Showing posts with label liabilities. Show all posts
Showing posts with label liabilities. Show all posts

Friday, October 24, 2014

Shielded from Justice: The High Cost of Living in a Police State

By John W. Whitehead
October 14, 2014

“It’s been over five months since the night a SWAT team broke into the house in which we were staying…We were staying with relatives and my whole family was sleeping in one room. My husband and I, our three daughters and our baby (nicknamed “Baby Bou Bou”) in his crib. Dressed like soldiers, they broke down the door. The SWAT officers tossed a flashbang grenade into the room. It landed in Baby Bou Bou’s crib, blowing a hole in his face and chest that took months to heal and covering his entire body with scars.

“Doctors tell us that my son will have to have double reconstructive surgeries twice a year, every year for the next 20 years… [I]n five short months our family has taken on nearly $900,000 in medical bills, some of which have now gone into collections… After initially offering to cover the medical expenses, the county has since refused to cover any of our medical costs, all of which would never have happened if the SWAT team hadn’t broken into the home.”—Alecia Phonesavanh

Who pays the price for the police shootings that leave unarmed citizens dead or injured, for the SWAT team raids that leave doors splintered, homes trashed, pets murdered, and family members traumatized and injured, if not dead?

I’m not just talking about the price that must be paid in hard-earned dollars, whether by taxpayers or the victims, in attempting to restore what was vandalized and broken by police. It’s also the things that can’t be so easily calculated to a decimal point: the broken bones that will never quite heal right, the children’s nightmares at night, the uneasy sleep, the broken family heirlooms, the loss of faith in a system that was supposed to serve and protect you, the grief for loved ones whose lives were cut short.

Baby Bou Bou may have survived the misdirected SWAT team raid that left him with a hole in his face and extensive scars on his body, but he will be the one to pay the price for the rest of his life for the SWAT team’s blunder in launching a flashbang grenade into his crib. And even though the SWAT team was wrong about the person they were after, even though they failed to find any drugs in the home they’d raided, and even though they may have regretted the fact that Baby Bou Bou got hurt, it will still be the Phonesavanh family who will pay and pay and pay for the endless surgeries every year to reconstruct their son’s face as he grows from toddler to boy to teenager to man. Already, they have racked up more than $900,000 in medical bills. Incredibly, government officials refused to cover the family’s medical expenses.

That is just one family’s experience, the price they must pay for living in a police state. Tally their pain, their loss and their medical bills, and add it to that of the hundreds of other families in cities and towns across the nation who are similarly reeling from the blows inflicted by the government’s standing armies, and you will find yourself reeling. For many of these individuals, there can never be any amount of reparation sufficient to make up for the lives lost or shattered.

As for those who do get “paid back,” at least in monetary terms for their heartache and loss, it’s the taxpayers who are footing the bill to the tune of millions of dollars. Incredibly, these cases hardly impact the police department’s budget. As journalist Aviva Shen points out, “individual officers are rarely held accountable for their abuses, either by the police department or in court… Internally, police departments rarely investigate complaints of misconduct, let alone punish the accused officers. Because cities insulate police officers and departments from the financial consequences for their actions, police on the street have little incentive to avoid unnecessary force, and their departments may not feel the need to crack down on repeat offenders. And so the bill for taxpayers keeps growing.”

For example, Baltimore taxpayers have paid roughly $5.7 million since 2011 over lawsuits stemming from police abuses, with an additional $5.8 million going towards legal fees. That’s money that could have been spent on a state-of-the-art recreation center or renovations at more than 30 playgrounds. As the Baltimore Sun reports: “Victims include a 15-year-old boy riding a dirt bike, a 26-year-old pregnant accountant who had witnessed a beating, a 50-year-old woman selling church raffle tickets, a 65-year-old church deacon rolling a cigarette and an 87-year-old grandmother aiding her wounded grandson… Officers have battered dozens of residents who suffered broken bones — jaws, noses, arms, legs, ankles — head trauma, organ failure, and even death, coming during questionable arrests. Some residents were beaten while handcuffed; others were thrown to the pavement.”

New York taxpayers have shelled out almost $1,130 per year per police officer (there are 34,500 officers in the NYPD) to address charges of misconduct. That translates to $38 million every year just to clean up after these so-called public servants. Over a 10-year-period, Oakland, Calif., taxpayers were made to cough up more than $57 million (curiously enough, the same amount as the city’s deficit back in 2011) in order to settle accounts with alleged victims of police abuse.

