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PayPal’s Terms and the Importance of Removing Barriers to Competition



By Nicholas Anthony, Cato Institute


In an unexpected turn of events, PayPal’s terms of service became the “must‐​read” document of the weekend. Careful readers quickly spotted that the updated document included the ability for PayPal to fine users $2,500 per violation for engaging in prohibited behaviors such as breaking the law, discriminating against others, selling or buying “items that are considered obscene,” selling or buying “certain sexually oriented materials or services,” or promoting misinformation.

As a private company, PayPal is certainly free to change its terms of service so long as it stays within the confines of the law. And as private citizens, users are likewise free to leave the platform and to criticize the business for its choices. But to the extent policymakers are frustrated with PayPal’s judgment, or lack thereof, they should use this incident to look toward fixing the bigger issue: namely, the laws and regulations that restrict the market for financial services.

For example, the simple act of sending money has been bogged down by laws and regulations around every turn for far too long. Consider just the process of registering as what’s known as a money transmitter business (e.g., businesses like PayPal, Venmo, Cash App, Western Union, or MoneyGram): this process requires licenses from the federal government and nearly every state of operation. More so, these businesses are also forced to report any time financial activity could potentially be illegal or when transactions exceed minimum thresholds. In fact, it was just earlier this year that these businesses were forced to report commercial transactions as low as $600 (previously $20,000) to the Internal Revenue Service (IRS).

The rise of cryptocurrencies is partly due to frustrations with these laws, and others, that have been weighing down the legacy financial system. But cryptocurrencies have consistently been held back as policymakers try to bootstrap the old laws to their use. For example, it was just last month that the Department of Justice seemingly suggested how it would like the laws for third‐​party services to apply to self‐​hosted wallets (i.e., a digital equivalent of the wallet in your pocket or purse). Prior to that, the infamous Infrastructure Act mandated cryptocurrency miners report transaction information they don’t have access to.

Congress should be embracing these new sources of competition for financial services, not chasing them away.

Although a spokesperson for PayPal said that the notice “went out in error” and “included incorrect information,” this event should still be a reminder of why it’s better to have more choices in the market, not less.


Nicholas Anthony is a policy analyst in the Cato Institute’s Center for Monetary and Financial Alternatives.