"Can they do that?"
Legally, no.
Pay Pal is not a licensed escrow agent in the State of California and by requiring affirmation by the recipient before releasing funds they ARE acting as one.
You can file a complaint with the California Attorney General's office, the office of Senator Barbara Boxer who is now looking in Pay Pal's activities, and also the US Attorney in San Francisco.
Lastly, you can also file a complaint with US Federal banking regulators, you can google to find the closest office to you to file a complaint with.
As a resident of your state you also have a right to file a complaint with the State Attorney General of your state, if it's different than California.
Only when users of Pay Pal start filing written complaints in large numbers will Pay Pal be forced to comply with US laws.
Caped~
The information and writing contained in this post is the property of the named Ebay user who retains sole and exclusive rights without limitation which may not be granted to another without written permission.
~Over 8,000 account holders weren't wrong, Donahoe.~
Proud Member of the Anti New Coach Coalition
Caped~
The information and writing contained in this post is the property of the named Ebay user who retains sole and exclusive rights without limitation which may not be granted to another without written permission.