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Update 2/11/2009

Is Paypal Safer Today?
I have been using paypal for years, though in a limited way. Because I had good reason not to trust them, I only accepted credit cards from US customers with confirmed addresses. I offer incentives to my customers not to use credit cards and many chose to get the discounts. As a result, I did not have many Paypal transactions. But over the past year or so, my business grew tremendously and I could no longer ignore the fact that many people prefer to use paypal. I decided to take advantage of the Paypal and Google buttons available. The result is that about 75% of my customers are now using their credit cards through paypal despite the discounts I offer for choosing another method.

I still practice caution. I only ship to confirmed addresses (with very few exceptions for accounts which have been open a long time and had a lot of activity). I don't leave large sums in my paypal account. By this time I must have a thousand paypal transactions and large sums have passed through the account. Despite this, I have not had a single problem or complaint. No payments were found to be fraudulent. No customers opened any disputes.

Though I have never had a charge back completed against me, I have had seven or eight made - mostly from customers who simply forgot the reason for the charge and withdrew the action when reminded. I did have several scammers attempt charge backs, but I won every one. So even though my final record with credit cards is the same as with paypal, I find paypal easier, more convenient and - I can't believe I'm saying this - safer (to an extent).

My only concern with paypal is that I have heard from reliable sellers that their entire account was frozen over one complaint. A merchant account may charge back a transaction unfairly but they will not freeze the entire account. For some sellers, freezing their account effectively puts them out of business.

It has been many months since someone emailed me a legitimate complaint against paypal. (I have received a number of complaint letters where I felt the problem lay with the customer - not paypal. People still think using paypal entitles them to enter into ridiculous deals and be protected against their own stupidity. "I thought I was safe buying a laptop from Romania since I was paying with Paypal.") So perhaps they have finally cleaned up their act. They have definitely taken steps to make their site safer and more convenient. I love the ability to click the print button and print a label with postage and delivery confirmation. It also sends the customer a confirmation and allows us to track the shipment online. It makes shipping my orders received through paypal a lot more convenient than orders paid for by other methods. I was given a priority number to call if I have an issue. I only recall one issue I had in the past, and it was quickly resolved over the phone.

I now recommend the use of paypal, if done safely. The rest of this page illustrates a rarity - the evolution of a company which began with a "wild west" mentality into something more responsive and responsible.

Paypal still not safe (and neither is ebay)
I have been reading the many letters sent in to and the numerous posts on ebay to discover that contrary to what I believed, Paypal (and parent company ebay) have not improved. In fact, despite having lost numerous lawsuits for their incompetence and the cavalier attitude with which they treat their customers' money, they continue the same practices. Accounts with long-term histories of honest dealing still get frozen or have funds taken on the basis of one unsubstantiated complaint, sometimes even after the seller has proven delivery and in the face of several false complaints made by the same buyer. Once again, I warn everyone to use extreme caution when accepting paypal, particularly if it is a credit card transaction. Do not leave sums of money in your paypal account. Do not ship to any but the confirmed address. Though this does not guarantee safety, it helps. Here is a web site which could help you get restitution should paypal take money out of your account. Banking and financial services ombusdman

Paypal misleads its customers again!

The Monday after Thanksgiving, Paypal ran a promotion offering 20% off your order at various online merchants. As usual, they added a bunch of conditions to this offer which basically let them discontinue it at any time without notice. As a result, vendors are now being besieged with calls from angry buyers who are learning their purchase didn't qualify. Newegg Forum

When it comes to dealing with Paypal there's one rule you have to follow: Don't believe a word they say. Don't expect it to be "free forever." Don't expect cash back. Don't expect your sale or purchase to be "protected" no matter what you do. Even though I only accept credit cards through Paypal from U.S. customers with verified accounts and confirmed addresses, every single Paypal credit card sale I made (perhaps ten) said that it was NOT eligible for seller protection, with no explanation why. I have met dealers who had sales charged back even though they sent them signature required and had signed proof of delivery. I have met sellers who "won" their case and then had their Paypal accounts frozen. Paypal said the account would be released in six months or when they "voluntarily" gave the scamming buyer a refund. This is seller protection?

I have UPGRADED my view of paypal's customer service (not their so-called "protection") due to two personal experiences I have just had with them.

1. I paid an ebay seller via paypal. Two weeks later, I had still not received my item. My emails to him went unanswered, despite the fact that he was continuing to post items on ebay. I went to paypal's site and filled in a dispute. In a few days, the seller emailed me to say my item was on its way and I canceled the complaint. I found the process straightforward and easy. I believe that most of the time, even when a seller ignores your emails, he'll take notice if he gets an email from paypal about a complaint. It's certainly a smoother, friendlier way to operate than doing a charge back. I give them points for this.

2. An ebay buyer paid me via credit card to my regular email ID rather than my ebay email ID. My regular ID is tied to a personal paypal account, the other to a business account. A personal account can not accept credit cards. Normally, when a credit card payment comes in to a personal account, it can be denied. However, this was for an ebay auction and you can't advertise paypal if you don't accept credit cards, so the deny button was inactive. I called Paypal on Sunday, got through immediately, and a helpful support person told me to upgrade the account, refund the payment, and then downgrade the account (which she had to do on her end). It was quick and efficient. Again, I give Paypal points for this.

In general, it seems that complaints against Paypal have dropped considerably. It might be due to any or all of the following:

- the fines they paid in the past for poor decisions

- a concerted effort to be managed like a legitimate company, since they are entering into partnerships with reputable Internet vendors

- educating their users in safe web shopping, such as not ordering laptops from or selling to buyers in Romania, Indonesia and other areas known for fraud.

In any case, Paypal is here. It's the 600-lb gorilla of payment services. Those who refuse to accept it are doing themselves and their buyers a disservice. So anyone who tries to tell you that you shouldn't use Paypal under any circumstances is someone whose advice you should take with a very large dose of salt. However, I am aware of legitimate sellers with high positive ratings who lost everyting because of their dealings via paypal, and that is the reason for this page. The fact remains that you can be cheated by buyers or sellers whether you accept or pay via check, credit card or money order. Crooks will always find a way to game the system. Whenever you enter into a transaction, do your homework and weigh the risks. This page serves as warning of the possible pitfalls and may help you avoid them.

General Warning and Disclaimer

The complaints I get fall into three categories:
A - People who followed Paypal's rules and got screwed anyway. It is to these people that I dedicate this page. This includes 1) people who shipped to the confirmed address using delivery confirmation, only to be told that DC doesn't show the address so it is invalid even though PP's site specifically mentions that this is acceptable proof. 2) people who paid for signature confirmation but the package was signed by a different person at that address so they were told "tough luck." I know of no service that will deliver a package only to the specific person and not that person's spouse or child. 3) people who were charged back for "goods not as described" when PP claims they don't get involved in such disputes, 3) people who had their accounts frozen because a third party cheated someone else and then made a purchase with the money, 4) people whose account were frozen because PP decided they were tied to some other fraudulent account with a similar e-mail ID, or 5) people who had their accounts frozen without even a clear explanation.

B - People who didn't follow the rules but were tricked into taking what appeared to be a legitimate risk. For example, they shipped a low value item to a work address or they shipped to an unverified account, then the transaction was charged back for no valid reason. All I can say to these people is the rules exist for a reason. Break them at your own risk.

C - People who take wild risks, expecting someone else to pay the cost of their stupidity. Despite my problems with the way PP sometimes handles things, they do have some rules which are indisputable. Sellers must have some proof of delivery to the confirmed address. If they ship an expensive item, they must have signature delivery. If they ship to a work address, or try to save a few bucks by not getting delivery confirmation or sell intangible items like e-gold, they can expect problems. If someone buys an expensive item from a seller in Romania with low ratings and a spanking new PP account, they shouldn't expect PP to shoulder the cost of the risk they took. There ain't no such thing as a free lunch, just like PP is not "always free forever."


Paypal offers another empty promise of chargeback protection

Paypal now claims to offer sellers chargeback protection. One of the recurring complaints is when a buyer uses a credit card with paypal and then charges back the item for no valid reason. Because the seller did not charge the card directly, the credit card company contacts paypal, not the seller. It may take a while for PP to contact the seller. By then the charge back has already been processed and it is too late to refute it. Even if there is time, the seller must contact PP who must then contact the credit card. This delay (and the many screw-ups where PP claims they never received the response even when the seller faxes it numerous times) often results in the seller's loss. So PP's announcement of charge back protection sounds like big news. Until you read the fine print. What they give with one hand they take away with the other.

from ebay's page...
Chargeback coverage will apply in two situations: if a PayPal seller resolves a dispute amicably with the buyer through PayPal Dispute Resolution, or if the dispute is escalated to a claim and PayPal finds in the seller's favor. In either case, if the buyer then files a chargeback with their credit card company for that transaction, PayPal will fully protect the seller from a chargeback. (Please note that if the dispute or claim hasn't been resolved prior to the chargeback being filed, the seller will not be covered against the chargeback.)

