Negative Paypal Balance: should you have to pay it?

Posted on August 7, 2013

Interesting point raised by this account, shared on the following thread:

When PayPal demand that a defrauded seller pay their negative balance back to PayPal, have PayPal actually incurred a cost themselves by paying off the fraudulent buyer’s credit card company?  If not how can they defend the act of sending debt collection agencies after unfortunate online sellers?

Here’s the situation:

An established eBay seller has had a fraudulent chargeback issued against them years ago, the buyer claimed non receipt of the item despite the fact that the seller had confirmation over the phone from their delivery service that the item was delivered.  PayPal however did not acknowledge that the seller could actually demonstrate that the item was delivered, as at that time their policy was that the delivery had to be tracked online, which was not possible with the seller’s delivery service.  So instead PayPal had simply charged the account into a negative balance.

The seller, not wanting to simply pay off the fraudulent buyer, refuses to pay the alleged debt to PayPal and decides to declare it statute barred with no intent to pay.  Before doing this however they attempt to establish all the facts with PayPal, in writing, particularly regarding the issue of whether PayPal had actually paid off the fraud.  If they had not, then PayPal were merely trying to force the seller to pay an amount to PayPal that they did not actually owe: PayPal had not given any money to the buyer, the buyer’s credit card company had refunded them and PayPal were potentially now expecting the seller to pay them the money anyway.

This process ends up taking weeks, with PayPal’s initial responses being completely unhelpful and failing to address any of the questions or issues raised by the seller.  Eventually, having escalated the dispute and threatened to take action against the company, PayPal offer to zero the negative account balance as a ‘good will gesture’, only after dozens of emails from the buyer demanding a proper response.

But PayPal still evade the issue of whether or not they actually refunded the buyer or the buyer’s credit card company, refusing to provide a proper response to the seller or proof that this transaction took place.

The problem is therefore, that in cases such as this where a chargeback scam results in the seller’s account going into a negative balance and the dispute runs for a significant period, PayPal may not actually have initially refunded the buyer’s account or credit card company.  So here the seller has been harassed over years by debt collection agencies trying to get them to return their negative balance to PayPal, PayPal may be setting these debt collectors onto them without having incurred any cost themselves.

At least this is how it can appear if PayPal refuse to address the issue, provide evidence as to their transactions with the buyer’s card company or even reply properly to customer service emails sent to them.