Why the PayPal seller protection policy is a joke

..., how an impatient customer can ruin your week, and why sellers should seriously think again about accepting payments via PayPal.


On 2005-03-07, a customer ordered a few products from us, at a total price of 57.00 US Dollars, including express mail shipping. As soon as the payment arrived from the customer's credit card to Burt's PayPal account, Joe shipped the package, from Hungary, on 2005-03-09.

On 2005-04-13, the customer called the credit card company, reporting a fraud: the package hasn't arrived, so the price of the order should be sent back to the customer. The credit card company contacted PayPal, PayPal contacted Burt, locked the 57.00 USD on Burt's account and started an investigation called "chargeback case". Note that he customer hasn't even tried to contact either Joe or Burt about the undelivered package before doing this.


Being the honest people that we are, we would hate to give false promises to customers but postal delivery is the task of the post office, not us, so we cannot take responsibility for the delivery of outgoing packages. Therefore, unlike with most other shops – including but not limited to large, multinational companies. –, we provide customers with an extremely detailed description of what to expect (or not to except) from us:

These quotes have been extracted at the time when this essay was written. Obviously, such information goes through a slow evolution but the most important parts have been present for years. The customer also read and received information in this form at the time of ordering, but either failed to read it or chose to ignore it...

On the other hand, PayPal is supposed to protect its sellers against buyers, in case there's something wrong with the payment of the buyer or the buyer reports that the order was not shipped at all or it did not contain the products as expected. See the complete description on PayPal's seller protection policy page. Our comments on the most important items are the following:

  1. [...] If a chargeback dispute is won, [...] the seller will be charged the $10.00 USD chargeback fee if the transaction does not qualify for Seller Protection. [...]

    If the seller is not protected by the policy, he or she will be charged the chargeback fee, 10.00 USD, even if he or she won the chargeback case. So, it is you who pays for the impatience or maliciousness of a customer, even if you're right.

  2. [...] All of the following conditions must be met for a transaction to qualify for the Seller Protection Policy.

    1. [...] Please note that while sellers outside of the U.S., U.K., and Canada may meet the following conditions of the Seller Protection Policy, they do not qualify at this time.

      If you're living in a country other than Canada, the United Kingdom or the USA – for example, continental Europe – then you're not covered by the seller protection policy. Obviously, citizens of other countries are not considered to be reliable enough.

    2. [...] When shipping to a US buyer, the seller must ensure that they ship to the Confirmed Address of the US buyer for the transaction to be "Seller Protection Policy Eligible". [...]

      If the buyer lives in the USA, you must ship packages to his or her confirmed address, otherwise you're not covered. Do we conclude correctly that the USA is the country where the most credit card frauds occur?

    3. [...] The delivery must be trackable online. [...] If a reversal occurs, you will need to provide PayPal with the name of your chosen shipping provider and the online tracking number. [...]

      You must ship packages via the service of a postal company that gives you an online trackable package number. If you choose a postal company that offers plain registered mail, with the registration number existing on a paper form only, you're not covered! What can you do if there's only one postal company in your country and it offers no online tracking numbers, e.g. in Hungary? Apparently, PayPal doesn't care.

      [...] For transactions equal to $250.00 USD or more in value, the seller needs to provide a proof of receipt signed, or otherwise acknowledged, by the buyer. [...]

      If the value of the order is 250 USD or more then you must have a proof of receipt that came back from the buyer, otherwise you're not covered. We recommend that you send such packages with a "return receipt", which option any postal company should offer. This will, of course, cost more and you'll have to make the customer pay for that. Or, perhaps, a return receipt is not enough as it's only a piece of paper, not an online proof?

  3. [...] In some cases, PayPal is required by the credit card association to respond in less than seven days. In these cases, PayPal requests the seller provide the requested information within three days. [...]

    You have to send proofs of shipping or receipt to PayPal within three days. If you're still waiting for the return receipt to arrive back from the buyer or you're on a holiday when PayPal contacts you – neither of which is your fault –, you're not covered.

  4. [...] Sellers should not charge buyers any additional fee (or "surcharge") if the buyer chooses PayPal as the method of payment. [...]

    Your prices, related to PayPal payments, must be the same as those related to other payment methods (cash, check, money order, bank transfer etc.), otherwise you're not covered. Sure, and who's gonna pay the PayPal transaction fees that are deducted even when accepting payments, not only when sending them? You will have to increase your prices a bit in general so that the small extras in all payments cover your PayPal-related expenses. This means that your non-PayPal customers will pay for your PayPal customers, too. Is that fair? No, we don't think so.

The chargeback case

Burt was quite surprised to learn from PayPal that a chargeback case has been initiated against him. He contacted Joe, asking him to provide a proof for the shipping. The situation was time critical as PayPal expected an answer within three days. Unfortunately, Burt lives in Canada and Joe lives in Hungary which means a time difference of about seven hours: e.g. when Burt wakes up, Joe is just about to finish his daily work at his work place, so Burt's E-mails are answered by Joe usually only the next day. Furthermore, Joe has all his shop-related stuff at home (product stock, receipts etc.), while he has Net access only at his work place.

Still, the very next day, on 2005-04-14, Joe managed to send to Burt the scanned registration form that he filled out at home and got stamped and subscribed, by the clerk, at the post office when he shipped the package via registered mail. (Joe is lucky or smart enough to use registered mail as, in the case of unregistered mail, the sender has absolutely no proof of having really shipped the package!) Burt forwarded this to PayPal the next day, on 2005-04-15, so the three day dead line was met.