What this means is the seller is only protected against chargebacks if the seller already settled the dispute with the buyer and only AFTERWARD the buyer did a charge back. But we sellers all know it doesn't happen that way. What happens is that the buyer FIRST does a charge back and the seller only finds out about it months later when PP contacts him. So once again, another empty promise by PP. I have heard from many sellers, including some I know personally, who were charged back through paypal for items on which they had proof of delivery.

Another Class Action Suit Against eBay and Paypal

(based on a 3/7/2005 NY Newsday article by Mark Harrington)
11 disgruntled customers filed a class-action suit against eBay and Paypal, charging they schemed with an electronics merchant to encourage use of the payment system but denied refunds when products weren't delivered as promised. The suit accuses eBay, Paypal, and Essex Technology Group or breach of contract, fraudulent inducement and violations of the RICO act.
Charging that Essex products "failed to satisfy the quality standards" it adverised, the suit said that Paypal customers found that they forfeited charge-back rights normally afforded by credit card companies despite promises in Paypal's user agreement. Decisions about charge-back disputes were generally at Paypal's discretion and frequently in Essex's favor.
A Paypal spokesman gave the usual empty rhetoric about their investigations, but did not explain why the vendor was allowed to continue doing this despite numerous complaints. Calls to Essex were not returned.
The suit comes a year after a deal was reached with New York Attorney General Eliot Spitzer in which Paypal agreed to better disclose the rights of customers when a seller fails to deliver merchandise. The company paid $150,000 in penalties and costs to settle that dispute.

You can sue paypal and win!

How I sued Paypal and Won
Personally, I am not sure the person in the above case should have won the actual case. His claim was for merchandise not as described, which paypal specifically states is not covered. However, while Paypal's many pages of ever-changing legal terms limit the kind of claims they are responsible for, their glowing promises of "buyer and seller protection" have always promised more than they were ever prepared to give. In light of their misleading advertising, and the damages they have inflicted on many innocent customers of their "service," I find it hard to be sympathetic when they lose a case, even if it is one they probably should have won. Why did they lose? Because instead of responding to the case on its merits, they tried to weasel out of it with venue. Their terms state that they can only be sued in Santa Clara, California. The court already ruled that paypal's requirement for suits to be brought only in Santa Clara was unconscionable. When the person above tried to sue, Paypal tried to get the case dismissed because it was not being done in Santa Clara. He then used the previous ruling to convince the judge that the case could be brought in Los Angeles. The judge agreed and Paypal lost by default.

Paypal Unfreezes Five Million Dollars and agrees to pay Nine Million More in lawsuit

Cnet Story

The first major class action suit was settled. There may be more lawsuits to follow.

Paypal Class Action Settlement Site

Paypal Settles First Lawsuit for False Protection Claims - More To Follow

(summary) PayPal has agreed to pay $150,000 to settle charges that it misled customers who expected refunds when purchases went awry, New York Attorney General Eliot Spitzer said on Monday. The payment service also faces inquiries from the U.S. Federal Trade Commission and several states, parent company eBay Inc. (EBAY.O: Quote, Profile, Research) said in its annual report. Meanwhile, PayPal's practice of freezing customer accounts as it investigates suspicious transactions has drawn federal and state scrutiny. PayPal agreed to change its user agreement to more clearly describe consumer rights, and will pay New York $150,000 in penalties and investigation costs, Spitzer's office said. Consumer complaints have also prompted the FTC and other states to investigate.

For months, the Paypal cheerleaders have been saying that Paypal must be right since no authorities have ruled against them. They have claimed that everyone who has said or written something negative about paypal must be part of some conspiracy. This "conspiracy" has included the Better Business Bureau, the Wall St Journal, respected columnists from ZDNet, Cnet and other well-known publications. Now that the FTC and NY Attorney General Spitzer have joined this "conspiracy," are the cheerleaders ready to admit that something smells rotten at Paypal?

Paypal's Seller Protection: An Invitation to Rip Off Buyers

Channel Cincinnatti Story
Here's a lovely story about a seller who takes paypal, ships empty envelopes and Paypal denies protection because the buyer received "something." The Paypal complaint form instructs buyers to check off a box if they received anything, including an empty envelope. Then paypal says "sorry, you received something so this is now a quality of goods complaint which is not covered." Police investigating the seller in the above story say he has done this numerous times. Paypal would not respond to any of the messages left by the reporters.

Seller Protection Is Meaningless

Vendio Post

No Defense Against Paypal Charge Backs for Items Over $250

Looks like Paypal had an ulterior motive for making the seller get signature delivery on items over $250. They know that it takes a few weeks to get proof of signature back from the deliverer (FedEx or USPS). This gives them the opportunity to allow the charge back and deny the seller protection even when the seller has complied completely with all the requirements.

Another Paypal Scam where paypal knowingly protects the scammer

ebay forum
Someone uses his paypal account to scam his customers by offering items for sale and not delivering. He then uses the funds to buy items from other paypal sellers. Since these are paypal balance funds and not credit card, the sellers are not worried about charge backs. But they do ship to the confirmed address, so they are covered by the seller protection, right? Wrong! Buyer files a forwarding address with the post office so the item is delivered to a different destination. Then the buyer is charged with fraud by the people who paid him and never received the merchandise. Paypal asks the sellers to prove that they shipped the items to the confirmed address. Even though the receipts all show the confirmed addess, delivery tracking shows that it was forwarded. (Note that it say right on the USPS site that it was forwarded at the customer's request.) Despite this clear evidence that the buyer is a scammer and the sellers did nothing wrong, paypal takes the money from the sellers!

There are at least two nasty tricks that paypal is pulling here. 1) Paypal's terms state that to qualify for seller protection, you must be able to prove SHIPPING to the confirmed address - not DELIVERY to the confirmed address. They give USPS Delivery Confirmation as an example of proof. The sellers complied with the stated terms. (In a case that happened to someone I know personally, Paypal denied her seller protection because they said that USPS DC only shows the destination zip code, not the actual address. So Paypal places terms on their site that they are prepared to violate from the outset.)

2) Paypal is taking money from C to recoup losses they suffered when A cheated B. No one is complaining about these sellers. No one is claiming that the merchandise wasn't delivered. But Paypal suffered a loss when seller A cheated buyer B, so now they are looking for other people to steal from, robbing Peter to pay Paul. Imagine if you deposit cash in your bank account and your bank tells you, "We know you got the cash from Jack. Since Jack cheated someone else, we're going to take away YOUR cash." I believe this would be considered theft in any courtroom. But of course, there are banking laws to protect customers. With Paypal, you enter in the lawless Wild West where Paypal is judge, jury and executioner. There is no appeal.

What reports like these prove is that paypal isn't safe, not for buyers and not for sellers, not when using credit cards and not when accepting paypal balance payments.

Paypal's New Buyer Protection: An Invitation to Rip Off Sellers

OTWA Discussion

Paypal's Staff Doesn't Know Paypal's Rules

I was recently contacted for advice about yet another Paypal problem. I was told the following:

Someone had purchased a web site for $15,000 with a written promise by the seller that the site was getting over 150 sales a week. Shortly after the purchase, the buyer discovered that the seller had misrepresented the site and only 30 sales a week were actually being made. After some discussion, the buyer returned the site to the seller, who promply registered it back in his name and changed the order form and credit card form so that all orders went to the original owner. However, the seller refused to credit the buyer back the $15,000 she had paid.

The buyer contacted Paypal. Paypal asked her to prove that she had returned the site. She referred them to the site registration, available online, which showed that the site was owned by a company on the West Coast, with the name, phone number and email ID of the original owner. Since she was located on the East Coast and had a different name, phone number and email ID, this should have been proof enough. But Paypal is refusing to return her money unless the seller signs a document stating he took back the site.

Maybe I'm missing something, but doesn't Paypal's terms state that the SELLER has to prove delivery to the buyer at the confirmed address in order to be protected? Since nothing was shipped to the buyer and the web site is still in the seller's name, what is the problem here? Fortunately, the buyer used several credit cards to fund the payment, so the option of a charge back still remains. But the buyer is trying to work within the system and Paypal's poor customer service is making that difficult.

Paypal "Insurance" - do they ever pay?

The Register

Lawsuits Against ebay/Paypal


Paypal Myths Debunked

Paypal claims that 1) they don't get involved in quality disputes, 2) they don't restrict accounts on the basis of one complaint, 3) there is a complaint process in place that buyer and seller must follow and 4) there is seller protection in place for sellers who ship to a confirmed address with trackable proof of shipping. The following stories prove to me that all four of these claims are untrue. Of course the cheerleaders will say that we don't hear Paypal's side, but as I had proved many times, Paypal refuses to explain their side. I think most of know what pleading the fifth means, failure to answer for fear of self-incrimination. Then again, we all know what a protection racket is and it sound very much like Paypal's Seller "protection."