Chicago taxpayers were asked to pay out nearly $33 million on one day alone to victims of police misconduct, with one person slated to receive $22.5 million, potentially the largest single amount settled on any one victim. The City has paid more than half a billion dollars to victims over the course of a decade. The Chicago City Council actually had to borrow $100 million just to pay off lawsuits arising over police misconduct in 2013. The city’s payout for 2014 should be in the same ballpark, especially with cases pending such as the one involving the man who was reportedly sodomized by a police officer’s gun in order to force him to “cooperate.”

Over 78% of the funds paid out by Denver taxpayers over the course of a decade arose as a result of alleged abuse or excessive use of force by the Denver police and sheriff departments. Meanwhile, taxpayers in Ferguson, Missouri, are being asked to pay $40 million in compensation—more than the city’s entire budget—for police officers treating them “‘as if they were war combatants,’ using tactics like beating, rubber bullets, pepper spray, and stun grenades, while the plaintiffs were peacefully protesting, sitting in a McDonalds, and in one case walking down the street to visit relatives.”

That’s just a small sampling of the most egregious payouts, but just about every community—large and small—feels the pinch when it comes to compensating victims who have been subjected to deadly or excessive force by police. The ones who rarely ever feel the pinch are the officers accused or convicted of wrongdoing, “even if they are disciplined or terminated by their department, criminally prosecuted, or even imprisoned.”

Indeed, a study published in the NYU Law Review reveals that 99.8% of the monies paid in settlements and judgments in police misconduct cases never come out of the officers’ own pockets, even when state laws require them to be held liable. Moreover, these officers rarely ever have to pay for their own legal defense. As law professor Joanna C. Schwartz notes, police officers are more likely to be struck by lightning than be made financially liable for their actions.

Schwartz references a case in which three Denver police officers chased and then beat a 16-year-old boy, stomping “on the boy’s back while using a fence for leverage, breaking his ribs and causing him to suffer kidney damage and a lacerated liver.” The cost to Denver taxpayers to settle the lawsuit: $885,000. The amount the officers contributed: 0.

Kathryn Johnston, 92 years old, was shot and killed during a SWAT team raid that went awry. Attempting to cover their backs, the officers falsely claimed Johnston’s home was the site of a cocaine sale and went so far as to plant marijuana in the house to support their claim. The cost to Atlanta taxpayers to settle the lawsuit: $4.9 million. The amount the officers contributed: 0.

Meanwhile, in Albuquerque, a police officer was convicted of raping a woman in his police car, in addition to sexually assaulting four other women and girls, physically abusing two additional women, and kidnapping or falsely imprisoning five men and boys. The cost to the Albuquerque taxpayers to settle the lawsuit: $1,000,000. The amount the officer contributed: 0.

In its report on police brutality and accountability in the United States, Human Rights Watch notes that taxpayers actually pay three times for officers who repeatedly commit abuses: “once to cover their salaries while they commit abuses; next to pay settlements or civil jury awards against officers; and a third time through payments into police ‘defense’ funds provided by the cities.”

A large part of the problem can be chalked up to influential police unions and laws providing for qualified immunity, which invariably allow officers to walk away without paying a dime for their wrongdoing. Conveniently, those deciding whether a police officer should be immune from having to personally pay for misbehavior on the job all belong to the same system, all cronies with a vested interest in protecting the police and their infamous code of silence: city and county attorneys, police commissioners, city councils and judges.

In a nutshell, the U.S. Supreme Court’s reasoning when it comes to qualified immunity for government officials (not just police officers) is essentially that these officials might be too cautious in carrying out their duties if there was a risk that they might be held personally liable for wrongdoing on the job. Frankly, we’d be far better off if government officials operated under the constant fear that there would be ramifications for wrongdoing on the job. As it now stands, we’ve got way too many lawbreakers, scoundrels, cheats and thugs on the government’s payroll, (many of whom are actually elected to office).

