As usual I was lurking in the Etsy and Ebay forums when someone posted that Paypal was holding 10% of their funds for 60 days. After a bit of research, I came across a hundred or so others who were in the same predicament. Paypal was holding their funds for apparently no reason. On top of that, Paypal hadn't issued any changes to policy requirements, leaving a lot of people wondering what the heck happened. Well after I sent off a quick email to Paypal, basically asking if and what their changes were. This is the response I received:

"Hello XXXXXXXX,

Your business is important to us, and we are working hard to provide an easy, fast and secure payment service to you and your customers while keeping our prices competitive. We're also committed to clearly communicating changes to our policies and procedures. To that end, we are writing to inform you of a change to your PayPal account, which will take effect 30 days from the date of this email.

Beginning 07/26/2009, a small percentage of the total payments you receive will be held temporarily as a reserve in your account. This small reserve amount helps to ensure that funds are available to cover payment reversals or buyer chargebacks, if you do not have a sufficient PayPal account balance and do not provide the funds to do so.

A reserve is like a security deposit for your PayPal account and is standard practice in the payments industry, especially for retail segments like Cell Phones & PDAs where there is a higher-than-average risk of reversals or chargebacks. This does not mean that you have done anything wrong. We are requiring a small reserve in your account because you sell in a category that has a higher risk of reversals and chargebacks and because you are relatively new to PayPal as a seller.

Your reserve amount will be 10% of the total payments you receive, which will be held on a rolling 60-day schedule. That means 10% of the money you take in each day will be held in your account, and then made available for withdrawal 60 days later.

For example, if you receive $2,000 every 60 days into your PayPal account, then a reserve amount of about $400 would be required on a rolling 60-day period. In other words, about $6.67 would be held in reserve each day, then released 60 days later.

If you are a PayPal Money Market Fund customer, you will still earn interest on your total balance while your money is in reserve. Click here for more information or to enroll in the PayPal Money Market Fund.

We recognize this is a change in the way we do business with you. By requiring some merchants to reserve money in their accounts, we're able to lower our own costs. Keeping our costs low helps us to continue providing competitive pricing for all sellers who use PayPal.

If you have any questions about this change, please call us at 1-877-729-7252. We appreciate your business and look forward to a continued partnership.

Sincerely,

Paypal"

So, in case anyone else was wandering lost in the dark about this situation too, here's the facts straight from the horse's mouth!