A buyer filed a complaint after not hearing from a seller. The seller then emailed the buyer to say he had been on vacation and just received the notice. (Okay, let's not get into the irresponsibility of selling something and then disappearing for a week.) But now the buyer is trying to recall the complaint and Paypal is just not cooperating. In the meantime, the seller's account has been restricted. We are hearing the BUYER'S side here. So we have a seller's account being restricted over one complaint and Paypal refusing the lift the restriction even though the buyer cancelled the complaint.

A buyer filed a quality dispute without returning the merchandise or making any attempt to contact the seller or respond to the seller's emails. The seller submitted proof of delivery to the confirmed address. Paypal told the seller that the case was closed. Then Paypal froze the seller's account and told her she would have to refund the buyer to unlock her account. So what we have here is 1) Paypal involved in a quality dispute. 2) Paypal locking the seller's account over one complaint. (Yes, the letter makes it sound like there were several, but this is just Paypal's form letter. The fact that the account was unlocked after six months and a refund sent indicates that the seller did nothing wrong.) 3) The seller suffered even though the buyer was not covered under the Paypal process. 4) The seller's account was locked even though the seller complied with all the terms of the seller protection. So what the seller "protection" really means is that Paypal won't take the money from the seller - they will just lock the seller's account and hold ALL their funds for six months. Of course the seller can always decide to refund a scamming buyer just to get their account unlocked. Sounds like extortion to me. Do you know of any bank, credit card or other financial institution that locks a person's account on the basis of one unsubstantiated complaint?

Here is the email I received, reprinted with permission (seller's name omitted upon request):

I have had over $700 frozen in my paypal account since August 2002. When I checked to find out why, the paypal account information says:

"8/15/2002: We have received complaints from at least one of your buyers indicating problems with merchandise received or received not as described."

Paypal indicated that the steps needed to restore my account access have been taken:
1) Add/confirm a bank account [check].
2) fax documentation (proof of delivery) [check].
3) Resolve all complaints against your account [check].
In fact, all these steps to restore my account access were taken back in August, six months ago!

Paypal had told me that I needed to issue a refund to one of my buyers in the amount of $270.00, for "goods not received as described". Paypal closed the case at the time, stating, " As stated in our User Agreement, PayPal's Buyer Complaint Policy only applies to the shipment of goods, not to disputes about the attributes or quality of goods received. Therefore, this case has been closed.".

However, weeks later I was told that in order to restore my account access, I would need to refund the money to this buyer. I tried contacting this scamming buyer, with no luck. He apparently wanted to keep the goods, and his $270.00. I stand by my products, and the service I offer. In fact, my company is a member of the BBB. Paypal didn't care.

I gave up on ever receiving my money back. I'm a college student and that money was supposed to pay for a large chunk of my tuition last year. I figured that eventually when I saved up some money over the summer, I would hire a lawyer to write some letters to paypal (I heard that this was the only way to get your money back).

Today, May 14, 2003, I received the following letter from paypal, indicating that 180 days since the account was frozen, they are now ready to release my funds. I never knew of this policy, and I would like every paypal seller that has been in my situation, know that there is a happy end to the frustration. This money couldn't have come at a better time for me.

It's unfortunate that paypal can take advantage of their customers in this way, but at least this nightmare is over for me.

Subject: Claim Your Account Balance QP-RB (KMM30017457V18945L0KM)

Dear ,

When PayPal limits access to a PayPal account due to an excessive number of buyer disputes or the risk inherent in the product being sold, it is PayPal's policy to hold the funds from that account for chargeback liability and issue a check once 180 days have expired. Because your PayPal account has been limited for 180 days or more, we are contacting you in order to facilitate the release of your account balance. However, in order to mail a check to you for your account balance, we must confirm that the information on your account has not changed.

In order for us to release your account balance, please:

1) Login to your account and make sure that the home address on your account is still current.
- If the home address is correct, please reply to this email and confirm that the address is correct.
- If the address is not correct, please add your new address to the account on the Profile page, and mark it as primary.
2) If you have a business account, the check will be issued in your business name as listed on the account. If you would prefer to have it issued in your personal name, please reply to this email and request that we downgrade your account.
Once we confirm that the information on your account is current, we will begin the process of issuing the check. This may include asking you to resolve any outstanding Buyer Complaints. Once the check is issued, please allow up to 2 weeks for delivery.

Please call us at 1-888-221-1161 if you have any questions.

PayPal Account Review Department

Paypal Allows Chargeback ONE DAY After Payment

Ebay Forum
On the one hand, if a buyer did this after using a credit card directly, the seller *might* be liable for the fees. Then again, with a credit card transaction, the seller gets some advance notice, so they can decide how to handle it. If the seller has sales terms that state a 15% restocking fee is charged, the seller can refund 85% and often the credit card bank will allow this. The problem here is that once again Paypal has demonstrated that all its rules and so-called "protection" are worthless. They allowed the buyer to charge it back immedately. A credit card would have made the buyer wait before doing a charge back. They would have given the seller an opportunity to refund (and charge fees if this were entirely the buyer's fault.) Only paypal has the audacity to let the buyer do this and then to charge the seller fees for a transaction that THEY wrongly charged back. Who were they protecting when they did this? Obviously Paypal. They were concerned that a month or two down the line the buyer would do a charge back and they might not be able to recover from the seller, so why not steal the money now?

Paypal Employee Does Not Accept Paypal Credit Card Payments
He must know something the cheerleaders don't.
OTWA Post and Link to Ebay Auction.

Account Restriction Nightmare

When Paypal decides to restrict an account, they lock the door and toss away the key, as this seller discovered. Though the seller complied with every Paypal request, as fast as one requirement was met, another one was demanded. As quickly as one reason for restriction was removed, Paypal came up with another reason. The account is still locked, the seller has paid or lost over $4,000 trying to correct it and sees no other option than joining the lawsuit. Rather than including all the lengthy emails here, I will link to it separately Paypal Letters.

Paypal's New Terms as of Feb 7, 2003

Paypal has changed their terms yet again. A court ruled that changing terms on a web site and trying to insist that customers accept changes after the fact is unconscionable. This time, in an effort to make these changes legally binding, Paypal has added a new twist: account holders must verify that they accept these terms within 60 days or their accounts will be closed. I wonder how many of Paypal's claimed 20 million accounts will remain open in 60 days. One thing you can be sure, Paypal will never release the number.

"If a customer does not agree to the new User Agreement within the 60-day period, PayPal will assume that the customer does not accept PayPal's User Agreement and prefers not to do business with PayPal. In such circumstances, after providing additional notice to the customer, PayPal will close the customer's account and pay out any existing balance under the terms of the old User Agreement."

Paypal Now Officially Allows Buyers to Return Items for Refund Paypal always maintained that they do not get involved in "goods not as described" complaints. It would be up to the credit card company to decide how to handle it. Visa and Mastercard often sided with the buyer. Amex and Discover often sided with the seller. If payment was from the Paypal balance or bank account, it was up to the buyer to deal with the seller. Now Paypal's new terms allow the buyer to return the item for refund. What if the buyer returns a different item? It appears that sellers have no say in the matter. If buyer has a delivery confirmation for a brick, seller loses the payment for a laptop computer.

ebay forum discussion.

Paypal's Terms Are Meaningless

It really doesn't make a difference what the terms say. In the wacky world of Paypal, the decisions are made by whichever minimum wage clerk handles the complaint and they are free to do what they want. Doesn't Paypal's rules state that if a seller does not ship to the confirmed address, they will lose the dispute? That doesn't always happen.
vendio Post.

MSNBC Article on Paypal

Auctionbytes Seller Survey

Auctionbytes recently did a survey of sellers and this little tidbit was among the results: "10% of sellers have had a buyer do a chargeback on a purchase when using an online payment service, and 8% of sellers have had their account frozen by an online payment service due to a problem buyer or by error." As cynical about payment service as I am, these numbers scared even me. I would never have guessed that the problems were this bad. Even a 1% rate would be bad enough. Would you open an account with a bank that said, "We routinely shut down 1% of our accounts with no warning for security reasons"? Would you open a store where the landlord has the right to lock you out of your own store for weeks on an unsubstantiated complaint, even if he only did this 1% of the time? Why are sellers entrusting their entire business to a heavy-handed "partner" whose actions violate every rule of business management or ethics?

Did Ebay Buy Paypal's Problems?

excerpt from a Wall St Journal article

Money Laundering

Due to the government's continuing war on terrorism and money-laundering, Paypal and other such services may be required to comply with a stiffer set of rules. PayPal officials concede that the act could have an impact on its daily operations, and that complying with the new money-laundering rules, depending how far they go, could be costly. In an initial public offering prospectus the company filed with the Securities and Exchange Commission earlier this year, PayPal said the Patriot Act posed several threats to its business model and daily operations.

"We cannot predict how such regulation would affect us," the filing said. "Complying with such regulation could be expensive or require us to change the way we operate our business."