So what’s the solution, if any, to a system so clearly rigged that it allows rogue cops who engage in excessive force to wreak havoc with no fear of financial consequences? As HRW concludes:
The excessive use of force by police officers, including unjustified shootings, severe beatings, fatal chokings, and rough treatment, persists because overwhelming barriers to accountability make it possible for officers who commit human rights violations to escape due punishment and often to repeat their offenses…. Officers with long records of abuse, policies that are overly vague, training that is substandard, and screening that is inadequate all create opportunities for abuse. Perhaps most important, and consistently lacking, is a system of oversight in which supervisors hold their charges accountable for mistreatment and are themselves reviewed and evaluated, in part, by how they deal with subordinate officers who commit human rights violations. Those who claim that each high-profile case of abuse by a “rogue” officer is an aberration are missing the point: problem officers frequently persist because the accountability systems are so seriously flawed.

Unfortunately, we’re so far gone as a nation in terms of cronyism, corruption and unequal justice that there’s little hope of reformation working from the top down. As I point out in A Government of Wolves: The Emerging American Police State, if any change is to be made, if any hope for accountability is to be realized it must begin, as always, at the local level, with local police departments and governing bodies, where the average citizen can still, with sufficient reinforcements, make his voice heard.

So the next time you hear of a police shooting in your town of an unarmed citizen, don’t just shrug helplessly and turn the page or switch the channel. Form a coalition of concerned citizens and call your prosecutor’s office, email the police department, speak out at your city council meeting, urge your local paper to cover the story from both sides, blog about it, stage a protest, demand transparency and accountability—whatever you do, make sure you send the message loud and clear that you do not want your taxpayer dollars supporting illegal and abusive behavior.

Monday, December 19, 2011

How Pay-Pal Squeezes Merchants with Unfair and Likely Illegal Business Practices

A class-action suit charges Pay-Pal with some shady practices that leave small businesses in a jam.
By Simon Waxman, AlterNet
Posted on December 18, 2011

When Andrew Sauter decided to start taking online credit card payments for his small business, he didn’t think twice about PayPal, the dominant Web-based money transmitter in the United States.

A subsidiary of the auction giant eBay, PayPal bills itself as “the faster, safer way to pay and get paid online” and “the world’s most loved way to pay and get paid.” There are 103 million active PayPal accounts, and in the third quarter of 2011 alone the company processed $29.3 billion in payments. According to a February Reuters report, 59 of the top-100 American e-commerce sites use PayPal.

With PayPal, Sauter was able to process credit card transactions quickly and at reasonable rates. And it was easy to sign up for, perfect for his growing company, which designs Facebook marketing campaigns. More importantly, customers demanded it.

In exchange for the service, Sauter paid 2.2 percent of each transaction to PayPal, along with a $30-per-month fee, totaling about $5,400 over the life of the account. For four years, everything worked.

But when he checked his account on September 3, he found an unwelcome surprise. Instead of the nearly $2,600 he expected, his available balance was only $192, with $2,399 listed as “pending.” PayPal was reserving 30 percent of the value of each of his transactions for 90 days. The reserve was applied retroactively, creating a sudden cash-flow problem that threatened to shut him down or force him to take on expensive and otherwise-unnecessary loans.

What followed for Sauter mirrors the experiences of many other merchants who rely on, and reward, PayPal to make their businesses function: a battle with an opaque corporate bureaucracy marked by frustration, desperation and dead-ends. With the help of the Illinois Department of Financial and Professional Regulation, Sauter, who lives in Chicago, would eventually get his money and compel PayPal to withdraw its reserve permanently. He also joined Zepeda v. PayPal, an ongoing class-action lawsuit representing, according to one of the principle litigants, more than 1,800 plaintiffs in similar situations.

PayPal insists that its reserves policy is a risk-management tool that benefits consumers, an untold number of whom will use the company’s payment tools to buy gifts this holiday season. By zealously policing merchant activity, PayPal hopes to retain its most vital resource: shoppers’ trust. As long as shoppers want to use PayPal, merchants feel they have little choice but to offer it.

Their stories reveal how PayPal takes advantage of its indispensability and its customers—and how a legal apparatus that ignores real harm empowers it to do so. Backed by finely crafted disclaimers, the “faster, safer” online transactions company seizes merchants’ funds and refuses to tell them why.On the basis of eBay's 2010 Annual Report and statements from PayPal representatives, there is good reason to suspect that the company not only protects itself with that money, but also invests it for its own gain. And in the process, it may violate state laws.

