Is Paypal considered a bank and subject to similar regulation? I find that they seem to be getting away with a lot of things that wouldn't be acceptable with other financial institutions.
No, the article makes it clear that PayPal is not a licensed bank in the state of Illinois and this behavior is presumably illegal. The author claims to have filed a complaint with the state's attorney general.
The author of the article doesn't really understand the situation he's in. He signed up for a merchant account underwritten by a licensed bank (Chase or Wells Fargo) when he upgraded to PayPal Pro to get the virtual terminal. He accepted an agreement with that bank. That bank has the right to hold a reserve as outlined in that agreement.
A consequence is "It is therefore not possible for UK customers to obtain legal redress from (PayPal) in the English, Scottish, or Northern Irish Courts"