The Treasury Department is expected to issue rules this fall that will set minimum standards financial institutions must meet to determine the identities of their customers. The new rules will require companies like PayPal to verify the identity of its customers carefully, keep records on what documents were used as part of the verification process, and continually consult lists of known or suspected terrorists to see if new customers are on any government watch lists.

PayPal may have to change the way it handles overseas accounts, which are of particular concern to federal law-enforcement officials. The Patriot Act already requires companies to check all transactions and accounts of residents of foreign countries on a special Treasury Department money-laundering watch list. Under the new rules, though, the companies could have to obtain more detailed information on overseas accounts, maintain extensive records and file regular reports with the government about any transactions from foreign countries on the watch list.

Online Gambling

The company settled with a New York investigation by voluntarily agreeing to a deal that will bar New York state residents from using the service to transfer money to accounts with casinos, and by paying some $200,000 in penalties and reimbursing the state for the cost of the investigation. EBay executives have said they'll terminate PayPal's business arrangements with Internet-gambling firms when the merger closes. EBay executives had estimated that the gambling business would have accounted for between 10% and 15% of PayPal's business next year.

Paypal Fined In MN for Unlicensed Activity

MN State Enforcement Site.

eBay Buys Paypal. Thiel Resigns

MSNBC Story.

eBay's Business Plan.

Summary of Judge Fogel's Decision

Someone faxed me a 19 page document which appears to be the actual decision handed down by Judge Fogel against Paypal. Here is a Summary of the Decision.

Judge Says Paypal Arbitration Rules Unfair

San Francisco Chronicle. (an excerpt follows)

A federal judge says PayPal has a mandatory arbitration policy that is unfair to customers who complain that their accounts are being mishandled. The ruling by U.S. District Judge Jeremy Fogel of San Jose allows customers to take their grievances to a jury rather than an arbitration panel. Fogel also refused to dismiss a lawsuit that seeks class-action status on behalf of thousands of PayPal customers nationwide.

Plaintiffs in the proposed class- action suit say PayPal has a backlog of more than 100,000 unanswered complaints. A common allegation is that the company brushes off or stalls customer grievances for months and meanwhile freezes the customer's account and pockets the interest.

Fogel's ruling, issued Aug. 30, struck down PayPal's requirement that customers submit disputes to private, binding arbitration in Santa Clara County, rather than suing in court. Fogel said PayPal reserved to itself the right to freeze a customer's account during a dispute; prohibited customers from combining their claims into a single arbitration case; and required customers to pay a share of arbitration fees, which would commonly exceed the amount of their claims.

"By allowing for prohibitive arbitration fees and precluding joinder of claims (which would make each individual customer's participation in arbitration more economical), PayPal appears to be attempting to insulate itself contractually from any meaningful challenge to its alleged practices," the judge wrote.

He said it was equally unfair to require customers from around the nation, whose average PayPal transaction was $55, to travel to Santa Clara County for arbitration. PayPal's lawyer said the company is considering an appeal.

It is the latest of several business arbitration policies to be overturned since the state Supreme Court set standards in 2000 for determining when a company's rules were unfairly one-sided.

Paypal Settles with NY for $200,000. Other investigations in process

Cnet News. Paypal settled with NY for $200,000 and agreed to block NY State Paypal accounts from being used for online gambling. Investigations from other areas are still in process. $200,000 may not mean much to a company that was already almost $300 million in the red at the time of their IPO, but there are still 49 other states to go. Paypal may discontinue online gambling completely. Since this may constitute up to 15% of their business, it's just another nail in the coffin. I believe I have demonstated in the IPO story futher down, that Paypal can not possibly move into the black. So far, no one has been able to challenge my numbers.

Federal and State Class Action Lawsuits

News Article. Lots of news here with links to more.

Paypal Offers No Seller Protection Against Scammers

There are a number of Paypal users who, for unknown reasons, manage to get an unconfirmed address. How they do this, since Paypal is supposed to have such great verification, I don't know. The problem is that if you ship to one of these customers and they make any complaint - you lose. It doesn't make a difference if you have proof of shipping to the address you were sent right in the Paypal payment email. It doesn't make a difference if you were paid via direct account transfer and not credit card. I can understand this policy if the customer claims his account was hacked and someone else made the purchase. But why should Paypal allow this when the customer is basically saying, "Yes, it's my account. I made the purchase. I asked for it to be sent there and now I am reversing the payment just because I can."

5/28 Clark Howard Radio Show Pans Paypal

Clark Howard.

Follow Up.

Notice Paypal's response, the same tripe we keep seeing from their reps on the boards. "Paypal is very big. Paypal handles lots of business." Like this excuses them from providing basic customer service. Wake up, Paypal! The phone company is also very big, but they they don't shut down phone service without warning over a "suspicion of fraud" and don't make folks wait for months when there is a problem. What Paypal is basically saying is that they are too big to provide service, so customers who want service should look elsewhere. Thanks for pointing this out.

5/30 PC World Article Warns About Paypal Problems

PC World Article.

Has Paypal Been Hacked?

Paypal still insists that they have great security and have not been hacked. They claim that in all such cases, the user must have visited a fake site or in some other way compromised their security. There are disturbing aspects of these reports that worry me. 1) Reports are coming in almost daily about hacked Paypal accounts, some of them from very computer-savvy people (even a ZD Net reporter as shown in a story below). Are so many people visiting fake paypal sites? 2) Even when the Paypal security system flags an account due to suspicious activity, it first lets the suspicious activity complete and then restricts the account. If a hacker gets into an account and tries to take $1500 out of the bank and is turned down because there is not enough money, he tries again for $1400, then $1300, until he hits an available amount. After removing this amount from the bank account and sending it on its way, Paypal then restricts the account. Talk about locking the barn after the horse escapes. 3) After the security system has restricted the account, you would think that Paypal would be very interested in resolving the problem. Not according to most posters. They have to call, write, fax, contact their bank, credit card company and FBI and after 40 to 60 days, Paypal may finally take some action. Here is just one more such report Another hacked account.

Name Your Own Price at Paypal Stores

Wired Article.

Anyone with a little HTML knowledge can very easily alter prices on sites with instant purchase Paypal buttons. Sites offering downloadable software are even more attractive targets because by the time the fraud is discovered, the software has already been downloaded.

Paypal Draws Ire of Stranded Customers

PC World article.

Another Class Action Lawsuit

In addition to the one filed by Jacoby & Meyers, here is one filed in California. Let's see how Paypal fares when the lawfirm is on their home turf.

A class action suit has been filed in federal court on behalf of a nationwide class comprised of all persons who opened an account with PayPal, Inc., or its predecessors, or had money electronically transferred from or to an account with another financial institution in connection with a PayPal transaction. The complaint charges PayPal, Inc. with violations of the Electronic Fund Transfer Act and California statutory and common law. The complaint alleges that PayPal fails to provide customers with necessary information, such as an address and telephone number, so that customers can easily report erroneous financial transactions; that PayPal unlawfully freezes its customers' accounts; and that PayPal fails to fully compensate customers damaged by erroneous financial transactions.

The complaint seeks to correct PayPal's unlawful practices, and to recover damages on behalf of class members. Plaintiffs are PayPal customers and are represented by the law firm of Girard Gibbs & De Bartolomeo LLP, which has extensive experience in prosecuting class actions and other lawsuits involving consumer financial services. For more information, please contact Plaintiffs' counsel:

Eric H. Gibbs, Ann Saponara, James A.N. Smith, Rosemary M. Rivas
Telephone: (415) 981-4800         Facsimile: (415) 981-4846
URL:       E-mail:

Paypal Rep: There Is NO Buyer Protection

It is now official. Paypal admits there is no buyer protection. The "official" protection on the site had holes you could drive a truck through. Buyers were not protected for "quality of goods" disputes and could not recover even if the seller sent an empty box. Buyers were not protected unless the seller was verified and kept the money in his account for about two months so Paypal could recover. But even this was not limited enough for Paypal. They have finally decided that buyers should have no guarantees at all, even where the seller sends nothing, even where the seller uses multiple accounts and multiple IDs to scam, even where the seller sends the buyers insulting emails gloating over the scam, even when a newspaper reports on the scam, even when ebay NARUs the sellers accounts due to fraud and even where the seller's paypal accounts are still open, continuing to scam other victims.

Wendy Welsh was taken in by such a scammer. He made a deal with her, offering her jewelry wholesale which she could sell on ebay. She would accept payment from her buyers via paypal, send him his payment, he would ship direct to the customer and she would keep her profits. For a while, this arrangement worked and her sales increased. Then he started shipping inferior and even broken items. Then he stopped shipping anything. When her customers started complaining, she emailed him. He sent her back an email gloating that she was on the hook and he was "like teflon. Nothing sticks to me." She filed six complaints with paypal, showing six payments she made for which NOTHING was sent. She received a canned reply that Paypal does not guarantee recovery. But this seller's Paypal account is still open and he is still scamming other victims!

