I recently tried to open a PayPal account for my company, Celtic Wolf.  We’re accepting credit cards for web hosting and project payments.  In addition, meetup.com, eventbrite.com and other services that we use can collect payment for you via PayPal.  While PayPal has gotten a lot of bad press for being accused of heavy-handed business practices and ignoring complaints, they’re still the biggest online payment processor and, as mentioned, can be integrated with a lot of sites and web applications.

Things started off well enough. I filled out the application and supplied my company’s information.  It’s a corporation, so I supplied the corporation’s Employer Identification Number (EIN).  A couple of days later, I got a form e-mail saying that they couldn’t “verify the corporation” using the EIN and asking for my Social Security Number (SSN).  I called their customer support and was transferred to a specialist in the merchant services area.  When I asked about this, they confirmed that it meant that the credit report they pulled didn’t have enough information.  That’s not really a big surprise, as Celtic Wolf has basically been a cash company in the past.  What I mean by “cash company” is that we do work and get paid by check.  The checks are deposited in the bank and we write checks to pay our bills.  Being a virtual company, we don’t have an office lease.  I have a corporate credit card, but that’s about it.  That doesn’t add up to much of a credit history for the company.

Because of that, I can understand that they want to check the credit of the owner.  However, I have some concerns about what else they’d do with the information.  I asked the representative with whom I spoke, but he couldn’t tell me.  He did say that in cases like this, they ask for the SSN of the CEO, CFO or whoever is filling out the application.  He suggested that I email the underwriting department, which I did.  I received a response very quickly.  However, the response didn’t address my question clearly.  They gave me some information by telling me that the information I supplied would be passed to their merchant bank, Wells Fargo.  However in the same message they said that they needed either an EIN or an SSN.  I had already supplied an EIN and wanted to know what they were going to do with the SSN, and that wasn’t explicitly answered.  It was as if they hadn’t read my message but had just skimmed it.  The respondent also indicated that they needed the information for accounts that would “accept a high volume of credit card payments”.  Since the application clearly indicated that the volume would be low, I asked for clarification on that point.

Six hours later, I received another copy of the form e-mail.  Perhaps it was automatically sent since the account was still pending, but in the absence of a reply from a human, it was a little irritating.

The next morning, I got a reply from a different representative, asking me to call an 888 number to discuss the issue.  It turns out that the 888 number was the main customer service number.  Once again, I was bumped up to an account specialist who could not access the case number attached to my issue.  I was being pawned off.  Maybe the people complaining in the articles linked above didn’t have unusual experiences?

I spoke to this new person and explained the issue to him.  My concern isn’t that Wells Fargo is going to pull my personal credit report.  My concern is that PayPal is going to attach my SSN to the account, effectively commingling personal and corporate assets.  When you’re the owner of a small, privately owned corporation, that’s a very bad thing.  In the event that we were sued, the plaintiff’s attorney might be able to use something like that to pierce the corporate veil and attach my personal assets to the suit.  I don’t know how big a danger this is, as I’m not an attorney.  I also have no idea if PayPal would actually do this, but that’s their fault; they won’t answer my question.

In trying to explain my issue to the latest representative, I asked if it would be okay for a bank to request his SSN when opening an account for PayPal.  He stated that it was different because PayPal is a publicly traded company.  That’s incorrect; it’s not different.  Unless I’m very much mistaken, a corporation is a corporation when it comes to the rules that govern its behavior, including the rules with respect to commingling.  Being publicly traded or privately owned isn’t relevant to the basic issue.

Moreover, hypothetically attaching the SSN of an employee of the company to the PayPal account (as described by the first representative with whom I spoke) is a bad idea for a number of reasons:

1. It muddies the issue of ownership of the account, especially if the employee is not the majority stock holder or not a stock holder at all.
2. Does the employee incur any personal liability for the activities in the account?
3. Will the account show up on the employee’s personal credit report?
4. What happens when the employee leaves the company?
   1. Can they wrest control of the account from the employer?
   2. Does the former employee remain liable for activity on the account?
   3. Will the account continue to appear on their personal credit report?
5. If the SSN belongs to the sole stock holder, what happens if the corporation is sold?

Again, this is all speculation on my part, as I don’t actually know what PayPal does with the SSN, because they won’t tell me.  I’m not going to assume anything based on what the representative told me, as he may have imperfect or incorrect knowledge of the company’s policies and practices.  I did some googling and found a number of people who had the same or similar issues with using an EIN.  In this thread, one of the posters states that telling them that you’re a publicly owned corporation instead of a privately owned one will get around the requirement for an SSN on the application, but that’s dishonest and might rise to the level of fraud.

Instead of PayPal, we’re using a merchant account.  The fees will likely be higher, and they’re still going to want my SSN, but because the merchant bank will be subject to U.S. and Virginia banking regulations, will list the account under my company’s EIN and because I can have confidence that they will use standard practices for the industry, I’m much more comfortable with this arrangement.  I have no such confidence in PayPal, which has not been determined to be subject to U.S. and state banking regulations.

It may be that my concerns are misplaced.  I’m contemplating writing a letter to the CEO of PayPal to point out their failure to convey clear information on this subject, and hopefully get a clear answer.  As it stands now, however, we won’t be using PayPal, nor will we be recommending it to our clients.