FRIEND OR FOE? Money Mail Raises Serious New Questions about Online Payment Service PayPal
Byline: by JAMES CONEY
THREE years ago, Money Mail investigated PayPal, the payments service owned by online auction site eBay.
PayPal pledged to clean up its act. But a fresh investigation by JAMES CONEY has uncovered a major loophole which is leaving innocent sellers at the prey of fraudsters.
WHAT IS PAYPAL?
IT IS an online payments service owned by eBay.
PayPal acts as an intermediary. A buyer pays money from their PayPal account to the PayPal account of the seller. If there are problems, PayPal can then take the funds back out of the seller's account. To use it, you have to set up an account online, entering your name, address and bank or credit card details.
There are 65 million active PayPal accounts in 190 countries and 17 currencies, and it runs a prepay and a credit card service. In three months last year, more than [pounds sterling]10.8 billion was transferred using the service.
It is free for those making payments. But you pay up to 3.4pc, plus 20p, if you receive a payment.
[bar] HOW ARE YOU PROTECTED?
ONLINE auctions such as eBay are excluded from standard consumer protection such as the Sale of Goods Act and Distance Selling Regulations.
PayPal is also not covered by the Financial Services Authority, although it was until 2007. It is now regulated in Luxembourg, but has voluntarily signed up for the UK Financial Ombudsman Service. This can award compensation if a customer is left out of pocket.
PayPal does operate its own protection service to help where a buyer or seller is unauthorised or when users claim they didn't receive an item. The total value of any goods you send is fully protected, provided the transaction is made through a verified PayPal account, the item was sent to an eligible address and there is proof of delivery.
[bar] WHAT WENT WRONG BEFORE?
IN 2006, Money Mail received hundreds of complaints about PayPal.
There were three main strands: [bar] THAT sellers were having money they had received suddenly taken from them because the buyer had committed fraud -- by paying with a fake credit card, for example. The seller lost the money and the item.
[bar] THE buyer purchased an item, but it never turned up or was not as advertised. The seller was investigated and their account frozen, but the buyer was left out of pocket. Sometimes the seller would settle the dispute privately, offering to accept the goods back and to refund the buyer, only to then pretend they never received their item back and get PayPal to chase the buyer.
[bar] THE seller had dispatched the goods, only for the buyer to say they had not received them and take back the funds.
[bar] THE NEW INVESTIGATION OUR fresh probe has uncovered a major flaw in PayPal's policy which leaves sellers unprotected and out of pocket. Fraudsters can get round the company's security system in a scam which involves making a complaint directly to a credit card company on a technicality about the items they have received.
To prevent the scam from continuing, we cannot reveal precisely how it works. But it means sellers are being left out of pocket as PayPal is forced to hand back funds to the buyer.
PayPal is aware of the way potential fraudsters can manipulate its systems, but claims to do everything it can to ensure customers are not the victims of dishonest buyers.
Despite the opening of a multimillion-pound call centre in Dublin, PayPal's service still seems to be letting down its users. Customers complain they are unaware of many of the strict rules that PayPal puts in place, and that staff are powerless. The accusation from sellers is that PayPal acts as police, judge and jury on complaints. Money Mail handed a dossier of customer problems already investigated to PayPal bosses. After further investigation, it awarded refunds to half of these cases, having initially refused. …