Wendy contacted some of his other customers and compiled a list of victims. She also compiled a list of other IDs he used on ebay and Yahoo and got these IDs shut down. But that is still not enough evidence for Paypal. She emailed me and I put her in touch with Damon. First, Damon emailed to say that the ID she gave,, could not be found. It took me all of two minutes to find it and email back. Then he said that was not what he meant, what he meant was that there were no complaints against this account. Wendy forwarded to me the six complaints she had made. Now Damon has just replied in his usual fashion, with a cut-and-paste from the TOU stating that recovery is not guaranteed. I emailed back yet again to ask, since the seller sent NOTHING and his account is still open, on what basis is recovery not guaranteed? The silence speaks volumes. Considering that this account has over 1400 transactions, I would guess that Paypal wants to collect more fees before they take any action against it. In the meantime, it's buyer beware.

Two days after Wendy's story appeared on my Auctionbytes forum and Paypal's Damon was invited to respond, the seller's account was finally shut down. We have to wonder why it took so long and why it took public attention to the story before paypal acted.

Details in AuctionBytes Post.

First Class Action Suit Against Paypal

Cnet Story           MSNBC Story

A synopsis of the stories follow

Filed Wednesday in California Superior Court in Santa Clara County, the suit charges PayPal with illegitimately restricting customers' access to their money. The suit asks for an unspecified amount of damages.

PayPal frequently locks customers' accounts if it suspects that fraud played a part in a transaction, even if the amount in doubt is a fraction of the total amount in an account, said Gail Koff, an attorney and founding partner of Jacoby & Meyers, which filed the lawsuit. The result is that customers can still receive money but they can't withdraw it or refund it until PayPal clears the transaction. That can often take months. A spokeswoman for the law firm Jacoby and Myers said the firm have received “thousands” of complaints against PayPal. The firm gathered many of those complaints from a link posted on one of several Web sites set up by angry PayPal users, where current and former users of the service regale each other with horror stories of frozen accounts and bad customer service.

PayPal could not be reached for comment Thursday morning.

The suit charges that “the Company deliberately conceals the contact information of its customer service from the users.” Perhaps the larger issue is the charge that PayPal mismanages customer accounts.

One of two plaintiffs named in the class action suit, Lanskoi Kirill, found his account, which contained $30,000, frozen earlier this year when he tried to withdraw funds from it. An automated message explained that “an unusual use of funds” led to the account restriction. After faxing various documents to PayPal, Kirill said his account is still frozen. The suit alleges that such incidents are a result of an overly cautious stance on the part of PayPal.

“As a result of its inability to set up an adequate and effective anti-fraud mechanism and its attempt to compensate for such inability, PayPal adopts an aggressive and grossly over-broad anti-fraud policy that persistently causes erroneous and wrongful restrictions of access to be imposed on user accounts — causing economic damage and financial loss to a significant number of innocent PayPal account holders,” reads part of the 20-page complaint.

Paypal Goes Public

Despite all the difficulties and lawsuits, the State of Louisiana barring Paypal from that state and the possibility that New York and other states may follow suit, Paypal has issued its IPO. The stock has risen 60%. Analysts attribute that more to the fact that this is the first Internet IPO in a long time than to Paypal's ability to ever generate a profit. Only time will tell what the propects will be in the long run.

Paypal Going Public

The new buzzword at Paypal is IPO, which matches the motto of their customer service department "I P.O. the customers."

David Menlow, a noted IPO analyst, wrote an article in which he stated that Paypal may be a great IPO. The cheerleaders are pointing to this article and using it to "prove" that Paypal is a solid company. I emailed David Menlow and he responded with a letter that shows that his words are being misinterpreted. The following link contains links to articles about the IPO, David Menlow's article, his response to me clarifying what he meant, Paypal's own disclosures and some math which should make it obvious that Paypal can't possibly succeed. The latest news says the IPO has been delayed as a company files a lawsuit against Paypal for patent here.

Links to other related items

For the curious, My Credentials.

Participate in our Payment Services Forum.

ratings of payment services         AuctionBytes Article on Payment Services         Quick Ratings Chart

American Banker       Cybercrime       Salon article       WinnerOnline      
An angry buyer       angry corporate buyer/seller     Paypal Warning

"Payment services--like PayPal--don't do much to protect their customers from fraud and, by reputation, often don't help investigate it, either." ... David Coursey, ZD Net

ZDNet Auction Fraud Story 3/13/02

Wall Street Journal reporter Stacy Forster interviewed Paypal users, the Better Business Bureau and Paypal officers. The information she received does not match the glowing reports Paypal cheerleaders and the online rep keep spouting. the Wall St Journal Story

Paypal's ratings with the Better Business Bureau.

After this article appeared, Peter Thiel of Paypal made a public announcement how he was working with the BBB to correct these problems. It took until August for the rating to change. Cnet review.

What the payment services don't want you to know

Amazing discovery! We found a backup file of archives from bulletin board posts going back perhaps half a century. Take a look at how our parents and grandparents discussed issues way back when... the archives

Author meets with celebrities and lawmakers to discuss online payment services. Article and photos

Because Paypal has launched such a heavy viral-marketing campaign, enlisting everyone's help in signing up additional accounts for a $5 fee, it is difficult for sellers to just stop accepting it or buyers to just stop using it. However, there are ways for both buyers and sellers to increase their safety. Using paypal more safely

Who Is Paypal?

People have emailed me or discussed me on the boards, asking Who am I and what experience do I have in rating payment services. They should be asking who is Paypal and what experience do they have handling millions of dollars of other people's money. Paypal is a startup company by some young (the average age of the management according to David Menlow's IPO report is still under 30), inexperienced and arrogant people who had a good concept and no real idea how to make money off of it. So they did what every other (mostly defunct) dot-com did: they started a company on other people's money, lost hundreds of millions of other people's money, while raking in huge salaries and perks. First they had, which would revolutionize Internet banking. It did. It was probably the first bank in history that paid people to join, then sent them notices stating "We will now charge you and if you don't like it, shut down your account." Then they shut down. Doesn't that give you a lot of confidence in their management?

They have changed their Terms Of Use (TOU) so often, we jokingly call it their TOUOTD (Terms of Use of The Day). Now when someone has a question, part of the question is which terms apply? The ones in effect when the account was created or when the transaction occurred or the current ones?

I was told that at a recent arbitration case in California, it was revealed that Paypal's so-called fraud managers have no experience in fraud management, no training and are not even given so much as a company pamphlet explaining what to do. Any wonder that it has been common knowledge on the forums that you can call three different people with the same question and (if you get through) get three different answers? Any wonder that their rep on the forums has often contradicted himself? Is this a company you want to trust with your money?

Just for the record

Folks assume that I put up these pages because I had a bad experience with Paypal or I work for one of the other services. I would like to state for the record:

1) I am not an employee of, consultant of or connected with any payment service other than as a customer or former customer.

2) I have never had any charge back or restricted account with any payment service. My personal experiences with payment services, (including the ones I don't recommend such as Paypal, Paydirect and Exchangepath) have been good.

3) I verified my account almost immediately when the whole "protection" promise was made. I still don't feel that there is any problem in giving Paypal your checking account. What I am concerned about is the almost blanket permission paypal requests to access your account and the fact that they changed their default payment method to bank account. Lots of folks thought they were charging their credit cards when in fact they were using their bank accounts. Some folks had twice the amount taken out because paypal first charged their bank account and then put a temporary charge on their debit card to cover it. Since the debit card used the same account, Paypal effectively charged the account twice. Sometimes it took weeks for the extra charge to be credited and in the meantime, the customer had checks bounce. Paypal should be more upfont about where the payment is coming from, with a drop-down box just as they use for the other choices.

4) I once posted a message that Citizen's Bank was not doing business with Paypal based on a report by someone else. Before I ran it, I confirmed this with Citizen's Bank both by email and phone. I posted both the email I received from Citizen's Bank and the toll-free number so anyone who wanted to could verify this. I even emailed Paypal and was told that it was a "mutual decision." Some time later, Citizen's Bank removed the ban against Paypal. I went back to this page and removed the message. Shortly afterward, the Paypal cheerleaders began posting that my page was "full of lies" including the "lie about Citizen's Bank" and the fact that I had removed it proves this. Just to set the record straight, here is a thread on OTWA from March 19, 2001 in which Paypal admits that there was a time when Citizen's Bank did not accept Paypal.

Damon's comment

I post these web pages as warnings based on information that I received via email or found on the boards. You can choose to disbelieve them all if you like. You can decide that hundreds of posters had nothing better to do than make up stories. In Paypal Damon's own words "only 4% of our users are unhappy." 4% is several hundred thousand people. That's a lot of unhappy people. If 4% of my clients were unhappy, I would be out of business. Now how many of the remaining accounts are scammers using stolen credit cards with multiple paypal accounts. One alone had over 45 accounts. But the real problem is that Paypal is happy with those statistics and sees no reason to change.