PayPal didn’t invent seller holds and reserves. As the company describes them, they serve a purpose much like escrow; a way to ensure fair dealing between buyers and sellers. And credit card processors routinely withhold portions of some merchants’ funds in order to protect themselves from chargebacks.

Say you’re in Michigan, and you use your credit card to buy a gold coin from an online seller in Florida. He sends you a nickel, or he sends you nothing at all. You’ll want your money back, and if the seller refuses, you can request a refund through the credit card processor. If the processor agrees that fraud has occurred, it will initiate a chargeback, hounding the seller for the refund by imposing penalties and taking legal action against it.

But if the seller lacks sufficient funds to refund a customer, skips town, or has gone bankrupt—an increasingly likely possibility in the economic downturn—the processor is on the hook. Though PayPal isn’t strictly a processor, it too faces such liabilities and understandably tries to mitigate them.

So it places “rolling reserves” like Sauter’s on the accounts of merchants it deems risky. It may also hold the entire contents of accounts for up to 180 days.

It’s not clear how many accounts are affected. In a June 2009 post on PayPal’s official blog—the only public communication from the company about merchant reserves and holds outside its user agreement—a former PayPal risk analyst writes, “We’re requiring reserves for a very small percentage of our sellers—currently less than 1%.” Assuming that figure has held stable, there could be tens of thousands of merchant accounts held or reserved at any given time, receiving millions of dollars withheld by PayPal.

According to the company, there must have been something dicey about Sauter’s business, though PayPal is unwilling to disclose the nature of its risk analysis. In an email spokesperson Jennifer Hakes said the company considers a number of factors when deciding to place a hold or reserve, such as the seller’s credit rating, the number and frequency of customer disputes, the type of business a seller runs, and average delivery timeframes.

In his four years doing business with PayPal, Sauter had never had a chargeback or customer complaint; he’d never made a late payment to PayPal or violated the user agreement. His business was expanding steadily, not fluctuating wildly, a possible red flag. When he attempted to figure out which risk factors applied in his case, he was stonewalled. “I didn’t get very far” with customer service, he said, “I talked with one 'supervisor.' His name was Chris.”

Hakes offered that PayPal does “communicate with sellers when they may experience a hold or reserve, to the extent we can without revealing proprietary risk modeling information.” In practice that communication is extremely limited and, in the cases of the merchants interviewed for this article, amounted to little more than “canned responses,” as Brian Pattee, a Georgia-based eBay seller and participant in the class action suit, described it.

Sauter emailed PayPal’s accounts vetting department, vice president of operations, chief financial officer, office of executive escalations (a kind of advanced customer service), senior director of accounts protection, appeals department, communications department, and others at the company. When his complaint at last reached the office handling reserves, he was told to try again in a year, though there was no guarantee the account would be reviewed. Even at this stage he was told nothing about why the account had been reserved or why PayPal intended to keep it that way.

It was much the same story for Jamie Pflughoeft, a Seattle-based photographer who specializes in pet portraits. When asked about her experience with PayPal, she said she “can’t talk about it without getting bitter or angry.”

Pflughoeft (pronounced “flew-hoff”) wasn’t always so disgruntled. For six years, she happily used PayPal without incident. She ventures that, on top of her photography business, the 12 workshops she and her partner have run for aspiring shutterbugs grossed an average of $40,000 each, every dollar transacted through PayPal and subject to its fees. “They’ve made a good chunk of change off my business, for sure,” she said.

On May 26, 2010 Pflughoeft noticed that her account had been hit with its own 30 percent, 90-day reserve, resulting in an inaccessible pending balance of $1,567.33. PayPal’s rationale—protecting itself against chargebacks for unshipped or unsatisfactory merchandise—made little sense to Pflughoeft, whose business provides services at the point of sale. “There are no refunds on a service once it’s performed,” she explained, “it’s very straightforward.”

She called PayPal’s toll-free number and “spoke to a very, very friendly customer service representative who was entirely unhelpful.” He “kept repeating what I already knew,” she said. Pflughoeft asked to speak to a supervisor and was told that no one could change anything or give her any information.

With standard channels proving fruitless, Pflughoeft turned to the Washington State Department of Financial Institutions, which forwarded her complaint to PayPal. Two months after implementing a rolling reserve with no apparent end date, days after receiving the complaint, PayPal gave Pflughoeft her money and ended the reserve. In October the same happened to Sauter, who retrieved his funds only after complaining through the state of Illinois. Neither was offered interest on the reserved funds.

