posted on May 15, 2002 06:29:34 AM
Here is another question for Damon, as part of the project, I have had some customers telling me that if PayPal can not get the money back from the seller, then they will just recharge the buyer again making PayPal whole and not worrying about the customer. I hope that this is just a buyer talking bs and not true. If I understand credit cards and merchant accounts, wouldn't this be fraud.
posted on May 15, 2002 07:39:06 AM
According to Damon PayPal will probably restrict the buyers account if they file a chargeback and the seller can show PayPal proof the item was shipped. The account would be unrestricted if the buyer showed proof they sent back the goods (or, presumably, the buyer sent the money back).
The recipient (seller) would be liable for any chargebacks received. The liability is removed if they complied with the Seller Protection Policy (claims of non-delivery/cc fraud only-merchandise quality not covered).
Hi andrew123s,
Yes, a buyer's account can be restricted if they claim not to have the merchandise, yet the seller shows proof that it was.
posted on May 15, 2002 09:47:15 AM
If this question has been addressed before, I apologize in advance. Maybe Damon can answer a couple of more questions.
Is it true that if an account is placed on restriction, that payments will still be accepted into the account? Withdrawals, however, are not permitted?
If it is true that payments are still accepted into the account, please explain the business logic behind this policy. Doesn't this create exactly more of what PayPal proposes it tries to avoid-more chargebacks? It doesn't take a rocket scientist to figure out that if the buyer remits payment and is accepted into the account, the buyer expects the goods. The seller, on the other hand, can't ship the goods because they don't have access to the funds. The buyer fearing they will be out the money, initiates a chargeback. In the meantime, both buyer and seller are upset and PayPal gets another black eye. Wouldn't a simpler and more logical approach be that if a payment is attempted into a restricted account, the payment is automatically rejected and an email sent back to the buyer explaining that funds cannot be accepted until the restriction is lifted? There appears to be only one reason that PayPal would continue to accept funds into restricted accounts - f-l-o-a-t.
Just as a matter of record, I have used PayPal for a couple of years with no problems, BUT I am very small time with small transaction amounts. If my business were to grow, these issues currently debated concern me greatly which is why I am interested in the answers.
posted on May 15, 2002 10:09:22 AM
Hi cottagelane,
Is it true that if an account is placed on restriction, that payments will still be accepted into the account? Withdrawals, however, are not permitted?
(Yes, payments can still be received by the account. We can also arrange it so no payments are accepted to the account. Yes, a withdrawal could not occur until the restriction is resolved)
If it is true that payments are still accepted into the account, please explain the business logic behind this policy.
(Many sellers made the request. An account restriction is entirely resolvable (and extremely rare). The sellers still wanted to accept payments for auctions that were ending. )
Doesn't this create exactly more of what PayPal proposes it tries to avoid-more chargebacks? It doesn't take a rocket scientist to figure out that if the buyer remits payment and is accepted into the account, the buyer expects the goods. The seller, on the other hand, can't ship the goods because they don't have access to the funds. The buyer fearing they will be out the money, initiates a chargeback. In the meantime, both buyer and seller are upset and PayPal gets another black eye. Wouldn't a simpler and more logical approach be that if a payment is attempted into a restricted account, the payment is automatically rejected and an email sent back to the buyer explaining that funds cannot be accepted until the restriction is lifted? There appears to be only one reason that PayPal would continue to accept funds into restricted accounts - f-l-o-a-t.
(Believe me, the float is not an issue. It costs us far more to review an account restriction than any float made off of something that typically lasts a few days. I did advise that we can make the account NOT accept payments at the request of the sellere. However, account restrictions can be resolved.)
The whole issue of account restrictions is often overblown on the boards. They are quite rare. They are also resolvable. The USER AGREEMENT does specify why they occur, so someone interested in avoiding one can read it to get an understanding of why one could happen.
A payment made from your account to another would be the property of the recipient when claimed. I think the portion below (directly from the USER AGREEMENT) explains the relationship between PayPal and the person holding the account.