The Shocking Truth

Paypal accounts hacked and Paypal doesn't care!

There have been several complaints on forums about Paypal accounts getting hacked. (Note: Paypal claims that it was not Paypal itself that got hacked, but that the user was tricked into visiting a site that looked like Paypal and giving their password. Regardless of how the hack was done, the problem isn't just the hack itself, it's that Paypal failed to act when informed of it.) In each complaint, the poster reports that PP either denied it could happen, blamed the poster for being careless with their password, called the poster a liar and simply refused to take action.

Here's one     and several more.

the report         the challenge         the proof         report of other victims

How can Paypal be claiming that all these posters lying? According to a report from a ZDNet reporter and 30-year veteran of the computer industry (and not someone likely to carelessly give away his password), it has become apparent that someone has figured out how to steal Paypal passwords. Paypal is aware of this. Yet they continue to blame the posters and refuse to take action. ZDNet Story. If the story gets taken down, try this link. I guess you have to be a reporter in order to get paypal to take action on your problem.

Paypal reverses BUYER's transactions and Keeps the Money

Read this post and see the double-talk and delaying tactics Paypal uses to hold on to someone else's money.

Paypal charges customer, keeps the money, tells seller customer reversed payment

Here's a particularly vicious story. Paypal asked a vendor to provide a huge "deposit" to cover potential charge backs when he hadn't had any. When he refused, they locked his account with thousands of dollars in it. They also kept a large payment he had made to a seller AFTER they withdrew it from his bank account. They told his seller that HE cancelled it - which he denies. He provides screen shots of his bank account showing the payment and copies of the Paypal letters. seller's story.

Did Paypal screw-up take $6,000 out of a customer's account?

Read this post and decide for yourself.

Paypal Never Admits A Mistake

Does Paypal EVER admit they made a mistake? It seems the only time they do, another paypal employee comes along and says, "No, we never make a mistake. Whoever told you we did was mistaken." Read this post and decide who you believe.

Paypal Can Now Access Bank Accounts Without Permission

Despite the cheerleaders on AW and OTWA who believed Paypal in spite of all their lies, there were still many people asking why Paypal was so insistent on getting access to your bank accounts. Paypal denied there was any ulterior motive. How many times did we hear Damon say "We will never go into your bank account without express permission. It's right in our TOU." Guess what? They just changed their TOU and now permit themselves to access bank accounts to recover funds they decide are owed them. Notice how no announcement of this was sent out. Unless you visit their site and read their terms on a regular basis, this one would have snuck right by you. These terms are only for accounts created after October 11, 2001 but we have all learned that what Paypal's terms state today could very easily change tomorrow to include all accounts. Here are their new terms:

Receipt of Payments; Risk of Reversal of Transactions; Collection of Funds you owe PayPal. When you receive a payment through the Service, unless you follow the steps necessary to qualify for our Seller Protection Policy described in Part VII of this User Agreement, you are not protected against a subsequent reversal of the transaction. In the event that the sender's transaction is reversed for any reason and you do not qualify for the Seller Protection Policy for that transaction, you will owe PayPal for the amount of the reversed transaction plus any fees imposed on PayPal as a result of the reversal. Examples of such a reversal include, but are not limited to, a credit card charge-back by the sender of the payment, and a reversal of the transaction because the sender of the payment was using a stolen credit card or unauthorized bank account. PayPal will seek to recover the funds from you by debiting your PayPal balance and, if there are not sufficient funds in your PayPal balance, PayPal reserves the right to collect your debt to PayPal by any other legal means. If you open a Premier or Business Account after October 11, 2001, you authorize PayPal to debit your bank account linked to that PayPal account for the amount that you owe PayPal on transactions which were not covered by the Seller Protection Policy and which were not recoverable from your PayPal balance.

Paypal Lawsuit Over False Charge Backs

It was bound to happen and now it has. There is at least one very large lawsuit (in the hundreds of thousands of dollars) and a few smaller ones taking place right now between Paypal and a seller who claims that Paypal ruined his business with their incompetence and false allegations of fraud.

This is what I was told by several sellers and buyers: Sellers received large sums of money through Paypal. Paypal restricted sellers' accounts and told them that source of funds was fraudulent or that customers charged back the payments. In some case, sellers had to get subpoenas before Paypal would give them the actual customers in question. (With a merchant account or if someone gives you a bad check, you are told who did it. What kind of logic says that you should be told, "Someone cheated you but we're not telling you who. Just take our word for it.") Police or attorneys contacted the payers and discovered that 1) cards were not stolen. Payers used their own cards in good standing and 2) payments were never charged back. Paypal has the money. In some cases, Paypal admitted making a "mistake" and promised to correct it, but several weeks later, it still hasn't happened and PP is ignoring calls and emails. Did these sellers and buyers (from New York to Texas) all come up with the identical lie? Here's one Seller's Post AW 10/25/01
Here's a post from a BUYER who made payments and then received angry calls from sellers asking whey she charged them back, even though she never did. OTWA 10/25/01 Buyer's Story

Here is the original case: There is a well known Internet businessman who calls himself Stoney. He lives in Texas and he invests in precious metals through the E-gold service. Since these investments require minimum amounts that the average person can't manage, he is the middleman, investing in large blocks and selling smaller blocks to smaller investors. Bear in mind that no merchandise actually changes hands. His investors send him money to create E-gold accounts for them. He has the reputation of being extremely honest and has built up an investor list of over 5,000 clients. He did approximately $200,000 a month via Paypal. PP restricted his account and told him that over $20,000 of payments were fraudulent. This is rather strange because the payers do not take possession of merchandise, the investment just sits in their account.

He called Paypal but reports he was given the runaround for weeks. He got in touch with the police department and the FBI and PP has finally given him the list of fraudulent payments. He started calling and emailing his way down the list and discovered that quite a few of these "fraudulent" payments are not! The other parties claim they used their credit card, never made a charge back and have no idea why PP is claiming there is fraud. Stoney also says he begged PP to block his account so that people would stop paying into it. It took 6 weeks of angry phone calls and threats before they finally did so. In the meantime, tens of thousands have been accepted (well in excess of the claimed fraud) and are being held by Paypal, hurting not only him but his (and paypal's) innocent customers. And Paypal claims that some of these new payments, which he asked them not to accept are fraudulent and are charging him for those. And he was charged fees by Paypal for accepting this money which he asked them not to accept!

His case against them was recently heard in California. Details will be released when a decision is handed down. So I guess even if you do a few hundred thousand in business with Paypal, they still won't try to work things out. How much business does it take to get customer service? A million? Two million?

Paypal Does Not Follow Its Own Rules

Yes, a number of complaints are from folks who didn't read the terms. Folks who did silly things like ship to Indonesia or accept paypal payments for a fee and send out checks because a con man fed them a story, folks who didn't bother to spend 40 cents to get proof of shipping, etc. I also thought at first that all of the whiners had only themselves to blame. I still believe that many of them do. But there have also been a number of complaints from folks who followed the rules to the letter and still got cheated. I can personally attest to two situations where I know the participants.

A seller with high ratings on ebay received a Paypal charge back against her verified account several months after the transaction. The customer never contacted her and neither did Paypal, in violation of their own TOU that states customer has to contact the seller and that seller will be given a chance to respond. She had proof of delivery but was never asked to present it. Even though the amount in question was far less than the amount in her account, her entire account was frozen without notification. While customers were sending her money, she was unable to receive it or refund it. When she sent Paypal her USPS delivery confirmation slip, they rejected it because it did not have a signature and the actual address. But their own TOU states that this is acceptable proof! Eventually, she "won" her case but the damage had been done. Since she sells high ticket items, she could not ship to customers when she was unable to take the money. More of her customers did charge backs and posted negs. Her sterling reputation was ruined. All over one charge back fraudulently made against her.

A buyer I know paid a seller and never received his merchandise. Investigation of the seller's info showed that he had created his ID using a false address, the city and zip code did not match and the area code did not belong to either. Despite this clear evidence of premeditated fraud, Paypal told the buyer to wait 30 days. Then they "investigated" by asking the buyer for some info, making the buyer wait and when the buyer inquired, they just asked for the same info again. They did this until over 60 days had passed and then said they could do nothing about it. At this point, the buyer contacted me and I found that this seller's Paypal account was still active! I contacted Damon, who only asked me for the same info several times over the next few months until I gave up. But I did advise the buyer to forward all the Paypal messages about their "investigation" to his credit card company, which allowed the charge back.

