Imagine having PayPal place a hold on the funds in your account to make sure refunds/fraud can be handled. Then when a customer does request a refund you’re literally unable to process the refund because it won’t take it from the funds you just received that are held. So now you automatically lose all disputes and they just start raiding your linked bank account. So why did they hold the funds in the first place?
PayPal needs to end IMO.
Really the only thing to do, as soon as you see a "pay with paypal" screen is to go away screaming.
Here's the anecdote: I had had a company with a bank account and PayPal account, then dissolved the company and closed the bank account. Months after that, a former supplier of the now nonexistent company who had PayPal authorization deducted funds fraudulently from the PayPal account, claiming they had rendered services that were never rendered to a company that obviously and provably no longer existed.
PayPal sent the account into overdraft. When they couldn't deduct payment from the bank account that no longer existed, they started sending threatening communications to get me to settle the balance. I took things up with their fraud unit to get the transaction cancelled. Their fraud unit dismissed my case without looking into any particulars regarding the services that the vendor didn't render or the company that should have received services that no longer existed. To them the only thing that mattered was that, years ago, I was, in actual fact, stupid enough to click on "Pay with PayPal", the ramifications being that vendors are entirely within their right to use PayPal as an instrument of fraud and legal intimidation against me. It's your own damn fault, sir, for being so stupid and using PayPal.
Knowing that taking the legal route would have been way more costly than the amount of the transaction, and wanting to sleep soundly again against the backdrop of PayPal sending threatening communications, I wired money from my personal account to settle the balance and jumped through a shitload more hoops to make sure the PayPal account was properly closed and couldn't come to haunt me again in the future.
I think that's how they get away with it: Since the transactions they handle tend to be small, no one will take legal action.
The critical point seems to be that fraud won't talk to customers.
It makes sense that PP moves quickly when fraud is suspected. What doesn't make sense is that they're so secretive about the events that take place on a user's account. For all we know, user's could be facing legitimate fraud issues that can be addressed with cooperation between PP and user. However, a user cannot cooperate when they have no idea what's going on.
If you can't discuss cases of fraud with your customers out of fear of revealing information to the defrauding party, you may need to do more in vetting the identity of users. I don't mean the intricacies of fraud with customers like patterns and markers for fraud. I mean getting to the bottom of the disputed transaction. You're shooting yourself in the shoot in any other case. PayPal is concerned more with user count and transaction volume than individual account retention. You would think that you want your customers to be proactive in cases of potential fraud.
It seems like they never learned from their every-user-is-a-credit-card-holder days.
Also the fact that they reply to my initial question about the refund, with an absolutist "After investigating, YOU have logged in and YOU have initiated the refund", when I know I have done not such thing, immediately makes me think that I've been hacked or somehow have fallen a victim of fraud.
Further inquiries to clarify the issue, only leads me to get my account blocked/locked. I have no idea how this can be considered fraud protection from their side! And all this means that all in all I agree with you about the lack of competence of the fraud protection team...
I recently bought some piece of clothes and paid with paypal (had some money in it and I wanted to spend it before Paypal decides to close the account for whatever reason).
There was a panel saying "you allow the clothing company to ask for whatever amount of money there is in the account and if there isn't enough we will take it from the credit card linked to the accound". That credit card is the one I used to put money in the account in the first place.
A few days ago I decided to give money to a charity a friend set up on facebook for his birthday. Had a choice between paypal and my credit card. Same kind of Paypal panel but I felt better giving facebook my credit card than linking Paypal and Facebook.
I am nervous and I am going to buy a pi or something and close the Paypal account forever.
My credit card is a "fill it to use it" kind. You need to put money on it from your bank account and then it acts as real Mastercard. So there's always 0 euros on it except when transfering money from bank account to buy something online. And I can put the money back from the cc to the bank account, no fees. With Paypal I can't, it's like I am forced to spend it now.
Does anyone know how I can avoid that happening?
I've done this a fair amount in the past: When I would do business with a vendor that I don't trust all that much with the way they do their billing, I would give them a credit card number for a prepaid credit card with tightly controlled balances, instead of giving them anything that's linked to my main bank account.
But it doesn't really help. When the untrustworthy party wants to deduct a payment from the mechanism you've given them and it can't, then they will instead just turn to bullying and threatening legal action, and you end up paying them whatever is in dispute because you won't want to risk them taking legal action.
Another consideration that enters into this is the dark and murky territory of consumer credit rating. If there's an account that's in your name, regardless of whether it's PayPal, a prepaid credit card, a bank account or whatever, and there's a charge that hits the account and there's no balance, then this is an event that they'll collect data about, and that may be disseminated in ways that you may not realize, and it may come back to bite you in the ass when you want to apply for a mortgage or something. So it's best not to go that route.
At the end of the day, the only thing you can do is to not do business with certain kinds of entities at all. And PayPal is definitely on my list of entities not to do business with.
But I really think that the banking regulator should take note of user stories such as the ones that are regularly all over HN and get to the bottom of it. After all PayPal, at least in Europe, is subject to the same regulation as other banks and payment processors. And if that's not the job of a banking regulator to take note when a financial institution has such shitty processes that consumers regularly suffer damages, then I don't know what is.
