In my (still incomplete) process of establishing a PayPal account they ask me for my “Routing Number” and “Account Number” to be found on the blank checks supplied to me by my bank. I see reports on the web of payments via PayPal being drawn directly on the bank account of the payer. This disturbs me. I have come to trust paper checks despite the ambiguity of the concept of analog signature.

I asked a lady at BofA about how it was that PayPal would be able to take money out of my BofA account by merely knowing my Routing Number and Account Number. In short she answered that PayPal has “special permission” to do so. I think she mentioned that this permission stemmed from an arrangement between BofA and PayPal, presumably a contract, that allows PayPal to act as a bank agent and make transactions on behalf of the bank—to do some things as if it were part of the bank. I don’t know banking law but I have come to trust banks thru experience. I have no experience with PayPal but I know that they serve many people. I am tempted to assume that banks impose standards on PayPal in order to protect their own reputation but I have no reason to believe this.

Let me speculate on how this might work. I don’t know whether this “arrangement” is a contract between BofA and PayPal or some broader politically negotiated deal between PayPal and banking regulators.

Suppose I pay the cleaners with a check. They copy my Routing Number and Account Number from the check. They establish a PayPal account using those numbers. They spend $1000 on the web paying with my account. I find a deduction of $1000 from my bank account on my bank statement. What is my recourse.

This site suggests that PayPal acts as a reputation broker (see “you are less likely to be a scammer” therein).