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PayPal User Agreement: Five Clauses on Holds, Reserves and Limitations

This page is general information, not legal advice.

The PayPal User Agreement is a contract between you and PayPal, Inc. It covers U.S. personal and business accounts. This page reviews the version last updated on September 14, 2026. Five of its clauses decide when you can reach your money and what happens when something goes wrong. Each section gives the exact wording, why it matters and what to ask for instead. Most users can't negotiate standard terms, so use this as a checklist. If you sell through PayPal, it also helps you plan your cash flow.

1. Risk-based holds on incoming payments

We may place a hold on payments sent to your PayPal account if, in our sole discretion, we believe that there may be a high level of risk associated with you, your PayPal account, or your transactions or that placing such a hold is necessary to comply with state or federal regulatory requirements. ... Risk-based holds generally remain in place for up to 21 days from the date the payment was received into your PayPal account. We may release the hold earlier under certain circumstances (for example, if you’ve uploaded shipment tracking information related to the transaction), but any earlier release is at our sole discretion.

Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30.

Why it works against you

The payment shows in your account as "pending," but neither you nor the buyer can use it. PayPal names new sellers, higher-risk categories like electronics or tickets, and sellers with many disputes as common triggers. If a buyer challenges the payment, the hold can last until the matter is resolved, for up to 180 days. Meanwhile, you've usually shipped the item already. If you freelance, compare contractor payment terms red flags.

What to ask for instead

Sample wording to propose (illustrative): "Holds will be released automatically once delivery is confirmed, and the notice of any hold will state the specific reason and the documents needed to release it early."

2. Reserves on business accounts

We may place a reserve on your business account at any time if we believe there may be a high level of risk associated with you, your business account, your business model, or your transactions. ... For example, your reserve could be set at 10% and held for a 90-day rolling period – meaning 10% of the money you receive on day 1 is held and then released on day 91

Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30.

Why it works against you

A reserve can apply to "all or some portion" of your balance. It can be rolling, a fixed minimum, or both at once. PayPal lists the factors it considers, including your credit history and how long you've been in business. It can also change the reserve terms when its risk assessment changes, and it only promises to notify you. For a business with thin margins, a rolling reserve can tie up working capital for months. Compare how another processor handles this in Stripe Services Agreement explained.

What to ask for instead

Sample wording to propose (illustrative): "Any reserve will be capped at a stated percentage and duration, reviewed at least every 30 days, and released early once the account's dispute rate returns to normal."

3. Account limitations based on confidential criteria

Our decision about holds, limitations and reserves may be based on confidential criteria that are essential to our management of risk and the protection of PayPal, our customers and/or service providers. ... You agree that we have no obligation to disclose the details of our risk management or security procedures to you.

Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30.

Why it works against you

You might not learn why your account was limited. The listed triggers include "selling an entirely new or high-cost product type, or if your typical sales volume increases rapidly," so a good month can count as a risk signal. Providing the information PayPal asks for doesn't guarantee the limitation will be lifted. You also can't close an account while it's under a hold, limitation or reserve. For a marketplace view, see Etsy seller policy explained.

What to ask for instead

Sample wording to propose (illustrative): "Before limiting an account, except for suspected fraud or legal requirements, PayPal will give the general reason, a list of the documents needed, and a deadline for its decision."

4. Reversals, negative balances and your linked accounts

When you receive a payment, you are liable to PayPal for the full amount of the payment sent to you plus any fees if the payment is later invalidated or reversed for any reason. ... If the balance in your Balance Account or business account doesn't cover the payment amount due plus the fees, we may use any of the payment methods linked to your PayPal account to cover the amount due.

Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30.

Why it works against you

A reversal can reach your linked bank account or card, not just your PayPal balance. Sellers also pay a Dispute fee, and PayPal keeps its original fees when a transaction is refunded. For card chargebacks, "The card issuer, not PayPal, determines whether a buyer is successful". Any shortfall becomes a negative balance that you must cover "immediately," or PayPal may pursue collection. Freelancers should also review freelance contract red flags.

What to ask for instead

Sample wording to propose (illustrative): "Before charging any linked payment method to cover a reversal, PayPal will give written notice and a reasonable period to add funds."

5. Arbitration instead of court

You and PayPal each agree that any and all disputes or claims arising out of or relating to the user agreement, the PayPal services, your PayPal account, or your relationship with PayPal, whether based in contract, tort, fraud, misrepresentation, or any other legal theory (“Dispute”), shall be resolved through final and binding arbitration, except that you or we may elect to have a Dispute heard in small claims court, so long as it proceeds individually and is not removed or appealed to a court of general jurisdiction.

Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30.

Why it works against you

You give up class actions and a jury trial. Before filing, you have to send a Notice of Dispute by certified mail with your handwritten signature, then wait out a 60-day negotiation period. You can opt out of arbitration, but only by mailing a signed form postmarked no later than 30 days after you first accept the agreement. Even if you opt out, the class action and jury waivers still apply. See mandatory arbitration clauses explained. Whether these terms are enforceable depends on your jurisdiction, so ask a qualified lawyer.

What to ask for instead

Sample wording to propose (illustrative): "Users may opt out of arbitration at any time by email, and either party may bring individual claims in court."

Also worth a look

PayPal can change the agreement, and continuing to use the service counts as accepting the changes. Personal accounts get at least 21 days' notice of changes that reduce your rights. Business accounts get only 5. You also grant "a lien on, and security interest in and to, funds held in your PayPal account" (Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30). PayPal excludes liability for "a suspension or other action taken with respect to your PayPal account" (Source: https://www.paypal.com/us/legalhub/paypal/useragreement-full, retrieved 2026-10-30). See limitation of liability clauses explained. You must also defend and indemnify PayPal against third-party claims linked to your use of its services. See indemnification clauses explained. Rules on holds, fees and consumer protection vary by jurisdiction.

Scan your own document free

PayPal's agreement pulls in other policies, such as the Acceptable Use Policy and the Seller Protection terms, and these can change too. Upload your terms or contract to the ScanMyTerms Terms of Service checker as a PDF, DOCX, TXT or MD file, or just photograph it. In about a minute, you get a list of clauses that work against you. Each one shows its risk level, the exact wording, why it hurts and how to change it. The free preview needs no sign-up and shows the risk count and the first two findings. The full report costs $5. ScanMyTerms doesn't use your documents to train AI models, and reports are deleted after 7 days.

This page is general information, not legal advice.

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