High Fraud at PayPal


PayPal wants you to use their service because they say its "safe". PayPal advertises that the PayPal service is "safe". eBay practically forces its online users to use PayPal because they say it is "safe." In fact, PayPal claims it is so safe, it has a lower fraud rate than all the major credit card companies. PayPal also claims that it protects its users against fraud through various technical means and through PayPal's Buyer and Seller Protection policy. Keep reading and you'll find out exactly how PayPal under-reports fraud and how PayPal doesn't really cover your losses -- despite the fact that they advertise "you're covered."



PayPal claims a fraud rate of .5%. According to PayPal, this is "one of the lowest loss rates in the online retail industry." You can view PayPal's claim in its entirety HERE.

How does PayPal make such a claim and why does PayPal make such a claim? First, PayPal defines what is fraud and what is not fraud. Second, PayPal uses this "information" for false advertising -- advertising that gives people a false sense of security into thinking that they are protected by PayPal against fraud when they are not.

PayPal defines fraud as a material loss due to fraudulent activities. If PayPal catches an unauthorized transaction, fraudulent use of a credit card, or detects fraudulent buyer or seller activity, and fixes it, PayPal does not consider that "fraud." PayPal's fraud "statistics" are based on the ones that go away -- PayPal and people who got scammed and were out some money.

But PayPal's very system is designed to encourage fraud -- and facilitate fraud. All with PayPal's help.

PayPal Claims to Protect Both Parties

This is a lie. According to PayPal's own user agreement, PayPal explicitly explains that PayPal acts as your agent only in respect to the custody of your money -- PayPal explains further in their User Agreement that "PayPal does not have control of or liability for the products or services that are paid for with our Service. We do not guarantee the identity of any User or ensure that a buyer or a seller will complete a transaction."

In fact, PayPal states in their User Agreement that they cannot guarantee anything!

PayPal Claims "An Exclusive Seller Protection Program"

This is a lie. PayPal claims it offers 100% protection from chargebacks on "qualified transactions."

However, PayPal's own User Agreement says, "When you receive a payment, you are liable to PayPal for the full amount of the payment plus any Fees if the payment is later invalidated for any reason." Wait! There's more.

PayPal also says, "This means that you will be responsible for the amount of the payment, plus the applicable Fees listed in section 8 of this Agreement if you lose a Claim or a Charge back, or if there is a Reversal of the payment. You agree to allow PayPal to recover any amounts due to PayPal by debiting your Balance." Nice seller protection. PayPal makes it even more clear later in the User Agreement:

"You are responsible for all Reversals, Charge backs, Claims, fees, fines, penalties and other liability incurred by PayPal, a PayPal User, or a third party...".

PayPal makes it virtually impossible to qualify for its "Seller Protection Program." See this website's TOS EXPOSED section for the raw information on this.

PayPal also says this in the User Agreement: "The Seller Protection Policy does not cover Claims for Significantly Not as Described or for non-receipt of merchandise, or sales of intangible goods, services, or licenses for digital content." Maybe PayPal doesn't know the meaning of "100% protection?"

Last, but not least, PayPal itself admitted that it has "limited ability" to comply with the Seller Protection Policy. Go HERE to see.

PayPal Claims "Excellent" Buyer Protection

This is a lie. First PayPal makes it impossible for most people to qualify for the "buyer protection." It is a bait and switch routine. They advertise a great program, then make it impossible to qualify for.

Second, PayPal says in its User Agreement: "We reimburse Users for losses only to the extent we are able to recover the funds from sellers."

Yup, even if you are somehow able to qualify for the buyer "protection," it is almost without meaning. PayPal says their ability to offer them any kind of protection is only to the extent that PayPal can get the money back from the seller! The seller drains his account, no money for the buyer. And no money from PayPal to the buyer! Sound "excellent" to you?

There's more: PayPal, again if you qualify for "top tier" coverage, covers your losses up to $2,000 (only with eBay transactions). If you manage to qualify for the "basic tier" coverage, you only get covered for up to $200 (on eBay and qualified items purchased outside of eBay).

There's other stuff PayPal won't cover either: "These programs only cover payments for tangible, physical goods. All other payments, such as payments for intangibles, services, airline flight tickets, or licenses and other access to digital content are not covered by any Buyer Protection Program that we offer."

What is funny about that is this: In other advertising PayPal claims its service is PERFECT to buy and sell non-tangible services! PayPal markets its service for all service related industries (like web design, legal, airline, tickets, etc) -- with the promise of PayPal's "excellent" buyer and seller protection. Bullshit PayPal.

