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Using PayPal means I waive my consumer protection rights?
By Admin
Created 1/2/2004

If you read and accept PayPal's ToS (Terms of Service) you are in effect waiving your rights to credit card consumer protection laws against unauthorized charges, and you may not issue a chargeback for anything you purchase using your credit card and PayPal account that you are unsatisfied with. (Be sure to see the update at the bottom of this page.) How can I make such a claim?

Firstly the experiences of PayPal users who post here. Secondly, PayPal's actions. And thirdly, PayPal's own ToS: (emphasis mine)

    PayPal encourages all buyer purchase disputes to be filed and resolved through the PayPal dispute resolution process. PayPal reserves the right to terminate or limit account access privileges of buyers in any of the following cases: abuse by a buyer of the reversal process provided by the buyer's issuing bank; filing a chargeback against an unauthorized transaction; consistent failure to pursue PayPal's Buyer Complaint Process before pursuing any alternate reversal process provided by the buyer's issuing bank. If a reversal claim is initiated, whether as a result of a dispute or for any other reason, the parties agree to provide to any requesting party on a timely basis any and all necessary documentation to resolve any reversal or dispute. PayPal DOES NOT act as the agent of either party in any transaction or resulting dispute, [That's Paypal telling you, they are not doing this on your behalf, but all actions taken will be to protect THEIR interests, NOT yours!] though PayPal does control the outcome of disputes initiated through the Service's dispute resolution process. See Buyer Complaint Policy.
They also say:
    Any of the following events may lead to your account being limited:

    i. Reports of unauthorized or unusual credit card use associated with the account including, but not limited to, notice by the card issuing bank. This includes notices made by you to your credit card company that a transaction was unauthorized or your account compromised, and is done in order to protect you from further unauthorized use of your card; See Closing Accounts and Limiting Account Access.
Note that by issuing a chargeback via your credit card company, would meet the above. And if you do that, then they are going to say you are in "violation" of their user agreement. At which time, PayPal has a whole 'nother set of rules that apply to you. If you read and listen to Marc Perkel's recordings you will hear them say "You violated the agreement.." many, many times. That is their whip. If you "violate" their user agreement, that's it. PayPal now treats you as a convicted felon. It's amazing to hear the indignation in their voices. Also note this one:
    [Any of the following events may lead to your account being limited:]

    vi. Initiation by a buyer of a reversal process through the buyer's issuing bank without first pursuing the Buyer Complaint process described below;
This says that if someone puts a chargeback on you, or they didn't follow the PayPal policy, YOU are in violation of their agreement!

Also note, that is just one page of 17 pages (online) that make up PayPal's ToS! You'd have to print it out, (over 35 pages in hard copy) and read every single line with a fine tooth comb to really understand PayPal's lock on you and your accounts. Oh, and each part is updated at their whim, anytime they feel like it! See:

Be sure you have your lawyer go over every line, every time it's updated!

UPDATE: [3/8/2004] The news is all around the net. PayPal agrees to pay a $150,000 in penalties for not following it's own ToS. This was just for the state of New York. Quoting from a Reuters News article:
    "PayPal is not a credit-card company and is not required by law to provide "chargebacks" to consumers should a transaction go wrong, a Spitzer [New York Attorney General Eliot Spitzer] aide said, but the company's customer service agreement had led consumers to believe they enjoyed such protection. ... PayPal agreed to change its user agreement to more clearly describe consumer rights, and will pay New York $150,000 in penalties and investigation costs, Spitzer's office said."
And again in an AP story:
    "The nation's largest online payment service, PayPal, is paying New York $150,000 in penalties after misrepresenting to consumers its policy on repayment when merchandise doesn't arrive, the state attorney general said Monday. ... PayPal, which has 40 million customers worldwide, had specifically stated that it provided the same rights and protections of a traditional credit card transaction, said Attorney General Eliot Spitzer. But consumers were often denied those rights, he said."
PayPal says they will honor claims only filed within 30 days. I know my credit card has a 1 year policy for chargebacks and 90 days for billing disputes. So you still don't get equivalent consumer protection when using PayPal.

UPDATE: [11/8/2004] A user of PayPal sent us this bit of information: (Thanks JR!)

    Here is what appears when you try to use your credit cards instead of the bank transfer (presuming you are "verified")

    Funding Confirmation - Secure Transaction

    Before you change your funding source to your credit card, consider the benefits of paying with your bank account:

      * This payment is eligible for up to $500.00 USD of coverage with PayPal Buyer Protection.
      * You're still paying instantly and securely - without the worry of increasing debt
      * Paying with your bank account is instant and your payment will be completed immediately just as easy as paying with cash
      * PayPal keeps your bank account information safe and secure through military-grade encryption and 100% coverage of any unauthorized use

    Do you still want to change your funding source to a credit card?

    At the bottom the "yes" option is in almost unreadable type while "No" is in boldface. After you pay, another pitch comes on telling you why using the bank transfer is safer & better then that silly old credit card you signed up to use.
Obviously PayPal is trying to get people to STOP using their credit cards to fund their PayPal account. However, if you do, you have zero protection. If you do use your credit card, you will have protection, but only once, as using that protection puts you in violation of PayPal's ToS, so you can't use PayPal again.

Disclaimer: I'm not a lawyer. The above is not legal advice. It's my opinion as a reasonable person reading their ToS, and seeing the actions taken by PayPal against people who try to use their consumer protection rights.