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Roll up for PayPal payout

The payment unit of eBay tells wronged customers how to apply for a slice of a $9.25 million class-action settlement.

PayPal has notified customers how to apply for a share of a $9.25 million settlement of a case in which it was accused of illegally freezing members' funds.

The online payment-processing company, a unit of auction giant eBay, sent an e-mail to customers on Thursday outlining the process. People who opened an account with PayPal between Oct. 1, 1999, and Jan. 31, 2004, and who experienced certain problems with it are eligible for the payout. Advertisements in People, Newsweek and USAToday will also inform people of the class-action settlement.

In June, PayPal reached a preliminary settlement with customers who accused the eBay unit of illegally freezing their funds. It promised to pay a total of $9.25 million to settle the suit, $3.4 million of which will go toward paying the customers' lawyer fees.

PayPal admitted no wrongdoing in settling the claims, which were filed in 2002 as part of two federal class-action suits that alleged other customer service deficiencies.

A California district court is expected to rule on approval of the proposed settlement in a hearing on Sept. 24. PayPal representatives had no comment, other than saying the company was happy with the terms of the settlement and is "ready to move on."

PayPal has maintained throughout the legal process that the Electronic Fund Transfer Act (EFTA), the law it was charged with violating by its customers, should not apply to its business.

In order to qualify for the payout, people will need to offer proof that they experienced or reported problems with their PayPal accounts during the specified timeframe. In particular, customers who had unauthorized or incorrect electronic transfers to or from their accounts--including chargebacks, refunds or charges related to PayPal's Seller Protection Policy--will be considered for eligibility, the company said.

Claims from customers who feel that access to their PayPal accounts was wrongly limited or restricted during the timeframe will also be taken into account.

In addition, PayPal will review settlement applications from people who asked for information about the limits on their accounts, but who never received a response from the company.

The eBay subsidiary said it will set up a $1 million statutory damage fund that will be distributed equally among claimants who do not meet the preapproved guidelines, but who can prove the company's business practices caused them financial harm.

PayPal has published two claims applications forms on its settlement Web site. One form asks for a few account details and offers a payout of $50. The second form, for individuals seeking higher damages, requires a more detailed description of how the customer was wronged and lost money as a result of PayPal's practices.