James Scott just caught the eBay Fraud Victim tale I shared a few weeks back:

I have witnessed firsthand PayPal taking $427 from a seller’s bank (checking) account and refunding just $200 to the buyer, stating to the buyer that the $200 was all that could be recovered. I was the buyer. If the seller and I hadn’t been communicating, neither of us would have known what was going on. In this particular case, a claim was filed (by me — the seller hadn’t communicated and I was worried about not getting what I’d paid for); however, I *did* eventually get what I’d paid for, but not until after PayPal had processed the claim. I got $200 in my account; the seller told me she’d had $427 taken from her checking account.

Only through several phone calls to PayPal representatives was this situation resolved. And only because the seller/buyer were communicating were we able to figure out that we were being told two different stories and that there was $227 sitting somewhere in-between the buyer and the seller when it should not have been.

How many times does PayPal tell a buyer that they’d been able to recover “just $200″ but had actually been able to obtain/retrieve more from the seller? Not all of these scenarios are genuine fraud — in my particular instance, this was a situation caused by a non-communicative seller (who happened to be moving and in-between Internet connections). We figured it out. Even if it is genuine fraud, perhaps PayPal merely froze the seller’s account and any money in it. If there’s $800 in the account, do they still send the same message saying they’d only been able to recover $200?

Another bad PayPal scenario. If a seller mails something to a buyer that does not have a tracking # and the buyer files a claim saying they did not receive the item, then the seller is required to provide a tracking # or PayPal will automatically resolve the dispute in the buyer’s favor. Whether or not the buyer actually made the claim in good faith. In other words, PayPal’s “claims” process enables fraud. They don’t ask, they don’t require, they don’t care whether or not the buyer is making the claim in good faith. Lesson for sellers I guess is to always provide a tracking #, but still — who knows how many buyers have figured this out and make false claims. Given the volume of transactions and human nature in general, it has to happen.

My piece of advice for any transaction online that’s gone bad — the buyer and seller need to communicate with each other (assuming this is possible). They need to overcome any emotional issues related to shipping something in good faith and/or not receiving an item within a reasonable window of time. They need to both communicate to each other about how PayPal resolves that claim because there’s evidence to suggest that PayPal isn’t telling both sides the same story. I for one would be curious to know if this is a wide-spread practice. If the honest buyers and sellers can work together to see into both sides of the PayPal mess, perhaps some transparency can be achieved.

After seeing these two scenarios play out, I don’t believe PayPal is a trustworthy broker and they shouldn’t be handling anybody’s money. But that’s just me :)

Well, the good news is that at least Google and Amazon are starting to play in the world of micropayments. Not sure they’ll ever replace PayPal outright, but at least consumers have more than one option (even if those options may not be as convenient).

PayPal Fraud Protection