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Using Paypal Safely
For buyers, when doing mail order purchases, there is protection against fraud. If you use a credit card to purchase something directly from a vendor, you can charge it back if you don't receive the goods or receive something different from what was advertised. But once you introduce a third-party payment service into the picture, those rights become a little hazy. Some credit cards do not allow third party payment services at all. If you use one, you lose all rights. Some third party payment services do not allow charge backs or only allow it if you go through them. Then you are subject to their rules. This is perfectly acceptable if you could read and understand their rules. But Paypal has changed their rules often and even made them retroactive. Their rules are so ever-changing and complex, that folks have called Paypal's Customer Service (and eventually managed to get through) and were given different explanations by different people or explanations that completely contradicted Paypal's TOU.
The typical process is that they are told to wait 30 days. Then they are told to send the info to Paypal and wait. Each time they contact Paypal, they are asked for the info again. Eventually the deadline for filing a charge back with the credit card passes and Paypal takes no action. In some cases, Paypal posted a credit to the customer's account that read 'Pending' but the credit never completed. So what is the customer to do? Rely on Paypal and often get nowhere or do a charge back and Paypal will then freeze the customer's account?
Now Paypal has become even more devious, trying to entice customers to keep money in their Paypal accounts, so payments will come from there and not be subject to charge back protection. They have made the default payment option the customer's bank account instead of credit card and have hidden this so it is not obvious. For these reasons, I can see no reason why a buyer would want to use it when there are far better services available.
If you do use Paypal to make purchases, the following tips will help you stay safer:
Deal only with sellers you know and sellers that have very good ratings. If in doubt, stay out. You will have more protection if the seller has a verified account. However, because many people don't trust PP, even many reputable sellers will not give PP their bank account info. So just the fact that a seller is unverified is not a reason to suspect fraud if the seller has otherwise good ratings.
If there is any doubt, make sure you are paying from your credit card and not from your bank account. Credit card payments can be charged back.
If there is a problem with the sale, follow the PP instructions - to a point. First, contact the seller and try to work things out. If it becomes apparent that the seller isn't cooperating, contact PP. Send them the info they need. But make sure you get a contact person to call and a deadline of when a determination will be made. Don't let PP drag their feet until the deadline for a charge back has passed. Save all your correspondence with the seller and PP. You can also post on www.auctionbytes.com, www.auctionwatch.com or www.otwa.com because Paypal seems to react to public complaints faster than private ones made through their established channels. You can also email Damon@paypal.com, who in the opinion of some (including me) is Paypal's entire customer service department. Don't be hostile or insulting to Damon. He may be the only Paypal employee who genuinely tries to help.
As 60 days approaches, if you get the feeling that PP is not taking you seriously, begin the charge back with your credit card. Remember that the charge back is NOT against the seller, but against Paypal. They are the merchant who charged your card. You will have to explain to your credit card that you made every effort to work it out but PP has not been cooperative. You should immediately close your Paypal account. Otherwise, the next time you receive funds or try to make a payment, Paypal can decide to take the money and use it to cover their loss on the previous transaction. Their new TOU states that they have the right to confiscate your money.
For sellers, every payment method carries risk. It is the seller's choice to minimize risk. An easy solution would be to simply state, "money orders only." However, this would greatly reduce the number of bids that seller would get. After Paypal's wildly successful viral marketing and their lies about buyer protection, many buyers have been trained to look for auctions in which Paypal is accepted. So sellers have to find a method by which they can both accept Paypal and remain safe. So I do accept PP and state so in my auctions. However, I also state that I don't recommend it and don't consider it safe. I therefore add some conditions, which you will see below. I also put in a link to my Paypal page so buyers can see the concerns. Many of my buyers email me to say they were not aware of these problems and are now switching to C2it (and the $10 sign up bonus C2it offers helps as well). But there is always someone who insists on Paypal and rather than lose a customer, I will do my best to accomodate.
The two biggest concerns with Paypal payments are that the credit card is not being used by the rightful cardholder or that the cardholder will do an unwarranted charge back. Despite Paypal's promises, their own rep has already stated repeatedly that there is no protection against charge backs if the buyer goes directly to his credit card company and bypasses Paypal. So I recommend that you do not accept credit card payments. Open a free personal account and accept only bank account payments or transfers from existing paypal funds.
As for payments from existing PP balances or bank accounts, these are not perfectly safe either. The only rule at Paypal is that there are no rules. It all depends on which so-called "customer service" person handles the complaint and what that person chooses to do. It seems that some of them are "buyer friendly" and will immediately freeze funds in the seller's account based on an unsubstantiated buyer complaint. It doesn't make a difference if it is only 2 days since the auction or if the seller has over 500 positives and no negatives. If there is no money in the seller's account, paypal will put a freeze for that amount into the account so that the next payment that comes in will be frozen. So what should a seller do to be safe?