But PayPal didn’t just give Sauter and Pflughoeft their money. While the reserves were in effect, every payment they received was accompanied by a line-item deduction showing the amount withheld from individual transactions and the date on which it would be released. After the reserves were withdrawn, each payment was suddenly presented as though it had been transferred in full at the time of posting.

Looking at their accounts now, it would be impossible to tell that there had been deductions or waiting periods, though both kept their own records of the reserves, including screenshots of account statements that back up their claims. As Pflughoeft put it, PayPal “wiped the slate clean.”

As far as anyone can tell, the reserves and holds are legal. PayPal has been sued numerous times for a variety of alleged infringements, and has typically settled and avoided adjudication in court.

Zepeda vs. PayPal, filed in California Northern District Court in June 2010, appears to be heading in the same direction. If the parties settle—as court documents and one litigant, who requested anonymity for fear of jeopardizing the plaintiffs’ position, suggest they will—PayPal’s business methods will once again escape legal scrutiny.

The lawsuit names eight plaintiffs with held and reserved accounts totaling around $92,000. They accuse PayPal of unjustly enriching itself by refusing to turn over interest on withheld funds and of deceptively marketing its services as fast and secure. The suit further asserts that, contrary to PayPal’s claim that it carefully assesses the risks associated with each account it holds or reserves, the company withholds payments arbitrarily.

Pattee, one of the named plaintiffs, believes there was no good reason to hold his account. He points out that even though his funds were released in February 2010—his account now shows “no record of the holds whatsoever”—he still doesn’t know why his entire balance was held for 180 days. “They pretty much said, ‘We’re not telling you,’” he explained, and was told, “If you want to know why, get a subpoena.”

In 10 years as an eBay seller, Pattee had faced only one complaint, and PayPal had ruled in his favor after he proved the customer’s grievance was without merit. The 180-day hold was doubly mystifying to Pattee given that PayPal allows buyers only a 45-day window in which to dispute a transaction.

In a brief responding to the class action, PayPal never denies that plaintiffs such as Pattee were harmed or attempts to justify that harm. It does not demonstrate diligence in holding only the riskiest transactions or show that it is withholding only funds it needs to cover chargeback liabilities.

Instead, the company’s lawyers point to PayPal’s user agreement, which authorizes PayPal to place holds and reserves at its sole discretion and does not require it to inform users of its reasons for doing so. Users also “agree that [they] will not receive interest” and that “[they] irrevocably transfer and assign to PayPal any ownership right that [they] may have in any interest that may accrue.”

The brief also does not deny that plaintiffs were deceived by PayPal’s marketing, but argues that the alleged deception does not meet the standard necessary for legal accountability.
Lawyers representing both the plaintiffs and PayPal did not respond to requests for comment. Hakes refused to comment on the litigation.

If the parties settle, it will likely be because PayPal’s user agreement is airtight. The company says it places holds and reserves exclusively on risky accounts, but the agreement allows it to withhold funds for any reason, and there is no way to test those reasons, which PayPal never reveals in individual cases. The reasons might include even signing up for PayPal’s own products—Sauter’s and Pflughoeft’s accounts were reserved soon after they registered for PayPal’s “virtual terminal,” which allowed them to take credit card payments over the phone.

Only if a court finds the terms of the agreement “unconscionable” would the company be forced to change its practices. As long as PayPal can settle with the litigants, the courts won’t get a chance to make that evaluation.

PayPal could, however, be breaking state laws designed to prevent wire services from hanging on to money.

PayPal isn’t a bank or an escrow service, both of which are expected to hold money for potentially lengthy periods. Instead, per its user agreement, “PayPal is Only a Payment Service Provider.” It transmits money between parties and collects fees on the transmissions. It’s a bit like Western Union, but nothing like Wells Fargo.

As such, PayPal needs to obtain money transmitter licenses in order to operate in most states. PayPal has a license for every state that requires one.

In its 2010 annual report, eBay acknowledges that this licensing scheme creates potential legal risks. “As a licensed money transmitter, PayPal is subject to restrictions,” the report says. “If PayPal were found to be in violation of money services laws or regulations, PayPal could be subject to liability”—up to and including the closure of its business in certain states.