In addition, an account restriction is typically a matter of resolving identity. If something fails a verification method, or a financial institution reports a discrepancy with the financial instrument registered, the account will be restricted until ownership of the instrument can be supplied.
An example would be a family member allowing someone to utilize their bank account. They may have a verbal agreement to do so, but they do not have a legal right to use the bank account without being a signer on the account. This type of restriction does fit with our User Agreement (Reports of unauthorized or unusual bank account use associated with the account) and would require the party to show that they have ownership of the account they are utilizing.
By registering for the Service, you appoint PayPal as your agent to process payments on your behalf in accordance with your instructions, subject to the terms and restrictions of this Agreement. PayPal will at all times hold your funds separate from its corporate funds, will not use your funds for its operating expenses or any other corporate purposes, and will not voluntarily make funds available to its creditors in the event of bankruptcy or for any other purpose. You acknowledge that (i) PayPal is not a bank and the Service is a payment processing service rather than a banking service, and (ii) PayPal is not acting as a trustee, fiduciary or escrow with respect to your funds, but is acting only as an agent and custodian.
posted on May 15, 2002 10:24:24 AM
The whole issue of account restrictions is often overblown on the boards. They are quite rare.
More BS all you have to do is read and find that tens of thousands are restricted for NO good reason. Such as a person has several thousand dollars in their account and withdraws it next thing they call it suspecious activity.
The other issue about still accepting money into a restrivted account. Lets face it if they don't they lose money and if they do they make interest on it. Figure several million dollars being held and the interest gained on it. You don't get it when the restriction is lifted they do. BS to the high cost of reviewing these accounts their saleries are the same whether their twiddling their thumbs or "reviewing.
Thank you for answering, and I want to make sure that I understand you correctly. If the chargeback placed by the buyer is for non-delivery or that the seller has not followed or qualified for seller protection, then the Seller is responsible for the chargeback to PayPal and the buyer has no liability in this at all. PayPal has to recover the funds from the seller and leave the buyer out of this.
posted on May 15, 2002 12:17:50 PM
Damon, I appreciate your prompt reply. Your answers give rise to a couple more questions.
Does PayPal have any statistics on the average time an account remains on restriction? Most businesses, especially those dealing in a customer service capacity have a handle on their oldest outstanding transactions, report and track those dates, even if it is only internally. I am truly not trying to be argumentative, however, when a problem is brought to light by a user, it appears to take weeks, and sometimes months, for things to get resolved. This is evidenced in numerous threads, across several boards. This is what I see to be the major complaints stemming from these restrictions. The speed at which anything is done, and no one at PayPal willing to assist them.
If payments continue to be accepted into the account during restriction, (as you point out because sellers wanted this feature because autions may be ending) why can't PayPal issue a restriction ONLY for the amount disuputed in the case of chargebacks? If a user has a balace of $500.00 in their PayPal account and only $25.00 has been disputed or had a chargeback, why can't the user have access to the other $475.00?
posted on May 15, 2002 12:52:22 PM
cottagelane, Damon can probably advise you better but from what I see, if there is a chargeback or dispute, only that amount is restricted (or held, or taken out, or whatever it's called). Accounts are generally restricted only if it is an account issue (e.g. many chargebacks on the same account, fraudulent activity, suspicious activity, etc.). Also, I believe I remember him saying that the average restriction time is 3 days, though I could be wrong.
Damon, one of the reasons for restricting an account (in your TOU) is:
"Reports of unauthorized or unusual bank account use associated with the account"
Unusual bank account activity is very vague. I have seen several stories where accounts were restricted because they tried to withdraw all the money because they wanted to close their account (or for another reason). Does this mean if someone has tens of thousands in their account (or maybe 5000-10000) they should withdraw it a little at a time? Or do you not restrict accounts for very large withdrawals anymore?