Typical Examples On How PayPal Is Used For Fraud -- And How PayPal Actually Facilitates It!

The following are REAL PayPal complaints:

(1) I used PayPal to pay for a DVD from E-Bay. The shipper was to ship from Camarillo, CA. Instead he shipped the wrong item from Shanghai, China. PayPal is insisting that I return the item at a cost of $130 + to me! This is in spite of the fact that the seller listed himself in Camarillo. The item I purchased was only worth $100. So how does PayPal protect us from fraud? They certainly did not protect me and I will not use them in the future.

(2) Paypal chargeback policies are unfair. I Use paypal to process merchant account, have an automotive shop, customer came in had $6100.00 worth of rebuild and upgrades done to vehicle,paid in two installments via paypal. We have signed work orders authorizing work and charges, three different work orders signed by the way for the original visit and two others for additional work after the fact. Not only did customer file a chargeback and paypal gave him his money back, even though per the notes they made on our account in the "resolution center" the buyer didn't respond after we sent the correspondence to them, the customer closed an account he wrote a check to us on as well. Our business is now halted, paypal has kept whatever money was in our account at the time the freeze took place, I cannot get a new bank account, have been turned into the chexsystem, and this customer is being assisted with ripping us off. Since when did signed work orders and authorization not be enough to get paid for a job? How in the world was paypal protecting the Seller (us) and fighting for "us" with this chargeback when we didn't even have a chance? Had this gone to the BAR, we would still have our money and/or the customer would have to pay up, but through Paypal's Seller protection program? We didn't "qualify" due to whatever. I have asked several times exactly why were the payments reversed? What exactly did the customer say in his complaint, what was the reason? And why did they "complete their investigation" when they never heard back from the buyer after the initial complaint, and after we contacted them 3-4 times? No answers at all to any of these questions, just keep accessing our bank account to take the funds without proof to us it is justified. What would I like to see? A MANDATORY outside arbitrator/mediator for ANY complaint regarding purchases or sales, either side. Then if both sides cannot agree, Paypal should NOT handle money either way without court approval, meaning, if the two parties cannot agree, they take it to court and let a Judge decide, from there the winner can present the court order and Paypal can act on that. If no one goes to court and gets an order? The case goes to the complainant by default. But to take $6100 from us, at Christmas time, and give it to a thief who is driving around and/or has possession of the very product he claims we "frauded" him on? Makes one wonder, who is protected?

(3) How PayPal policy allows sellers to commit fraud:

By providing two discrete buyer protection options `Not as described’ and `Not received’ and not permitting a change of dispute type from ‘Not Received’ to `Not as described.’

PayPal policy enables a seller to protect its self from PayPal buyer protection.

In order to defraud buyers a seller need only delay shipping and not respond to a buyer until the buyer files a complaint for `Non Receipt’

The seller is then allowed to ship the item in any condition and the buyer is offered no further protection.

Should the buyer fund the transaction using PayPal balance or direct transfer from a bank account as suggested by the PayPal system during the checkout process. The buyer may be forced into litigation or to accept the loss.

As a frequent buyer on ebay I feel it reasonable to expect to both receive the item and receive it as advertised in the listing. This opinion seems to be supported upheld by FTC regulations and California consumer laws.

Allowing a `not received’ claim to be converted to a `not as describe’ would serve to increase buyer confidence in both ebay and PayPal.

As a seller I would have objection to the additional liability. It would merely be an incentive to describe items for sale fairly and accurately which could only be for the general good of the ebay community.

(4) I have recently had a bad case where the buyer filed a claim and won. Pay Pal needs to do a better job in reviewing their cases. When I got my items back he had exchanged them for parts no where near what they were. He even sent the wrong model number items back. When I contacted paypal about not getting the right items back they said there was nothing they could do and that
I needed to file a police report, which the cops wouldn't get involved. The guy got my good working part and his money back how sad is that. Pay pal and Ebay need to not only protect their buyers but also their sellers.

(5) As a longtime seller and user of Paypal, I have noticed a disturbing increase in buyer complaints and disputes. Paypal seems to accept these complaints way too liberally, while offering little protection to the sellers. These disputes cause disruption and expense to our home-based businesses which don't have the resources, time or overhead to deal with returns and frozen or withheld funds.
Because of these recent events, I am seriously considering joining the growing list of experienced Ebay sellers not offering Paypal as an option. It's really too bad that Paypal started out as such a good thing, but now is showing apparently very little loyalty to its early supporters, the sellers.