In the meantime, Joe also ordered his local (Hungarian) post office to search for the package. Unfortunately, no one can tell how long this takes: in one case, some years ago, it took 17 months to find a package! Fortunately, it seems to be much faster now: the answer arrives within a week or two.

After a lengthy procedure, we lost the chargeback case, on 2005-05-02. The price of the order, 57.00 USD, plus the chargeback fee, 10.00 USD, have been deducted from Burt's PayPal account. PayPal's reason for not covering this transaction with their seller protection policy was that there was no online trackable proof about having shipped the package. This could have been acceptable – even if we don't agree with it. –, as it is described in the seller protection policy, but PayPal went further and did not accept the registration form as a proof of shipping at all.

We were quite worried. As, out of principle, we are working with as low prices as possible, this amount of money corresponds to several months of profit we make. In other words, we would have to keep selling products for a few months to get our money back and not lose money on our business.


Interestingly enough, only a few days after the end of the chargeback case, the package got returned back to Joe, on 2005-05-04. The envelope was full of "UNCLAIMED, returned to sender" stamps. Obviously, the package got delivered to the wrong post office – although the address was correct. –, or the customer's local post office forgot to notify the customer about the package having arrived, or the customer forgot to pick up the package. We assume the first one as the customer reported to us that the local post office is definitely reliable but no notification arrived from them.

Also, later the same day, PayPal decided to refund the chargeback fee, 10.00 USD, to Burt's account, as an act of good will, after Burt told them that he might stop accepting PayPal payments, as a result of having lost his faith in the company.

At least, we got the products back: fortunately, we only lost the postage for express mail shipping, 9.70 USD. This corresponds to "only" a few weeks of profit we make.


PayPal has no idea or does not care about how foreign (read: non-USA) postal companies work. They assume or expect – very incorrectly, we might add. – that all postal companies provide their customers with tracking numbers that help with finding out, via an online service, where a given package is at the moment. Hungarian Post is still very far from such a modern tracking system although, of course, they do provide their customers with package registration numbers (on a paper form). Obviously, there's nothing Joe – or PayPal, or any other individual or company, for that matter – can do about this. If you stretch your mind a bit, you can imagine a situation when the package does get delivered but the buyer, wanting a "free purchase", reports that it hasn't arrived. If PayPal doesn't accept the official proof of shipping, the stamped and subscribed registration form, then will such a dishonest buyer get the money back and keep the package, too?! [Note: The answer is, most probably, "yes". We've been later told that such stories do exist; they might be documented somewhere on the Web by the unlucky sellers...]

PayPal does not take into account how reliable the seller and the buyer is: how long they have been PayPal's customers; how many transactions they have completed; what rating they have; how many positive and/or negative feedbacks has been left at them. Burt has become a PayPal customer very early, when PayPal wasn't as popular as it is now; he has completed several hundred transactions so far; and no fair negative feedback has been left against him either. Still, PayPal hasn't defended him. Instead, it assumed – or accepted the assumption – that, even after many good years at PayPal, Burt tried to rip off a customer and, sheepishly, it rather took the side of the customer and the large credit card companies.

Joe has sent out several hundred packages in the last seven years and has been accepting PayPal payments, via Burt, for about four years. (Back then, PayPal's service was not available in Hungary. So, Joe still did not have his own PayPal account.) There definitely have been and will always be very rare delivery problems, but we managed to get them sorted out in a friendly manner with customers so far: honest people have no problems understanding each other. However, this time, we have paid for the impatience of a customer, the incompetence of a customer's local post office and the completely useless seller protection policy of PayPal. As this can happen again any time, and we really don't want to go through such an annoying procedure and lose money again, we are going to reserve the right to refuse PayPal payments from customers in the future and we recommend personal checks and money orders instead. Thank you for your understanding.


Please, don't tell us that we have no proofs. See the envelope and the registration form, which are completely real, not made up by us. (Of course, the customer's data has been pixelized as we don't want any righteous complaints.) If you don't accept them as proofs, that's your choice, we don't care: we only wanted to help you by warning you.

Please, don't tell us that 10 US Dollars are no big deal. First, it is a big deal when we talk about a fraction of a US Dollar of net profit we make on every order. (The majority of our profit goes away to pay for PayPal transaction fees and bank-to-bank money transfer fees.) Second, we might have lost more money if the shipping cost more and/or the package hadn't been returned to us. Third, we are against the reason of PayPal's careless decision.

We're very sad that there are customers who do not trust us. We've been around for several years, fulfilled several hundred orders, never stole money from a customer or tried to rip off a customer in any other way, and there were only a few cases when – out of tiredness or plain stupidity – we sent ill-assembled, untested, damaged, incomplete or "not as described" products to a customer (which were, of course, later replaced in a hurry). (On the other hand, a few very impatient customers received their order in advance, but did not pay for it afterwards.) Our conscience is clear in this case, too: we, as usual, haven't made any mistake and informed the customer well enough in advance. We've been running our shop and will continue running it as a hobby service to anyone interested in the products we manufacture. We can only hope that such cases won't ruin this, by taking our benevolence and enthusiasm away, in the future... So, if you do not trust us and you're not completely sure that we will ship you exactly what you ordered and within an acceptable amount of time then, please, don't waste your and our time by ordering from us. Thank you.

More infos

If you're interested in the same story from Burt's point of view, please, visit his various online cases page. You can also find information from other sources at PayPalSuck's page on the problems with PayPal's seller protection policy.