Also please answer my question why credit card users have the right to dispute a charge when an issue arises 30 days or more after the transaction date (or escalates into an unresolvable issue with the seller), yet PayPal users who use a credit card don't have this right without getting their account restricted.
posted on May 15, 2002 12:56:40 PM
Hi cottagelane,
My understanding (I don't have direct access to the statistics) is that most restrictions are resolved within 3-5 business days. The ability to remove the restriction does require the user to supply the documentation requested. If something is missing,accurate, or incomplete, then the matter will not be resolved until the information is supplied.
"If payments continue to be accepted into the account during restriction, (as you point out because sellers wanted this feature because autions may be ending) why can't PayPal issue a restriction ONLY for the amount disuputed in the case of chargebacks? If a user has a balace of $500.00 in their PayPal account and only $25.00 has been disputed or had a chargeback, why can't the user have access to the other $475.00?"
A single chargeback is not going to create a restriction (there would have to be other issues (see USER AGREEMENT) for the recipient to have a restriction .We will pending reverse the transactions waiting for the party to supply the information relative to Seller Protection. The rest of the balance is still intact. The pending reversal creates a deduction of the chargeback in question (this feature was also requested by our customers to prevent restrictions).
These two items are not connected. A chargeback received is not the same as a restriction.
1) When you said the restriction is sometimes cause by "identity" problems, but to my understanding when you have a "Verified" PP account, the "identity" of the owner's been verified already, how come 2 years later PP will suddenly raise the question "Hum, you might not be who you said you are." So all of a suddent, you require a whole bunch of documentation to be fax over the one and only fax machine that PP had, (which most likely is sitting next to the toilet.) over and over again and still, your PP employee didn't receive it. Sent it by mail to all office addresses as required, still, no reply. I am just wondering what you guys do with all these very personal information and how you handle them.
2) >"Believe me, the float is not an issue. It costs us far more to review an account restriction than any float made off of something that typically lasts a few days."< But in this case, it's been weeks still no answer. The reason for the restriction is "fraudulent funds", but for weeks PP couldn't explain or point out which transaction is the "fraudulent funds". No wonder you said PP had a high operation cost, a whole company of employees that aren't doing #*!@ all day long is really some high operating cost. And if the reason for the freeze was "fradulent funds", that means there must be a transaction that flag your employees so it leads to this restriction, but how come when questioned, PP can't even tell which transaction that is? Don't give me that crap of "the float is not an issue" BS. I used to work for a coperation who had subsidiary for only this purpose. Get cash from clients, pay off suppilers in 30 to 60 days. By doing so, you constantly had a few million dollar if not billions in your hand. And I would say your salary comes from the interest generated by all this restricted account.
3) >The recipient (seller) would be liable for any chargebacks received. The liability is removed if they complied with the Seller Protection Policy (claims of non-delivery/cc fraud only-merchandise quality not covered).<
This one even better, lets see. Once the account got restricted, the seller couldn't retreive the funds to complete the transaction, and casuing more complaints and chargeback from buyers who didn't get their goods, and because "claims of non-delivery" there is continous restriction on the account. When will this end?
There is a common misconception that PayPal restricts accounts because of large withdrawals. This is not the case.
Let's say a review of the account shows that the party listed on the PayPal account is not the same on the bank account (see previous example). This will lead to an account restriction, as we need to confirm that the person is authorized to use the account.
"Also please answer my question why credit card users have the right to dispute a charge when an issue arises 30 days or more after the transaction date (or escalates into an unresolvable issue with the seller), yet PayPal users who use a credit card don't have this right without getting their account restricted."
Most card companies allow 60 days for a person to contact them to dispute a charge (exceptions are at the discretion of the card company). Most issues with sellers should become apparent shortly after the transaction (within 30 days, such as not responding to emails,phone calls,etc). Our User Agreement asks buyers to contact us before going to a chargeback because we may be able to recover through the Buyer Complaint process.
