Is PayPal a Safe Bank Account?

History
PayPal was formed in December 1998 and is considered one of the leaders in global online payment. As of the second quarter of 2010, PayPal had more than 87 million active accounts and can be found in more than 190 markets. In the second quarter of 2010, PayPal's financial status showed that the corporate revenues were more than $800 million, having increased over 20 percent from the previous year.
Acquisition
The website eBay acquired PayPal in October 2002. Prior to the acquisition, PayPal had been used by more than half of all eBay users, as well as a competitive service that was known as Billpoint. There were a variety of other services, ranging from Citibank's c2it program to Western Union's Bidpay and Yahoo's PayDirect, but with the passage of time, the competition shut down.
Considerations
Since PayPal is not a bank and is not subject to federal oversight regulations, an users have little recourse in the event that PayPal chooses to freeze their account for any length of time. An online search using a term such as 'PayPal Problems' will pull up search engine listings of individuals who have had problems with getting payment from PayPal. It is important to note that many of these accounts are anecdotal and do not provide any documentation.
Litigation
In 2002, PayPal was brought to litigation on two separate occasions by two different individuals for a variety of reasons, many of which dealt with the way that PayPal resolved disputed charges. The two lawsuits were actually combined into a single class action lawsuit. In November 2003, an informal settlement was achieved, and the outcome was that PayPal agreed that it would change the way it handled and resolved disputes, in order to make them compliant with the Electronic Funds Transfer Act, which protects consumers who use the internet as a means of conducting business transactions. Prior to the settlement, consumers who had a dispute with PayPal had no recourse for resolution, as PayPal was not bound by any of the restrictions found in the EFTA.
Other Problems
Software programmers have had problems with PayPal in the past. Markus 'Notch' Persson, the developer of a software program called Minecraft, had a PayPal donation account set up. Whenever people purchased a game, they would donate money into his account. According to UK gaming Rock, Paper, Shotgun, when Persson attempted to withdraw money from his PayPal account, it was frozen by PayPal authorities due to alleged suspicious activity. Although it was determined that Persson's activities were legitimate, his funds were frozen for six months.