Etsy sellers say their bank accounts were emptied in major billing snafu

People who sell crafts and other goods on Etsy, an e-commerce site focused on handmade and small-batch products, say they woke up to a nasty surprise Friday morning when thousands of dollars were withdrawn from the bank accounts and credit cards sellers are required to have on file in order to have an Etsy storefront.

The amounts of those surprise withdrawals varied wildly, from a few hundred dollars, to tens of thousands.

Some of the attempted withdrawals were blocked by the sellers' banks and credit card companies, resulting in canceled cards and frozen accounts.

But others went through, leaving those sellers with empty checking accounts, overdrafts, and over-the-limit fees, and a whole lot of questions.

Reports of the financial chaos began trickling in on Etsy's Community Forums and on Twitter late Friday morning.

Other sellers chimed in with similar stories and by Friday afternoon, there was chaos, confusion, and a lot of pissed off people.

That's just a small example of the outrage.

Etsy posted a blanket response in their Bugs forum.

"We're aware of a bill payment error affecting a small group of sellers which resulted in some cards being incorrectly charged. We don't expect this error to impact additional sellers going forward.

For affected sellers, we're very sorry for the trouble and concern this may have caused and we are currently working to make things right. We'll update the impacted sellers directly as we have more information."

And that was it for Friday from Etsy.

Instead of canceling the transactions directly with the sellers' banks or credit card companies, Etsy chose to refund the money to the shop owners payment accounts. This is a problem for multiple reasons.

Because this happened on a Friday, and because Monday is a national holiday, the earliest the sellers will have access to their money is on Tuesday.

They will then have to redeposit that money into their checking accounts or pay their credit card bill. That still leaves some sellers them with overdraft and over-the-limit fees.

Then there's a potential tax issue.

Money placed in shop owners payment accounts is considered taxable income and is reported to the IRS by Etsy. This has some sellers concerned that their 2019 1099s will include the refunded amount. If that happens, the sellers could potentially owe taxes on money they never earned.

Oh, and don't forget the credit score dings that people whose cards went over the limit could potentially suffer.

I've reached out to Etsy's media team with the following questions but have yet to hear back.

" When did Etsy first become aware that these withdrawals from seller account began?

" How many sellers were affected?

" Is it confirmed that this was a glitch and not a hack?

" Why did Etsy choose to credit the seller accounts with the amount of money withdrawn instead of canceling the transactions directly?

" What are Etsy's plans for handling the overdraft/overlimit fees incurred by sellers as a result of these transactions?

" What are Etsy's plans for handling the tax implications?

" How will Etsy prevent this from happening in the future?

On Saturday, I spoke with a popular Etsy seller who asked not to be identified. They said their bank rejected multiple attempts at withdrawals in the tens of thousands of dollars. They didn't hear from Etsy until this email received late this morning:

An update on recent issues affecting payment accounts

On Friday, February 15, a bill payment error affected a small group of sellers which resulted in some cards being incorrectly charged. Sellers who were affected have been notified by email, or by Etsy Conversations, and the issue that caused this has since been resolved.

As part of fixing this issue, all incorrectly charged cards have been refunded. It may take several business days for the refunded amounts to clear and settle in card accounts. Also related to fixing the root problem, some sellers saw their scheduled deposit of funds returned to Etsy on Friday, February 15, and those deposits will now be sent on Tuesday, February 19.

For affected sellers, we are very sorry for the trouble or concern this may have caused. Our first priority has been to correct the issue. This was not a fraud issue, but instead an error related to a site change which affects a small group of sellers and is unrelated to buyers' purchases.

This is an issue we do not take lightly. We've assembled a Payments task force, including senior executives across Etsy, to address any concerns or troubles resulting from this error. We will refund any undue fees associated with this incorrect charge and change in deposit schedule. We don't expect this error to impact additional sellers going forward.

Etsy has one hell of a mess to start cleaning up.

Good luck, Payments Task Force.

Update: A representative from Etsy's communications team responded to my email, directing me to the message sent to sellers this afternoon and said they have no additional information to share at this time.