Online Sellers Beware: Scammers Love This.

Dear Rich Lifer,

In past articles, I’ve told you about my long-standing eBay habit – both as a buyer and seller of everything from $5 t-shirts to $40,000 sports cars.

It’s kind of mind-blowing, but I’ve actually been using the online auction platform for more than 20 years now!

Of course, one of the biggest changes I’ve seen over that time period is in the way people pay each other remotely.

In the olden days, it was pretty simple – you bought something, sent a postal money order (or cash if you were really brave), and then waited for the item to show up.

The process took a long time. It required lots of steps. And it entailed substantial risk, largely on the buyer’s side.

Then came…


Paypal is an online payment system that rose to prominence in the early 2000s. It was quickly snapped up by eBay, and has subsequently been spun back off as its own separate entity.

Because of its close ties with eBay, Paypal has become the de facto way to transfer money between buyers and sellers.

But a few recent experiences and conversations raise issues that I think everyone should be aware of… especially if you are an online seller (whether casual or professional).

Here’s the basic rub: Although Paypal provides protection for both sides of a transaction, its policies are generally skewed toward buyers.

Imagine the following eBay scenario:

Someone buys an item from you …

They pay via Paypal …

You ship the item to their verified address …

It is received and signed for.

You transfer the money to your bank account and think all is well.

Then, six months later, you find out that the buyer alleges the item you sent was not as described.

Under this scenario, Paypal will note a dispute has arisen, freeze the amount of money involved, and assume the buyer’s allegation is correct as an investigation ensues.

Yes, in Paypal’s system, the default is to side with the accuser rather than the accused. And yes, buyers have a full 180 days to launch a dispute. That number went up sharply from 45 days back in 2014.

Okay, you say. But how can Paypal freeze the money when it’s already been transferred to my bank account months ago?

Essentially, they will place a hold on that amount inside of your Paypal account – i.e. you will have a debit that goes against any funds already inside the account or coming into it going forward.

In a conversation about this with a Paypal customer service representative, I was told that the preferred solution would be to have the buyer send the item back to the seller.

Putting aside all the follow-up problems that entails — like what happens if the item you get back is all messed up or what if you never end up getting the same sales price again – here’s the basic point …

Essentially, Paypal treats all sellers – even casual ones — the way business transactions are treated under the Fair Credit Billing Act.

Now, as I’ve said, I’ve been selling stuff online for two decades and I’ve literally never had a problem with a buyer or this particular policy.

At the same time, it’s something that you need to understand for two important reasons:

#1. As a seller, there are definitely scam artists using this concept to bilk you out of money.

#2. As a buyer, you have some very powerful ways to rectify any problem you encounter with purchases.

A quick rundown of how this works.

How A Dispute Plays Out 

There are two primary reasons a buyer can dispute a transaction – “item not received” or “item significantly different than described.”

The first category is pretty straightforward and why shipping with a tracking number is always a smart move.

The second category is where things can get crazy.

If someone expects a size large shirt and gets a medium, it’s pretty clear.

However, what if the condition of a used item isn’t what a buyer says they expected even if a listing was pretty clear and the photos were accurate?

What if a figurine broke during shipping?

What if a buyer falsely claims something showed up used even if it was new?

Investigations could ensue but here’s the basic gist courtesy of a Seattle Times article on the subject of returns and chargebacks:

“When you request a ‘chargeback,’ the seller gets the opportunity to protest it — possibly by claiming that you made no effort to resolve the matter, or refused to return the goods that you say are unsatisfactory, or that the goods are exactly what you ordered. But as a practical matter, sellers rarely succeed in reversing chargebacks. As long as you return the merchandise (or try to return it), or document the product or service defect (for example, by having a second auto-repair shop correct a lousy repair and write up what they did), you’re likely to win the dispute and get your money back.” 

This article is describing credit card chargebacks, of course. But the basic idea that buyers typically prevail holds true for Paypal as well.

In fact, what’s crazy is that receiving payments through Paypal potentially subjects you to two layers of chargeback risk – disputes through Paypal itself as well as disputes started through a credit card company that originally sent the money to Paypal.

If we’re talking about eBay sales, then the auction platform’s buyer protections come into play as well! 

So these days, caveat emptor may no longer be an appropriate motto. It’s really online sellers who need to beware. And in tomorrow’s follow-up to this article, I’ll give you another big reason that’s true.

To a richer life,

Nilus Mattive

Nilus Mattive

You May Also Be Interested In:

Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

View More By Nilus Mattive