I got one of those boring policy updates from PayPal this week which I usually never bother to read, but this section was in bold and underlined, which drew my attention:

You will, with limited exception, be required to submit claims you have against PayPal to binding and final arbitration, unless you opt out of the Agreement to Arbitrate (Section 14.3) by December 1, 2012. Unless you opt out: (1) you will only be permitted to pursue claims against PayPal on an individual basis, not as a plaintiff or class member in any class or representative action or proceeding and (2) you will only be permitted to seek relief (including monetary, injunctive, and declaratory relief) on an individual basis.

This article at Citizen Vox explains what PayPal is doing in plain English. If you don’t opt out:

1. You can’t sue PayPal in court before a judge and/or jury. You have to go to binding arbitration where they will have the advantage.
2. You can’t join a class action suit. You have to submit a claim individually. That means that if PayPal does something to screw over its customers, you can’t join a group of people to bring a claim against them together. You’d have to do it by yourself.

I’ve been a part of some class action suits, like the one about Amazon fixing ebook rates, and another one about CD price fixing. (I apologize for the FoxNews link, but it was the first relevant article I found in my search.) The lawyers are the ones who get most of the money, but you usually get a few bucks that you didn’t have to do any real work for, so why not leave that option available?

As a freelancer who accepts a lot of payments through PayPal, it’s important for me to retain as many legal rights as I can if I ever have to file a claim against them. I’ve heard horror stories about people who’ve been frozen out of accounts holding thousands of dollars. It’s my understanding that PayPal is not a bank, and thus is not regulated like a bank. They don’t play by the same rules as banks do. They’re not FDIC insured either, though they do hold your money in FDIC insured banks, so you get pass-through insurance. (A “How Stuff Works” article about that here.) I always get my money out of my PayPal account as quickly as possible because I’m afraid they’ll lock me out for some frivolous reason. I view them as a necessary evil, but I definitely don’t trust them. If I ever have a problem with them, I don’t want to be forced to play by arbitration rules that favor them.

Another reason that opting-out of arbitration is a probably good idea is that PayPal has made it incredibly hard for you to do so. You have to write a letter printed on paper and stick it in a stamped envelope and mail it to a physical address. PayPal is a company that became popular because they made it EASY to send money ELECTRONICALLY. Opting out of the arbitration agreement is neither. The fact that they clearly don’t want you to do this means that you probably should do it. I’m not a lawyer though, and I’m not qualified to give you legal advice, so proceed at your own risk.

You can download a letter template in that article I linked above, or download a PDF that’s linked a few messages down on this ebay forum here. They tell you what address to mail the letter to. If you’re an existing user, you have until December 1, 2012 to opt out. If you set up a new account, you have 30 days from the account creation date to opt out.

Good luck! Although PayPal does pay, they are definitely not your pal.