1) Do not automatically accept Paypal. Make your Paypal ID different than your ebay id. Customers will not be able to pay you until you tell them which ID to use. Occasionally you might want to change the email id and delete the old one. There are a lot of reasons why you would not want Paypal payments sent to you until you have had a chance to discuss this with the payer. Many customers will send you Paypal payments without waiting for your instructions. Some will pay you by credit card even if you don't accept this method. Others will leave out the shipping and then when you remind them, will either ignore you and then complain to Paypal that you didn't ship or send you a separate payment on which you now have to pay an additional fee. Others might accidentally send two payments and you don't get the fee back when you refund.
2) In you EOA letter, discourage the use of Paypal and push other services. I particularly recommend C2it at this time. You can send your customers a link to my paypal page to explain why.
3) Do not rely on the email that says you have money. Sometimes, due to a typo in your email ID, you get the email but not the funds. Sometimes the email is fraudulent. Always go into your account and withdraw the funds immediately. Leave nothing in your PP account that you can't afford to lose.
4) Make sure that you follow Paypal's protection rules. Only ship with some form of delivery confirmation. Remember that there is no protection offered outside the U.S.
5) In the event of a dispute, stop accepting paypal until the dispute is resolved. If someone pays you without asking and the funds get frozen, tell your customer tht paypal is holding the money and they should ask paypal for a refund since you are unable to do so. Some folks have suggested having a special bank account just for Paypal, so if PP does try to access it, there will be nothing for them to take. I also thought this was a good idea (and it still is) but it is not a guarantee that you will escape unscathed. I recently closed my business account and opened another one at a different bank. By accident, a vendor charged an electronic payment to my old account. To my surprise, the bank simply re-opened the account, paid the vendor and then sent me a bill with charges. When I called to question this, they told me that an account is not closed until 45 days of inactivity passes. When I allowed electronic transfers to be made, I was agreeing to this. If your bank has such a policy, Paypal can try to access your bank account even after you close it. Of course you an file an affidavit of fraud against PP and the bank is supposed to retrieve your funds.
What should you do in case you get a payment and the customer asks you to ship to Indonesia, Romania or some other country where there is a high rate of fraud? Do NOT return it and do NOT ship the goods. Contact PP immediately and let them remove it from your account.
What should you do if you are the victim of a false charge back or fraudulent payment? According to Paypal, the process should work as follows: Buyer is supposed to wait 30 days to make the claim. PP contacts you that a claim has been made. Your provide PP with proof of delivery. PP is then supposed to protect you. Sellers have emailed me that charge backs were made without the customer or PP ever contacting them, or even after they sent PP proof of delivery. If the charge back is a small amount, you might chalk it up to the cost of doing business. If it is substantial, you will have to do the following:
- follow Paypal steps and provide the proof they ask for
- post a complaint on auctionbytes, auctionwatch and otwa
- email Damon@paypal.com
- complain to the BBB of California
- complain the FBI fraud, attorney general of California, newspapers and whoever else you can contact
What should you do if the worst happens: your account is restricted over a large charge back or reversed payment that you fought and you will no longer be using Paypal? First, you must immediately inform any customers not to send you payment through Paypal. You should also contact Paypal and tell them to close your account. Tell them that you have advised your customers that you will not be accepting payments and anyone who sends money to your Paypal account must contact Paypal to get it back. If Paypal does not return it to the senders, you are advising them to charge it back.
I have seen posts from sellers who complained that Paypal froze their accounts and because folks are still sending them money, they are still sending out merchandise for which they have not and may never be paid. I don't understand this. Do you ship when a buyer tells you that the check is in the mail? Why should you ship when a buyer tells you that the payment is in Paypal? Paypal is not you and you are not paypal. Until the money is in an account that YOU control, you have no obligation to ship. I inform my buyers that I don't recommend Paypal because of the many problems. If they insist on using it despite my warnings, I will accept it for their convenience. But I don't consider the payment mine until I can click 'withdraw' and send it to my bank account. Until then, the payment is in the email. Because of the way I use my Paypal account (I get about one Paypal payment every three weeks from paypal funds or bank account and I ship via USPS priority with delivery confirmation), I don't expect that it will ever be restricted (except for an act of vengeance by Paypal over this web site). But if it ever does, I will tell my buyers to contact Paypal. If they insist that the money in a restricted Paypal account is MINE, I will tell them that their item has been restricted in 'their section' of my closet, so I consider it THEIRS.
For more information on your rights with payment services, you might want to read A Lawyer's Perspective
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Want to comment? Visit the Auctionbytes bulletin board where you can post questions or comments about Internet commerce. You can also email ccs@ygoodman.com
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