Also, maybe a private lawfirm should put together a class action or something on the basis of all those user stories. I realize that cases tend to be rather different to each other, but I'm finding it hard to believe that there aren't some things that happen so frequently and so systematically that it should be easy to take a stab at in court on behalf of a larger group of users who have suffered damages.
But, standing on principle, I would have really liked to lodge a complaint with the regulator. Only problem: Since I was acting as a company (that now no longer even existed), it was never a consumer transaction, so consumer complaint wasn't a viable route, and you obviously hurt your case, even if it's just a complaint with a regulator, if you then settle the balance since they'd read that as you admitting guilt in some way.
Not settling the balance and lodging a complaint with the regulator could have had the side-effect of raising the stakes for them. So in a situation where they'd not normally take you to court, they might now actually do that since there would now be real money at stake, if the regulator launches into a full-scale audit into their processes & business practices. In such a case, winning a court case against me would have helped them in calling off the dogs if the regulator were to take an interest.
If you ask me, it should be the other way round: The banking regulator should play the role of public prosecution. When you complain against them with the regulator, then the regulator should either (a) tell you to bugger off without charging you for the privilege and allow it to end right there (b) take on your case in the sense of taking it to court on their own dime and if it looks like it was processes & business practices that were at fault then they should come after the financial institution for that kind of a failure hard.
That reads like a "no" to me.
This is what happened to me:
I got an eBay order and shipped it out, transferred the funds out of PayPal.
Buyer sends me an eBay message saying "OMG I'm so sorry but my eBay account was hacked." I believe them because when I googled the shipping address the package went to a foreign freight forwarder.
I don't worry because the address was "confirmed" in PayPal, so I'm protected from fraud. I always make sure to ship only to confirmed addresses.
eBay account owner initiates fraud investigation.
PayPal refunds buyer while the investigation is pending, I have several linked bank accounts, they didn't touch them, my PayPal account just goes negative.
PayPal sends me an email telling me I can't have a negative balance and I need to fund my account to get my balance to zero, against their TOS to carry negative balance. No biggie, I fund it. I think I was even able to fund it with a credit card.
Fraud investigation proceeds. I have to provide a tracking number to verify I actually shipped the item.
A few days later PayPal decides it's fraudulent, but I'm covered under their seller protection.
PayPal refunds me the money, I transfer it back to my bank.
I'm perfectly happy with how it was handled.
I guess that doesn't make a good blog post though.
First, PayPal doesn't like it when your dispute ratio increases. The best way to handle disputes as a merchant is just to give the customer what they want. Most times this is a refund.
Second, when fraud occurs most PayPal users dispute any transactions as soon as they get their account back.
Third, You cannot refund a payment from a held or rolling hold balance. PayPal retroactively applied a rolling hold to our account of ~30% of our monthly gross transactions for a rolling 90 days. The way this works on PayPal, at least at that time, means that until your rolling hold balance is equal to 30% of your last 90 days transactions any funding of and payments into the account IMMEDIATELY get sucked into that rolling hold. We would auto flush the completed transaction account balance nightly. So now we're in a situation where trying to refund a customer wants you to add funds to your account, but as soon as the funds are added they are applied to the rolling hold. So, you click Refund on the dispute and you're unable to refund it. Eventually the dispute is automatically closed in their favor and the account balance goes negative. At that point you can fund the account and it'll apply to the negative balance first.
This was my experience at least, and trust me it was one of the most stressful events I ever encountered. Most of that stress was not knowing what was going on and why, and trying to get anything out of PayPal. Their processes are so opaque for merchants in many cases.
What i would love is for these services to require ID for opening account, not after depositing over $250 (when you have skin in the game and have to verify your id or lose the $), they won't though because they would have a 95% churn rate on registration.
You can use them for recurrent expenses or make them single use (the card is cancelled after first payment).
You can also max them to any arbitrary value. So if I need to buy 23.03 dollars of something online I can issue a card that maxes out at 24 dollars. So even if the details were stolen you could only take the remaing cents until it maxed.
None of this is new or innovative I never really understood the need for paypal in online shopping.
You say that but it's literally the only way to counter scamming sellers on the internet. PayPal needs to stay, at least until there are viable competitors.
Edit: also googling around none of those seem to have the solid buyer protection that PayPal has. With PayPal I can just open a dispute with a picture of the error (color is off or whatever) and within a relatively short time period the seller is forced to reimburse me the full purchase cost, including shipping. That's very valuable as a customer.
Never had an issue with PayPal debiting funds though, in 10+ years using them.
What would be an alternative solution in your opinion?
I never got actual confirmation that paypal is really as bad as some people casually mentioned
I can confirm that PayPal is horrible to legitimate merchants. One would expect better fraud protection given the high fees they charge. I never expected they would simply “freeze” our funds without explanation.
No thanks.
Yes that’s normal for PayPal.
Getting a the runaround about how and why it happened?
Yep, that’s expected too.
Actually getting a non-form letter response of any type?
That’s just lucky. We couldn’t get an account rep on the phone for almost 4 days when ~35k was suddenly deducted from the account. Nor when they accidentally cancelled all of our customers subscriptions while working an an unrelated fraud incident. Of course in both of these instances the customers blamed us for not being able to process refunds and being unable to reactivate their subscriptions.
PayPal, working as intended.