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PayPal Redirects Charitable Contributions Without Consent, Lawsuit Says

The PayPal Giving Fund lists more than a million charitable organizations that can receive donations through its website. But a lawsuit alleges that many groups do not receive the gifts because they are required to have accounts with PayPal.Credit...Jeff Chiu/Associated Press

When Terry Kass received an email from PayPal in late December encouraging her to donate to charities through its Giving Fund platform, she searched its website for ones she could help. She settled on 13 groups — most in her Chicago suburb — and gave a total of $3,700 to them.

But when Ms. Kass followed up with one of the recipients, the Highland Park-Highwood Legal Aid Clinic, she discovered that the group had not been notified about her gift, nor had even received it. It was not a fluke, she said. She learned that 10 of the 13 groups — all of which had profile pages on the PayPal site that included biographical information and mission statements — were also unaware of donations through the site, she said.

A federal class action lawsuit filed on Tuesday said that Ms. Kass and thousands of other donors have been misled by PayPal Giving Fund, and that their gifts never reached the intended charities. The company has a policy of redirecting contributions to other organizations if the intended charity does not register an account with the site, Ms. Kass said, adding that neither donors nor intended charities are informed of any switch.

“I don’t want to file my taxes to the federal government saying I gave to a charity that never got my money,” Ms. Kass, a retired lawyer, said in an interview. “It’s their money. They are entitled to the money.”

The philanthropic website by PayPal, the digital payment company, has become a major player in online fund-raising for charitable organizations worldwide, processing $7.3 billion in contributions last year. The Giving Fund site lists over one million organizations that can receive gifts, from well-known international nonprofits like Save the Children to obscure animal shelters like the Yogie and Friends Exotic Cat Sanctuary in Louisiana.

Despite promises that 100 percent of donations go to the selected charities, the gifts are delivered only if the groups register accounts on both PayPal and the Giving Fund site, the lawsuit says.

The lawsuit, filed in the Federal District Court of Northern Illinois, claims that hundreds of thousands of charities have never received donations earmarked for them.

“The bottom line is that many, many entities listed on the website are not actually registered,” Chris Dore, a lawyer representing Ms. Kass, said in an interview. “It is something that is really concerning and shocking.”

Donors are not informed before or after making a donation whether their intended charities have accounts, Ms. Kass said. In a frequently asked questions section on the Giving Fund’s site, it says that organizations not enrolled will be informed of the donations and be given at least six months to register accounts to claim the gifts. Otherwise, it says, “We may reassign their funds to another charitable organization.”

A spokesman at PayPal did not respond to questions about how much money has been redirected and how the company decides which groups receive them. In a statement on Wednesday, a spokesman said that the company was reviewing the lawsuit.

PayPal released a statement on Thursday saying it has not redirected any charitable contributions made during the recent holiday giving season, the period in which Ms. Kass said she made her donations through the site. “We are disappointed by the lawsuit, and we are fully prepared to defend ourselves vigorously,” it said.

Ms. Kass said she decided to contribute to groups through the Giving Fund site because in a Dec. 30 email it said it would waive the usual transactional fees and give an additional 1 percent to the selected charities for gifts made by year’s end.

Her family, including her three children, helped pick the 13 groups for donations. She gave $2,500 to the Highland Park-Highwood Legal Aid Clinic, where she is a board member, and also $200 to the DC Central Kitchen in Washington, which is run by a family friend.

She first noticed something was awry at a legal aid board meeting in January when the executive director reviewed the group’s charitable donations for 2016. When Ms. Kass’s donation was not mentioned, she said she asked whether her gift had been received. There was no record of it or of any donation of that exact amount, she said.

Nancy Rotering, the founder and a board member at the legal aid society in suburban Chicago, said her group may have never known about the donation had Ms. Kass not mentioned it. It did not have an account with the Giving Fund, even though its profile page there included its logo, mission statement and tax identification number.

“Why on earth are we on there without our own account to have these funds donated and then to not receive them?” Ms. Rotering said in an interview.

Before donating $200 to the soup kitchen in Washington, Ms. Kass said she compared its Giving Fund profile page with its official website, making sure she had the correct group. Everything lined up, she said, so she sent the donation, only to find out later that the DC Central Kitchen did not have an account.

“There was no way for me to know that this soup kitchen was not eligible to receive the money from PayPal,” Ms. Kass said. “These are small charities that could use every dollar that they can get.”

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