"1) When you said the restriction is sometimes cause by "identity" problems, but to my understanding when you have a "Verified" PP account, the "identity" of the owner's been verified already, how come 2 years later PP will suddenly raise the question "Hum, you might not be who you said you are." So all of a suddent, you require a whole bunch of documentation to be fax over the one and only fax machine that PP had, (which most likely is sitting next to the toilet.) over and over again and still, your PP employee didn't receive it. Sent it by mail to all office addresses as required, still, no reply. I am just wondering what you guys do with all these very personal information and how you handle them."
My example was the family member verbally allowing someone to use their bank account. They may be authorized between their verbal agreement, but they are not legally liable for the account. To resolve this, the party must supply documentation showing that they are authorized to use it. The party could have access to the information to verify (based on the verbal agreement). This is actually not uncommon.
I don't know how the faxes are stored. They are only used to review account information. I personally shred any documents I have received from customers.
">"Believe me, the float is not an issue. It costs us far more to review an account restriction than any float made off of something that typically lasts a few days."< But in this case, it's been weeks still no answer. The reason for the restriction is "fraudulent funds", but for weeks PP couldn't explain or point out which transaction is the "fraudulent funds". No wonder you said PP had a high operation cost, a whole company of employees that aren't doing #*!@ all day long is really some high operating cost. And if the reason for the freeze was "fradulent funds", that means there must be a transaction that flag your employees so it leads to this restriction, but how come when questioned, PP can't even tell which transaction that is? Don't give me that crap of "the float is not an issue" BS. I used to work for a coperation who had subsidiary for only this purpose. Get cash from clients, pay off suppilers in 30 to 60 days. By doing so, you constantly had a few million dolla!"
Customer service costs far outweigh any issues relative to float in these matters, not to mention the frustration to the customer service representatives and the customer. Resolving the restriction in a timely manner DOES REQUIRE complete/accurate information. Many of the delays that users comment on are the result of not getting all information to the appeals team.
I will again state that a suspect transaction is not going to lead to a restriction. We can pending reverse this item, which allows the other balance in the account un-touched.
Can you answer this question real fast. If PayPal can not get money from a seller to cover a chargeback, does PayPal eat the cost or does it try to recover it from the buyer. I think this should be a very quick question to answer.
I am also going to add that restrictions are not put in place for "no reason". A list of reasons can be found in our USER AGREEMENT that are pretty clearly spelled out. Many users do understand when they have a direct dialogue with me as to the why.This information may not be disclosed when a poster states that they have been restricted. I may start asking for users to allow me to post the specific reason when they make a complaint on the forum before I will even get involved in it. Many users do not come back to report that the issue has been resolved, so it is a tad bit frustrating at times.
Account restrictions are rare (compare the number of complaints versus the overall user base of over 15 million) and they can be resolved. I don't doubt that it can be frustrating for users, but they are a neccessity at times. PayPal does employ vigorous anti-fraud measures to protect our user base, as well as individual users from fraud (online fraud rates have been reported at over 1.00%...ours has been reported at about half of that. Our fraud team is exceptionally strong in helping reduce issues that impact our buyers and sellers).
The liability for the chargeback is accepted by the party accepting the payment. They would be responsible for the chargeback. The merchant/individual accepting the payment is responsible for any chargebacks (again, sellers that want to reduce the risk of a chargeback should follow our Seller Protection Program to a "t".
I am posting the User Agreement on restricting accounts. As an FYI, this was also another item requested by our users to help them how to AVOID doing something that might lead to a restriction.
