PAYPAL SELLER PROTECTION: WATCH OUT FOR 2nd LOOPHOLE! : eBay Guides

And there's **NOTHING** you can do to protect yourself against this loophole either! Every payment to you by PayPal puts you at risk.

PLEASE READ ON.

Several months ago, in mid-2008, I decided to stop selling on eBay as it became obligatory for all sellers to accept PayPal as a means of payment. Now, let's be clear, I like the ease of PayPal and I can accept the charges that they make, as funds receipt is instant and secure. However, I felt that sellers were open to abuse from fraudsters and that the conditions that PayPal put on their sellers in regard to despatch, confirmed addresses, etc, was onerous and open to abuse.

For that reason, I was very happy when PayPal brought in their new seller protection scheme. Out went confirmed address, verified members, etc, and in came a much simpler set of rules that were much easier to follow. I was happy to start selling and accepting PayPal again.

To set the scene, these are the rules for sending, extracted from PayPal's very own terms and conditions (the numbers refer to the PayPal paragraph):

11.1 What is PayPal seller protection?

We will re-imburse you for an amount for Claims, Chargebacks, or Reversals made against you based on the following reasons:

a) A Chargeback or Reversal was issued against you for the reason of an 'Unauthorised Payment'; or

b) A Chargeback or Claim was issued against you for the reason of 'Item Not Received'.

(So, in summary, THE **ONLY TWO SITUATIONS** WHERE PAYPAL WILL PROTECT YOU are either A) where a payment has not been authorised (by the buyer or the buyer's bank) OR B) where the buyer claims non-receipt of the item.)

Of course, you have to meet certain rules regarding the processing of the transaction to make things as safe as possible, (that's only fair, in my opinion). In their terms and conditions, PayPal tell you clearly what these are:

11.6 Eligibility Requirements.

What are the eligibility requirements for PayPal seller protection?

You must meet all of these requirements to be covered:

a) The item purchased must be a physical, tangible good that can be posted.

b) The transaction must be marked eligible or partially eligible for seller protection on your Account 'Transaction Details' page.

i) If it is marked eligible, protection for both Unauthorised Payments and Item Not Received will apply. If it is marked partially eligible, protection for only Item Not Received will apply.

ii) Items sold on eBay will be marked eligible even if the shipping address is marked unconfirmed. Generally, items sold on websites other than eBay will be marked eligible if the shipping address is marked confirmed and partially eligible (that is, eligible for Item Not Received only) if the shipping address is marked unconfirmed.

c) Post the item to the postal address on the 'Transaction Details' page.
i) You may access the 'Transactions Details' page by logging in to your PayPal account, selecting 'History' and then selecting 'Details' for the transaction.

d) Follow the postage requirements described below.

e) You must accept a single payment from one PayPal Account for the purchase.

f) You must not charge a surcharge for accepting PayPal.

g) Respond to PayPal’s requests for documentation and other information in a timely manner.

h) Your primary residence, as listed in your PayPal Account, must be in the United Kingdom.

These rules are not difficult to follow; indeed, I feel that they are very simple rules, easily followed by any seller who wants to be protected under PayPal's seller protection policy.


a) You put your item on sale on eBay.
b) It's won by the buyer.
c) The buyer pays by PayPal.
d) PayPal send you a transaction notification that states that the transaction is eligible for seller protection.
e) You send it by tracked mail the next day
f) The buyer receives it and signs for it
g) Several days later, PayPal cannot access funds from the buyer's account, (**for any reason whatsoever!**) It could be a closed bank account, an expired card, or, usually, the buyer has hit an account overdraft or credit limit on their card and funds are not released by the bank / card company. It can even be that shortly after paying by PayPal, **the buyer cancels his direct debit for PayPal deductions from his account !!!!**
h) PayPal reverses the funds credited to your PayPal account and sends them back to the buyer's PayPal account.
i) You make a claim under seller protection.
j) PayPal checks that the item was delivered and sees that it was signed for. (Sometimes, buyer is even happy to acknowledge to PayPal and seller that he received the goods).
k) PAYPAL REJECTS YOUR CLAIM UNDER SELLER PROTECTION.
l) You are now totally reliant on the buyer to try to pay you again by PayPal or by an alternative means. PayPal will not pursue them for the money which they agreed, when signing up, that they would be liable for.

How can this be?

Well, in the case above, although despatch requirements DO meet section 11.6 of PayPal's terms and conditions (above), the claim by the seller DOES NOT fall under cover afforded by section 11.1 of the same terms and conditions, (above).

This is because seller protection ONLY covers

1) Unauthorised payment or
2) Non-receipt of goods.

And because PayPal can see that the goods were received and because an inability of PayPal to access funds does NOT count as an unauthorised payment, YOU, THE SELLER, ARE NOT COVERED UNDER SELLER PROTECTION. Simple as that.

How to get around this loophole? YOU CAN'T!

Can you really lose the total amount of your listing to such a simple "loophole" scenario? YES - and it happens more often than you think!

Five other sellers were affected on the same day as I was. But the buyer still continued (and continues) to use PayPal as a payment option. You'd think that PayPal would pay those sellers who were affected in the same way as they are paying current sellers. But they don't.

I KNOW IT'S POSSIBLE, BECAUSE IT HAPPENED TO ME. IT CAN HAPPEN TO YOU AS WELL.

In truth, I'm not cynical enough to think that PayPal have deliberately set up seller protection to act like this; I'm sure PayPal simply haven't actually thought about this. But they're certainly taking this line.

I'm also sure that legally, PayPal should not be able to do this, but in the end, what can you do against a large organisation that bounces you from wall to wall?

Well, there is recourse which may be open to all sellers, and in my next guide, I'm going to tell you about them. Look out for my next guide just as soon as my solicitor confirms my suspicions.

In the meantime, please help other sellers to stay safe and vote “YES” for this guide if it helped you or opened your eyes to a loophole that can make it dangerous for you to accept PayPal on eBay.

Thank you very much!