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Tuesday, April 22, 2008

Understanding PayPal’s Dispute and Claims process

I finally – after several years – understand PayPal’s dispute and claims process by which buyers and sellers are asked to resolve any disputes that they have with the other party. In my case, I wrote about a particular dispute on a gray market lens that I purchased through eBay almost 45 days ago at this point. Interestingly and initially surprising – I actually lost the dispute claim I opened up with PayPal last month. But I am not necessarily concerned anymore, here’s why.

PayPal Logo Sign
PayPal’s dispute and claim resolution is solely designed to protect against counterfeit, fraud, and incorrectly described merchandise from a seller. This is something that I never understood until recently because I looked at them as more of a credit card company – which they are not. Their goal is to make sure that you received what you bought, and it was as described and not a counterfeit item. That is as far they will go.

In my case, I had a few different options for my dispute. The first was to pursue the fact that the Tamron lens was a gray market lens. However, after seeing the requirements that PayPal places on you I decided not to go that route. Those requirements include going to a dealer, having an inspection and having that inspector provide a letter on their company letterhead stating why the item has issues. That option was way too much work and possibly too expensive for me.

The other option I had was that the seller had a money back guarantee on their auction, but was not willing to honor it.

PayPal has updated their user agreement to support credit card chargebacks – which did not use to be the case. Since as long as you follow the process in the user agreement that PayPal has setup, they will not suspend you account for doing a chargeback to the vendor from your credit card.

This in fact is the reason WHY you should NEVER, EVER pay for an item via PayPal with you bank account, even though PayPal tries to make you pay that way. The instant you pay via ACH (or via your bank account / ATM card) you lose the protection that you have from your credit card.

And that was exactly what I did – bought the item on a credit card so I could retain my right to escalate to a chargeback. First, rather than leaving the item in a dispute status which I initiated, the seller immediately escalated it to a claim. Over the next month I answered a few emails from PayPal while simply insisting I wanted to return the item per the auction seller’s original terms, but had been denied by the seller.

After the end of 30 days, since the authenticity of the item could not be determined – I refused to go have a third party verify since I was only disputing the conditions of the return – PayPal resolved the claim in the favor of the seller. Something I completely expected.

My action? Once I received the email from PayPal (a requirement of the user agreement for a chargeback is that you attempt to use their dispute resolution first, and do not run them concurrently), I simply called my credit card and disputed the charge.

Since I had the note from the seller stating they would not honor the return, according to my credit card company it is a closed case – and I now have my money back.

The only odd part is that I still have the camera lens. I am fully planning to return the camera lens, but my credit card company says the seller must now send me a postage paid return label for me to return it. From my perspective this was an even better outcome than I expected – as I was planning to pay return shipping previously.

PayPal actually provides adequate protections now that they have amended their user agreement to allow a chargeback without the threat of an account cancellation. With a little information, that is easy to execute on.