-Reports of unauthorized or unusual credit card use associated with the account including, but not limited to, notice by the card issuing bank;
-Reports of unauthorized or unusual bank account use associated with the account;
-Complaints received regarding non-shipment of merchandise, non-delivery of services, merchandise not as described, or problems with merchandise shipped;
-Initiation by a buyer of a reversal process through the buyer's issuing bank without first pursuing the Buyer Complaint process described below;
-Receipt of potentially fraudulent funds;
Excessive disputes or reversals, or attempts to "double dip" by receiving funds in a dispute both from PayPal and through a reversal or a refund from the seller;
-Refusal to cooperate in an investigation or provide confirmation of identity when requested;
-Initiation of transactions considered to be cash advances or assisting in cash advances;
-Sending unsolicited email or posting referral links on websites where they are not permitted;
-Opening multiple Personal accounts;
-The account has been used in or to facilitate fraudulent activity;
-Violations of this User Agreement;
-Name on the bank account associated with the PayPal account does not match the name on the PayPal account;
-Return of an incoming Electronic Funds Transfer for insufficient funds in the bank account, incorrect bank routing number, or incorrect bank account number;
-Use of an anonymizing proxy;
-Participating in prohibited transactions and activities, including but not limited to multi-level marketing programs, gifting clubs and other pyramid schemes, and listing items for sale that have a delayed delivery date of 20 days or more after the transaction list, and other activities that are prohibited in Part II of this Agreement;
-Reports from credit agencies of a high level of risk;
-Receipt by PayPal of excessive complaints regarding your account, business or service; and/or
-Logging in from a country not included on PayPal's permitted countries list.
I deal with these on a daily basis. I have run across just about every item listed above while being in the forums. If you read the user agreement, and abide by the rules, you are not likely to run into any issues. I have run into 4 (over two years) where I can say that it was a mistake on our end. These issues were resolved within a couple of hours to a couple of days.
posted on May 15, 2002 01:47:43 PM
What he's not telling you is that about 95% of the accounts they have are stale accounts and never used. I'm sure they count mine and my lawyers but they haven't been used in over a year.
[ edited by club1man on May 15, 2002 02:05 PM ]
posted on May 15, 2002 01:53:58 PM
Thank you Andrew123s and Damon for your helpful replies. So, as I understand this, restrictions do not occur as a result of something on the transaction level, unless there is a pattern of transaction level problems, restrictions are issued due to account level issues such as proof of identity. Also users continue to have access to those funds NOT included in any pending reversals, correct?
One last question. The buyer files a complaint with PP prior to the 30th day, but they haven't received a response from PP by say, day 55. The buyer files a chargeback on day 56 in order to protect their chargeback rights with the CC company. Will PP restrict the buyer's account?
posted on May 15, 2002 02:05:23 PM
Hi cottagelane,
"Thank you Andrew123s and Damon for your helpful replies. So, as I understand this, restrictions do not occur as a result of something on the transaction level, unless there is a pattern of transaction level problems, restrictions are issued due to account level issues such as proof of identity. Also users continue to have access to those funds NOT included in any pending reversals, correct?"
Fairly accurate. I would also state that there could be other issues that lead to a restriction (what I posted).
Yes, users would still have access to the account balance (minus the pending reversal). This is actually kind of confusing to explain, but I will try..
-Account has balance of 500.00
-Chargeback comes in for 200.00
-Chargeback creates pending reversal of 200.00
The pending reversal is deducted, but has not been removed from the account. The seller would be asked for the information relative to the Seller Protection Program. (If they did not comply, then the reversal would be completed after the information was found not to be accurate)
-The party still has 300.00 that is not impacted. The other 200.00 will correct back to the account if the seller is found in compliance with SPP.
"One last question. The buyer files a complaint with PP prior to the 30th day, but they haven't received a response from PP by say, day 55. The buyer files a chargeback on day 56 in order to protect their chargeback rights with the CC company. Will PP restrict the buyer's account? "
I don't see an issue with the response from us going much past 30 days. It also depends on the circumstance...(buyer says nothing received, yet the seller has demonstrated that the complaint is not valid). There are several factors involved here (if it is a merchandise quality dispute, did the buyer return it to the seller,etc.)
Again, buyers can PREVENT these kinds of issues by using some discretion before sending the payment. PayPal, as a payment service, can't guarantee that the individual person you are sending payment to will come through as promised, nor can we guarantee the quality of the merchandise. It is important to resolve any questions with the seller before sending payment. Our ability to recover for a buyer does depend on how quickly they file a claim, but it won't guarantee recovery.
posted on May 15, 2002 02:09:37 PM
"The liability for the chargeback is accepted by the party accepting the payment. They would be responsible for the chargeback"
So, is the seller "the party accepting payment" or is PayPal?