Paypal Lies Repeatedly

There is no way to sugar-coat it any more. Until now I gave Paypal the benefit of the doubt. I thought they were naive, maybe unprepared for the scams users perpetrated, maybe a bit too arrogant to listen to suggestions but I always thought they were basically honest. In the past few months it has become clear that Paypal is run by outright liars. Despite the fact that is has been proven over and over that there is no real buyer/seller protection, Paypal continues to propagate this myth. Each time someone gets cheated and posts their complaint on a public bulletin board, Paypal Damon is there with an excuse. "Sorry, but the seller who cheated you emptied his Paypal account." "Sorry, the seller has proof he sent you something, so we can't help you, even if you did get an empty box." "Sorry, the buyer made a claim for 'item not as described' and there is no protection for that." "Sorry, but USPS Delivery Confirmation does not show the address it was delivered to, so we can't accept it, even though our terms specifically state that it is good proof." But now they have taken this corporate spinning to the point of outright lies. Buyers can make purchases, post positive feedback and then charge it back months later and all Paypal does is tell the seller "if the charge back was made with the credit card company, there is nothing we can do." Buyer gets to keep the merchandise and the money! How "protected" should sellers feel?

OTWA story. After a buyer demanded that a seller give her a discount on a $2000 item already paid for and delivered and the seller rightfully refused, Paypal invited the buyer to return it to them and then deducted the funds from the seller's account. When asked how they know the item returned is identical to the one sold and what prevents future buyers from buying new items and returning old, broken ones to Paypal for full refunds, Damon had no answer. He said that since the credit card had given the buyer the charge back, Paypal offered no protection. Yet days later, Paypal sent out letters to their sellers reminded them that "only Paypal's protection can keep you charge back free." They didn't say "somewhat charge back free." They didn't say "charge back free as long as the buyer doesn't do a charge back." They promised to keep sellers completely charge back free. This after they had already admitted that there is nothing they can do if the credit card allows the charge back. Already the boards are buzzing with this new info that any scammer looking for free merchandise can use Paypal and then do a charge back for a "quality of goods" issue. It's an automatic win. With Paypal's new and improved "protection plan," a seller would have to be nuts to accept credit card payments. As for buyers, their only protection is dealing with trusted sellers with high ratings. Sending a non credit card payment to anyone questionable is asking for trouble. Here are the details:

The myth of "buyer/seller protection"

Let's look at Paypal's Terms of Use (TOU):

"Buyer protection:

This Additional Protection does not apply to disputes about the quality or attributes of delivered goods, goods that have been lost in the mail as shown by seller's presentation of proof of shipment, payments for services, payments to Unverified sellers, or a seller's failure to deliver intangible goods. In order to be eligible for the eBay Additional Protection, you must have paid for the undelivered goods with a single payment from a single PayPal account. The seller's Verification status will be displayed to you on the PayPal website when you confirm the details of your transaction, giving you the opportunity to cancel the transaction prior to sending payment if you do not want to pay an Unverified seller. "

Seems pretty clear that buyer is only protected against non-shipment of goods from Premiere or Business accounts. If seller is a personal account holder, tough luck. If seller sends an empty box, tough luck. Now even assuming that seller was stupid enough to send nothing, not even an empty box, chances are good that buyer will STILL LOSE. Why? Here is another lovely "gotcha."

You and other buyers who file claims against the same seller will be entitled to the return of any and all funds PayPal is able to collect from the seller, on a first-come, first-served basis for funds received by PayPal prior to the restriction of the seller's account. Recovery of your claim is not guaranteed.

In other words, if the seller is stupid enough to take your money, send you nothing and leave the payment sitting in his paypal account for a month or two, you might recover. If he takes the money out of his PP account, you get nothing, as this poster discovered.

Now let's look at seller protection:

"Seller Protection Policy. Beginning August 23, 2000, PayPal agrees to indemnify sellers of physical goods for chargeback liability resulting from a buyer's unauthorized use of a credit card and/or false claims of non-shipment of goods, for payments received by the seller through PayPal of up to $5,000 per year"

Seems pretty clear that seller is NOT protected against claims of quality of goods. If buyer claims he got something different than ordered, seller is out of luck. So who wins, buyer or seller? PP left this huge loophole in place so they are free to do whatever they please.

Now let's look at what the seller has to do to get this so-called protection:

"if the following conditions are met:

The seller is a Verified Business or Verified Premier Account (U.S.).

The seller ships to the buyer's Confirmed Address.

The seller can provide reasonable proof-of-shipment which can be tracked online. This documentation must show that you shipped to the Confirmed Address. (Most U.S. carrier companies offer this service, including the U.S. Postal Service.)"

USPS delivery confirmation does NOT show the address, only the zip code. So while PP tries to pretend that DC is good proof, they can always weasel out and say it doesn't show the address (something they DID to a seller I know.)

To sum up: buyer is NOT protected if seller sends an empty box. Buyer is NOT protected if seller takes the money out of his Paypal account. Seller is NOT protected if he uses Postal Delivery Confirmation. Seller is NOT protected if buyer claims a quality of goods issue, as the next post demonstrates.

Paypal allows buyers to return merchandise to them and then charges back the seller, even in cases of buyer remorse. What if the buyer returns something different than purchased? Damon has no answer. Paypal in the middle.

Paypal would like sellers to believe that buyers have unlimited charge back power and there is nothing Paypal can do to stop them. This is simply false. If Paypal made an effort to defend the seller or even give the seller the opportunity to defend himself or herself, many of these charge backs would be denied. Here is a link to to FTC explaining exactly what rights a buyer has under the law. They are far more limited than paypal would have you believe. Buyer's Credit Card Rights.

Paypal Charge Back after SIXTEEN MONTHS!.

Damon and the Paypal web site claims that sellers are protected against charge backs if they have proof of shipping to the buyer's confirmed address. In these next posts, buyers make charge backs for "quality of goods" and paypal tells sellers they are NOT covered against such claims. No Seller protection?       Another case.

Paypal: Favored By Scammers Worldwide

The "John Dillinger" of the Internet, who has defrauded folks of possibly hundreds of thousands of dollars has been caught. The link to the article no longer works so here is the article itself. Take note of this scammers preferred payment method. Like almost every Internet scammer mentioned, he used the service that gave him the best "seller protection."

July 16 — A fugitive who federal authorities labeled “The Internet’s John Dillinger” was arrested by U.S. Marshals last week, has learned. Jay Nelson had been indicted on multiple counts of Internet auction fraud, but skipped bail in New Hampshire in February and allegedly continued to scam eBay and Yahoo auction users. Nelson was arrested after a rare-coin shop owner in Florida heard a local radio station discuss an investigative report on Nelson and realized that he was a recent shop visitor.

NELSON WAS PICKED up by U.S. Marshals in Kissimmee, Florida July 11, according to Michael Gunnison of the New Hampshire U.S. District Attorney’s office. A warrant had been issued for Nelson’s arrest in February when he missed his arraignment hearing, and he was placed on the U.S. Postal Inspector Office’s “Most Wanted” list.

Nelson had eluded authorities for about six months, and paid for his travels by continuing to operate auction scams, authorities told in a June 7 story. Apparently, a Kissimmee rare-coin shop owner heard a local radio station discussing that story, and recognized Nelson from the description. U.S. Marshals staked out her store and arrested Nelson when he arrived July 11.


Mere mention of Nelson’s name can beget a violent reaction among Internet auction users. The original complaint against Nelson claims he used dozens of fake online personas and scammed hundreds of thousands of dollars from auction victims simply by taking their money and never sending the merchandise. The tactic continued to work — through June of this year — because he switched personas often. He also managed to use his various logins to build up a history of positive feedback for each, making it easier to dupe users.

For example, last June and July, he allegedly used the login name “harddrives4sale” and ran 153 auctions on for computer hardware — 141 of the winners have filed complaints of non-delivery. Days later, he allegedly began a string of 54 auctions that ended Aug. 10 using the name “more gr8stuff” with the same outcome. And starting Aug. 10 and running through Aug. 25, Nelson allegedly ran 113 auctions under the name “cwilly1955,” claiming to be Chad Williams of Las Vegas. Most of the auction winners have filed complaints saying they never received their merchandise.

Nelson often took payment using online service because the service allowed him to hide his actual location; checks mailed to him as payment were simply returned.

Determining just how much fraud Nelson might be responsible for is difficult because many victims sent traditional checks that went uncashed, and some PayPal fund payments have been halted. But judging by the number of complaints on auction bulletin boards, the losses were probably substantial.

“It’s so extensive it’s really hard to say how much the actual dollar loss is,” U.S. Postal Inspector Tom Higgins had told in June. “I could only guess, but it’s certainly hundreds of thousands of dollars.”

Diary of Two Hackers link to the MSNBC article on diary of two hackers and discusson on Auction Watch

Click here for the link to the PC World article on online scams and discussion on Auction Watch

My Paypal Challenge

Damon, Paypal's representative on the auction boards, has chided me for only presenting one side of the issue. I have given him several opportunities to respond. He has either 1) ignored the question 2) answered a different question than asked 3) tried to deflect attention away from the issue with insinuations against me or 4) responded "I can not comment." So for those who question why I don't present the other side of the issue, the answer is that there is no other side. Paypal has refused to explain their actions. I think we all know what it means when someone pleads the fifth. Below are links to specific incidents where Paypal took heavy-handed action and refused to explain. Here is our opportunity to see Paypal in action followed by Paypal inaction.

