of your recent transactions. Case ID Number: PP-XXX-XXX-XXX-709
Because of this issue, your account has been permanently limited. We understand this may be frustrating and inconvenient but you'll still be able to see your transaction history for a limited time. You can get more details about your account limitation in the Resolution Center. 
For more information, please contact us and we'll do our best to help. You'll be able to withdraw money from your account within 180 days. We'll email you when it's available. We just want to make sure that you have money in your account to cover any payment reversals.
Fortunately, we didn't have a lot of money tied up in our Paypal accounts. It would have been a pretty big problem if we had say $3,000 tied up for 6 months, but we only had about $35 since we were using our Paypal accounts to pay for our discounted Lyft rides.

Then a few minutes later, we received a notification from Paypal stating that we could now withdraw our remaining funds, so we immediately logged on and withdrew the small balance we had in our accounts.

Paypal can be a great strategy to generate a lot of "spend," but they clearly don't want you using their platform to do so. While we were not doing anything illegal, the pattern of behavior is likely similar to criminals who are doing something nefarious. So we completely understood when Paypal shut us down to reduce their exposure. As with many things in this game, proceed with caution and take calculated risks.

Now what's next...?

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