Sorry to analyze each word, but I was a Compliance Officer in a former life and it was my job to dissect each word in a proposed regulation, policy or procedure. Even words like "may" and "must" have very different meanings to a corporation trying to comply.
posted on May 15, 2002 02:56:00 PM
Cottagelane This comes from their Tos. What does it indicate to you---"PayPal is the merchant of record with respect to all credit card transactions through the PayPal service to purchase goods or services."
posted on May 15, 2002 02:58:11 PM
Hi cottagelane,
PayPal is the merchant of record, but the recipient of the payment accepts liability for chargebacks received from payments accepted. I think you would find the same clause in many "epayment" services.
Thanks for your reply. I admit I really need to reread PP's TOS again. What this says to me is that PP should absorb the chargeback as the merchant of record. What I don't know at the moment is if there is other verbiage in the TOS which goes on to state that despite them being the merchant of record, the user accepts chargeback liability. I apologize in advance if this has been posted previously and I missed it. As I said, I really need to reread the TOS.
After rereading the original question:
"If PayPal can not get money from a seller to cover a chargeback, does PayPal eat the cost or does it try to recover it from the buyer."
and Damon's answer:
"The liability for the chargeback is accepted by the party accepting the payment. They would be responsible for the chargeback. "
I find I have another possible interpretation. Could this possibly be construed to mean that the "buyer" could also potentially be responsible for recovery of the chargeback funds? Could PP consider a "payment" to be the reversal of the charge back? IOW, the buyer received a "payment" back to their CC?
Damon:
I really appreciate the prompt replies and assistance you have shown me today even though I may still have issues with some of the answers. You said:
"PayPal is the merchant of record, but the recipient of the payment accepts liability for chargebacks received from payments accepted. I think you would find the same clause in many "epayment" services."
I will defer my response until I reread PP's TOS. BTW, no offense, but just because other epayment services use the same clause doesn't mean it can legally be supported, it just may mean it hasn't been properly challenged.
posted on May 15, 2002 04:53:11 PM
Thank you Damon for clarifying. I honestly wasn't trying to be a thorn in your side, simply trying to be clear in the meaning. As I said earlier, old habits or in my case, professions, die hard. I sincerely do appreciate the time you have taken to answer my questions today.
posted on May 15, 2002 05:00:43 PM
there is a good article in yesterday wall street journal on homeowner insurance,a man was denied policy renewal because he filed 3 claims in the last 3 years.
AAa used to say call us as often as you need,now it said call us 3 times for 46 dollars a year!!
sick people are denied health insurane because they are sick,autodriver are forced into assigned risk pool because they file too many auto claims.
all across the country,people now wonder why have insurance if you cannot file claim??
legal sabres aside,the bottom line is if the service provider goes under because it eats too many chargebacks,boosted too many dead batteries,pay too many medical bills and repair too many roof tops blown away by hurricanes,no new company will step up and perform the same service as no investors would want to invest in any money losing ventures.
so what would happen,either the insurance is so pricey or non existant we will all have to practice self insurance or no insurance.
i think i am ready for a real juicy big mac
posted on May 15, 2002 05:20:59 PM
Damon, I asked about the certain times where either an issue would come up after 30 days or an issue escalated into a point where the buyer had to dispute after 30 days, but couldn't. You responded by saying that most issues come up within 30 days. I know this, but I was asking why PayPal wouldn't let the buyer do anything (would restrict the account if a chargeback was attempted even if they couldn't file a buyer complaint) if this was not the case (if an issue came up AFTER 30 days). Please answer the question I asked.
>A payment made from your account to another would be the property of the recipient when claimed.<
Can you further explain the definition of "claimed".
Does it mean that the owner of the account had to withdraw the fund out of his PP acount to be a mean of claiming the fund, or simply by acknowleging that he received the fund like sending out a payment receipt to the buyer.
.