One of these restrictions concerns how long a transmitter can hold onto money before forwarding it to the intended recipients. For instance, the Illinois statute governing licensed money transmitters allows three business days. On its face, this provision prohibits PayPal from holding portions of Sauter’s money for 90 days. A spokesperson for the Illinois Department of Financial and Professional Regulation, tasked with enforcing the statute, acknowledged that the Department has never taken action against a transmitter for violating the three-day provision.

The analogous Washington state law allows the transmitter 10 days to deposit funds in the recipient’s account. However, Washington’s law allows the transmitter to withhold money if it “has reason to believe that a crime has occurred, is occurring, or may occur as a result of transmitting the money.”

Did PayPal have reason to suspect that Pflughoeft, a Washington resident, was involved in crime or that transmitting her full payments to her would facilitate crime? Again, there is no way to know, since PayPal refuses to reveal why it places holds and reserves on individual accounts, even to the accountholders themselves.

However, given that PayPal returned Pflughoeft’s money within days of receiving her complaint via the Washington Department of Financial Institutions—the agency that licensed PayPal as a money transmitter in that state—it's hard to believe that Paypal suspected her of any involvement in criminal activity.

Illinois and Washington aren’t the only states that impose time limits on money transmitters. Minnesota, for instance, allows five days, and Hawaii allows 10. Hakes said, “PayPal works closely with state regulators to ensure that it satisfies consumer protection requirements, including the timing required to transmit payments.” Despite repeated phone calls and emails, PayPal’s senior manager for North American compliance, Christopher Chen—who is named on the Arkansas, South Dakota, and Hawaii licenses—could not be reached for comment.

What does PayPal do with the money it withholds? Beyond furnishing legitimate refunds, the high reserve percentages and long withholding periods provide the company capital it could build on, and money transmitter licensing laws are no obstacle to investment.

There is ample reason to believe that this is precisely what PayPal is doing. Alongside fees that customers know about, eBay’s “other revenues are derived principally from interest earned on certain PayPal customer account balances” and two unrelated sources, according to the annual report.

The report does not elaborate on which account balances are invested, and Hakes neither confirmed nor denied whether PayPal invests the earnings it denies merchants. However, since merchants are required by the user agreement to turn over interest on held accounts, it is fair to assume that their accounts are among the “certain” few.

In addition to boosting PayPal’s revenue, the refusal to pay interest to merchants may encourage PayPal to crack down on accounts less carefully than it otherwise would. “If PayPal had to pay a rate of interest that was not trivial, that would also give it an incentive to not impose a reserve except in cases where it really thought a substantial risk existed,” said Todd Rakoff, a contracts and administrative law expert at Harvard Law School.

Yet even if PayPal is not exploiting merchants for its own gain, many sellers are undeservedly and negatively affected by the company’s hold and reserve policies.

“This is just [PayPal] abusing their position of power,” Sauter said, echoing a message found on countless blogs and Web sites, such as paypalsucks.com, aboutpaypal.org, and the official PayPal and eBay forums. Pattee is convinced that “the ones who made them who they are are getting stomped on.”

Lack of transparency and any meaningful internal appeals process forces accountholders to seek redress through government agencies and the law. But the law, at least, seems to be no ally. PayPal’s user agreement protects the company in a manner that subjects even merchants who play by the rules to a range of real harms that the law ignores.

PayPal’s brief responding to the plaintiffs in Zepeda is a stark indictment of the law’s capacity to respond to injury. The company deflects every charge without disputing the substance of plaintiffs’ complaints. For example, no credence is given to the accusation of deceptive marketing, even though PayPal’s product descriptions are intended to convince merchants to sign up for services that frequently turn out to be vastly different from those advertised. PayPal argues as though the actual experience of harm is of secondary importance to a legal system swayed not by real events, but by legalistic interpretations of them.

Given that the plaintiffs’ lawyers chose not to respond to PayPal’s brief and have instead entered into settlement talks, it appears PayPal’s understanding of how the law works—call it cynical, call it realistic—is on safer ground than its customers’ accounts.

Correction: A previous version of this article stated that PayPal has been operating with an expired license in Tennessee since April 15, 2011. PayPal's Tennessee license expired in April and was retroactively renewed in October.