(6) After selling on Ebay for over 5 years and receiving Paypal for more than 3, I came to the conclusion that Paypal do not give a #%&* to sellers. Check my story out:
I sold one item to a buyer in Canada back in 11/06. The buyer sent me an e-mail claiming that he received the item but was not happy with the size. I told he could sent back for an exchange (my return policy) and he never did. Instead, he filed a non-receipt claim with Paypal on 12/06 and escalated to a claim. The buyer is verified and has a confirmed address. The item was mailed via USPS Air Mail with those famous green customs forms. It shows on-line that it was mailed but Canada Post does not scan as delivered. Bottom line: I contacted Paypal and told the claim was fraudulent because I had proof that the buyer had received the item according to the e-mail he sent me. I forwarded to Paypal with the case number , etc...Today , for my surprise, Paypal gave the buyer his money back. I called paypal and explained that the claim was FRAUDULENT from the beginning, their answer: "nothing we can do because it does not show delivered". So, for the Paypal mind, an e-mail from the buyer stating that the item was received was not enough! Believe it or not: it's true. How can we deal with a situation like this? Guinness Book of Records should have a special section named: Biggest Paypal Screw Ups.


Even though in all of these cases either a buyer or seller was the victim of fraud, PayPal does not consider it fraud and therefore does NOT include cases like this in their official "fraud" statistics. That is how PayPal is able to claim a very low fraud rate!

A Typical PayPal Scam

Here is one very popular PayPal scam:

A seller sells a $200 gold coin to a buyer. The buyer uses his PayPal account -- funded by credit card -- to buy the coin. The seller sends the $200 gold coin to the buyer's confirmed mailing address.

The buyer receives the coin. Then the buyer contacts PayPal claiming the coin was never received. The buyer threatens PayPal with a chargeback. PayPal will immediately debit the seller's account for the $200 plus shipping fees.

The buyer keeps the money and the $200 gold coin. The seller looses his or her $200 gold coin and his or her money for the coin.

Why does PayPal do this: PayPal explains that, "We incur charge-backs and other losses from merchant fraud, payment disputes and insufficient funds, and our liability from these items could have a material adverse effect on our business and result in our losing the right to accept credit cards for payment."

Plus PayPal says this: " "... excessive charge-backs, could result in a termination of our ability to accept credit cards."

And PayPal says this: "We face significant risks of loss due to fraud and disputes between senders and recipients...". PayPal continues with the following: " When a sender pays a merchant for goods or services through PayPal using a credit card and the cardholder disputes the charge, the amount of the disputed item gets charged back to us and the credit card associations may levy fees against us. Charge-backs may arise from the unauthorized use of a cardholder's card number or from a cardholder's claim that a merchant failed to perform. Charge-backs result not only in our loss of fees earned with respect to the payment, but also leave us liable for the entire underlying transaction amount. If our charge-back rate becomes excessive, credit card associations also can require us to pay fines."

PayPal caught in a lie: Legally PayPal is responsible for any losses due to chargebacks and fraud. However, PayPal makes YOU responsible for covering chargebacks. That is illegal.

In the example above, PayPal debits the seller's account to avoid a chargeback. However, if the chargeback did occur, Paypal is legally responsible for the chargeback!

However, PayPal will freeze the seller's account and take the funds out of the seller's account to avoid having to pay for the chargeback.

PayPal protection? ONLY for PayPal!

The Bottom Line

PayPal as a company is corrupt, broken and not to be trusted. While PayPal is making promises on one hand, it is settling investigations from 28 states on the other hand. You can read about that HERE.

PayPal is making the definition for what fraud is and for what fraud isn't. There are millions of buyers and sellers who were defrauded out of tangible goods and money because PayPal did not protect them.

PayPal is all about protecting themselves and their bottom line. PayPal admits it in their own User Agreement.

PayPal claims to offer "excellent" buyer and seller protection -- but they fail to mention the protection is not at all "excellent" or even complete! Users must qualify for the protection with each and every transaction that they make.

PayPal makes it virtually impossible to qualify for any kind of protection. To get a better understanding of this, you have to read the TOS EXPOSED section of this website. PayPal's own words about this are in black-and-white.

Finally, PayPal helps fraud occur because they are only out to protect themselves and not you or I. Millions of persons are defrauded using the PayPal service per year.

PayPal's claim that is has a .5% fraud rate? That is a lie. Ask the millions who have been defrauded by PayPal under PayPal's own "protection" policy.

You know what happened to yourself. I know what happened to me. Millions of others know what happened to them. PayPal knows too...

Considering the millions that have been defrauded by PayPal, through the use of PayPal, this website estimates an online transaction fraud rate of close to 10%. Not .5%.

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