Paypal freezes accounts with no explanation!

This message was posted on AW twice and ignored. The poster has supplied their email ID,, so anyone who thinks this is made up, can contact him. After 'featuring' this story on my site and posting the invitation to Paypal to respond, Damon got involved and the account was unrestricted within days. Doesn't this prove that there was never any fraud involved with this account? It was restricted as a 'safety feature' to protect the owner from suspected fraud. All that may be fine but why did Paypal allow the owner to withdraw $1300 from his bank account in order to make payments and then freeze the account with the $1300? They should have either NOT withdrawn the money or returned the money to the bank account from which it was withdrawn. Instead, they made the owner jump through hoops, call, email and fax repeatedly and ignored him for weeks while still holding his money. vendio discussion. Here is another one: Account frozen 5 months with no explanation.

Here is another letter I just received and posted on Auction Watch. Again, the seller has identified himself with his email ID, which is also his ebay ID. He had 576 positives and NO negatives at the time of the posting. One of the positives was from the very customer who made the Paypal complaint.

Damon, we're waiting to hear Paypal's side. The account holders are waiting to hear why they have been treated this way. You wanted me to present both sides. Where is the other side?

Paypal will freeze your funds over one unverified complaint! Because I put the spotlight on this case, it is important that you read it in entirety. This is one of those rare occasions where we see both sides of the issue and the resolution.

A seller on ebay with excellent ratings (over 300 positive and 2 negative, the second being this buyer) had $500 frozen because one irrational buyer complained to Paypal that what he received was not as described. He provided no proof other than his claim. He refused to return the item, go to escrow or do anything other than demand a refund while still holding the item. The seller was NOT contacted by Paypal before this happened. She was not given a chance to explain. The buyer had already negged her while Squaretrade mediation was in progress and emailed her to say in effect, "Meet my terms or I'll make your life miserable." The buyer posted his side on ebay and was told that he had to return the item first. He refused. The seller had already agreed to refund the buyer upon receipt of the item. I think if you read the posts by both the buyer and the seller, you will agree that the seller has been more than reasonable and the buyer has been irrational. Paypal's TOU states that there is no protection against claims of item quality, so they should have told the buyer to work it out. There is no proof that the seller can offer as to item quality. But within days of the auction, based solely on the buyer's complaint, Paypal froze $500 in the seller's account. Seller then provided proof of shipping along with the offer of a refund and the freeze was removed. I don't understand what proof of shipping has to do with a case where the buyer admits receiving the item. It is encouraging to know that sellers are not entirely vulnerable to blackmailing buyers. Here is the link to the discussion on vendio, with the seller's post, paypal's email and Damon's response vendio thread.

Damon explains in a post on OTWA what the buyer protection entails. Note that he states that it does not cover quality of merchandise. He does not mention that if a buyer makes a complaint, the amount is immediately frozen in the seller's account. Damon's Explanation of Buyer Protection
"3. The Buyer Complaint Process does not cover the quality of the merchandise. If a Buyer Complaint is received about this issue we will make note of it, but it does not guarantee that a claim will be ruled in your favor (this is also a reminder to sellers to follow the Seller Protection Program---the user still might file a charge back with the credit card company, which could impact their membership with PayPal)."

I wonder: What would Paypal's reaction had been if the seller refused to refund? Would they have assisted the buyer in his extortion? How quickly would this have been resolved if I had not invited the seller to post on vendio? Finally, how would other services have handled the same situation? My direct merchant account does not allow a charge back until the item has been returned. C2it also confirmed that they would not have taken action upon such a complaint unless the item was returned or the seller had other complaints pending. So I give Paypal mixed reviews on the way they handled this and on how they violated their own terms, but at least the seller protection worked the way it was supposed to.

Trying to contact customer service.

Why Even Paypal Agrees It Must Be True

I will never say anything about Paypal that isn't true

You're probably wondering why the statement above is here. I'm borrowing from Paypal's philosophy. Paypal makes statements and promises in their TOU (Terms of Use), some of which are contradictory and some of which have changed numerous times and been applied retroactively. When a user complains that something happened to his account, Paypal's response is to say it didn't happened because the TOU says it can't. We have seen posts on AW that went something like this:

Poster: Paypal took money out of my bank account.

PaypalDamon: It didn't happen. Our TOU says: "We will never take money out of your bank account."

Poster: But the money was there yesterday and it's gone today.

PaypalDamon: Maybe your bank did it. Paypal won't do it. Our TOU says: "We will never take money out of your bank account."

Poster: But my bank says that the record clearly shows that Paypal reversed the payment.

PaypalDamon: We didn't. Our TOU says: "We will never take money out of your bank account."


So now whenever someone doubts something I say about Paypal, I will say, "it has to be true. My TOU says "I will never say anything about Paypal that isn't true." If Paypal considers it a good argument when they do it, they have to accept it when others do it.

Incidentally, once again Paypal seems to have their own interpretation of the word "never." Never actually means until October 11, 2001, after which they are allowed to access your bank account without permission. If you missed it, go back to the top of the page and read Paypal revised terms of use.

Paranoia Corner for the Cheerleaders

Saturday Night Live once had a skit with Steve Landesberg and I believe one of the Belushi brothers. They were sitting in a boat when one says, "Elvis is really alive, you know. It's all a conspiracy."
The other says, "Sure. And Kennedy is still alive. They're lying to us."
The first one says, "Which Kennedy, John or Robert?"
"Both of them. They're really alive. And so is Martin Luther King."
And they go on to name all the people who are really alive though the public thinks that they're dead. Then one says, "Suppose, just for a minute, that all these folks are really dead."
The other says, "Now you're being paranoid."

The point of this skit is that some folks are so caught up in paranoia theories that they believe that nothing can be obvious. Everything must has some twisted, hidden agenda. To them it is paranoia to accept the obvious. So for the benefit of those who believe this way, here's the real story.

Paypal is an innocent company who genuinely wants to do nothing more than help you. The fact that they said "always free" and then charged a fee, that was an unavoidable mistake. They really didn't want to do it. The fact that they promised, "We will never force you to upgrade" and then proceeded to force you, that was a mistake as well. They charge you for payments made from your bank account and even transfers from one Paypal account to another, which costs them NOTHING, sorry. That they are charging a "conversion fee" on foreign payments even though they don't do the conversion - the credit card does and already charges the fee built-in to the rate of exchange. Sorry. Another mistake. We'll fix that, someday. That even after restricting your account, they continue to accept money "for you" even though you can't touch it and then charge you fees for doing this. Sorry. Can't get through to Customer Service? Sorry. Get through and they promise a call back and don't call? Sorry. Got scammed and they promise a refund and don't give it? Sorry. They put the refund on your account as "pending" and then take it away a few months later when it's too late to do a charge back? Sorry. They change the way their site works so payments are now being taken from your bank account instead of your credit card and don't make this change obvious so lots of folks are fooled? Sorry. They promise "buyer/seller" protection and only after you lose money do they admit it doesn't really work, sorry. After the forums are buzzing with the news that Paypal has admitted that there is no protection against buyer claims of item quality, they send out two more letters promising to keep sellers "charge back free." Sorry, that was a mistake. Of course they never sent out a disclaimer via email. Sorry, an oversight. Remember, Paypal is an honest company working hard to help you.

Bankrate didn't have a high opinion of them. Neither did the Wall Street Journal. Neither did Cnet. Neither did Salon Magazine. Neither did the Better Business Bureau. BBB members pay them to be listed. Despite Paypal's millions, it took almost a year before they could pay enough to get the BBB to give them a satisfactory rating. But there is only one logical explanation. Bankrate, the Wall Street Journal, Salon Magazine and the Better Business Bureau are all involved in a big conspiracy to hurt Paypal. Their motives are obvious. They uh, uh, uh (I'm sure the cheerleaders can come up with something). The rest of us have learned that if it looks like a horse and sounds like a horse, expect a horse - not a zebra.

Incidentally, for those who keep missing the point, my complaint is NOT that they charge fees. They are entitled to do so. My complaint is with the sleazy, underhanded way they went about it and the sleazy, underhanded way they generally run their "service."

More Horror Stories


Over 45 Paypal users are scammed by the same seller who delivers nothing. Paypal has delayed for months but taken no action.


Someone's account is restricted because they received a payment from someone else who received a payment from a stolen credit card:


Someone's account is restricted and over $800 removed from their account because they received a payment from a stolen credit card and returned the payment immediately.


Someone's bank account is charged FOUR times for the same payment. Paypal will return only two of them and then only after 30 days.


Someone's account is frozen over a charge back despite providing information that the item was shipped.


Numerous users with restricted accounts despite proof of shipping.


Someone's paypal account is restricted over a $12 item and customer refuses to fill out lost mail claim form.


A fraud uses someone else's credit card to open an account. Paypal takes no action. Someone is defrauded by a Paypal user. Paypal takes no action.


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