eBay Fraud Scams exposed

How does PayPal protection scam work?

In this case I am referring to a scam perpetrated by eBay who owns PayPal, not by some nickle and dime scammers utilizing eBay platforms.

There have been many accusations that PayPal Purchase Protection policy is only illusionary and that PayPal is by far not as safe as using credit cards for payment.

Here are some real time facts that will illustrate how eBay frauds victims when it comes to presenting PayPal Purchase Protection as a selling point but when it comes time to “make good” on this protection, real users report they are getting screwed by eBay/PayPal.

OK, let’s get to it:

• One of the top ten eBay Australia sellers appears to have skipped the country leaving what looks like close to 1,000 or so eBay buyers who paid for product during past 60 days without receiving their product. The seller’s feedback is currently logging over 650 negative feedbacks in past 30 days from defrauded buyers.. Todays estimates (and this number may grow) range from $500,000 to over $1,500,000 in funds this seller accepted without delivering the product.
• IT Wire published this article about PayPal Protection being completely illusory. This article cites a group who warns eBay PayPal users against using PayPal because the buyer protection is very limited and definitely not as advertised. They also point out that eBay Forums have had numerous warning posts about this failed seller and eBay Censors deleted those posts. The article links to one eBay Forum thread that seemed to escape the censorhip, so far.
• The eBay seller ebusiness_supplies is still a registered user, however all their auctions have been terminated on about July 8th. We have archived screenshots of the feedback page, just ready to publish in case eBay censors it out and tries to hide the evidence on their site.
• Anticipating the censorhip, as it is a favorite eBay way to prove there is no fraud on eBay, we are also archiving the current eBay Forum thread, as it is in a danger of being dissappeared by accident.

While reading an article about eBay hiring new Director of Reputation Management and giving him a $1,000,000 plus sign up bonus… (later post will probably follow on that topic alone), I hopped through footnoted.org blog post on the subject who had a nice link to eBay’s filing for 2nd quarter 2008 which offers wealth of interesting information on PayPal policies and strategy. Here are some quotes from this document that appear to be relevant as you read on:

• In addition, because a large percentage of PayPal transactions originate on the eBay platform, declines in growth rates in major Marketplaces markets also adversely affect PayPal’s growth rate. The expected future growth of our PayPal, Skype, StubHub, Shopping.com, and other lower margin businesses may also cause downward pressure on our profit margins because those businesses have lower gross margins than our Marketplaces platforms.
• PayPal is subject to anti-money laundering and counter-terrorist financing laws and regulations that prohibit, among other things, its involvement in transferring the proceeds of criminal activities. Although PayPal has adopted a program to comply with these laws and regulations, any errors or failure to implement the program properly could lead to lawsuits, administrative action, and prosecution by the government. In July 2003, PayPal agreed with the U.S. Attorney for the Eastern District of Missouri that it would pay $10 million as a civil forfeiture to settle allegations that its provision of services to online gambling merchants violated provisions of the USA PATRIOT Act and further agreed to have its compliance program reviewed by an independent audit firm. PayPal is also subject to regulations that require it to report suspicious activities involving transactions of $2,000 or more and may be required to obtain and keep more detailed records on the senders and recipients in certain transfers of $3,000 or more. The interpretation of suspicious activities in this context is uncertain. Future regulations under the USA PATRIOT Act may require PayPal to revise the procedures it uses to verify the identity of its customers and to monitor international transactions more closely.
• Negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of our eBay and PayPal services could damage our reputation, reduce our ability to attract new users or retain our current users, and diminish the value of our brand names. We believe that negative user experiences are one of the primary reasons users stop using our services.
• Although there have been no definitive interpretations to date, PayPal has assumed that its service is subject to the Electronic Fund Transfer Act and Regulation E of the Federal Reserve Board. As a result, among other things, PayPal must provide advance disclosure of changes to its service, follow specified error resolution procedures and reimburse consumers for losses above $50 from transactions not authorized by the consumer. PayPal currently voluntarily reimburses consumers for all financial losses from transactions not authorized by the consumer, not just losses above $50. PayPal seeks to pass most of these losses on to the relevant merchants, but PayPal incurs losses if the merchant does not have sufficient funds in its PayPal account.
• PayPal pays significant transaction fees when senders fund payment transactions using credit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts, and no fees when customers fund payment transactions from an existing PayPal account balance or use buyer credit issued by GE Money Bank. Senders fund a significant portion of PayPal’s payment volume using credit cards, and PayPal’s financial success will remain highly sensitive to changes in the rate at which its senders fund payments using credit cards. Senders may prefer funding using credit cards rather than bank account transfers for a number of reasons, including the ability to dispute and reverse charges directly with their credit card provider if merchandise is not delivered or is not as described, the ability to earn frequent flier miles or other incentives offered by credit card issuers, the ability to defer payment, or a reluctance to provide bank account information to PayPal. The proportion of PayPal’s payment volume funded using credit cards has increased over time.
• In September 2006, PayPal entered into a settlement agreement with the attorneys general of a number of states under which it agreed to pay $5.2 million to the attorneys general, shorten and streamline its user agreement, and communicate more information regarding protection programs to users. Also in September 2006, PayPal announced that it had reached a preliminary settlement agreement under which it agreed to pay approximately $3.5 million into a settlement fund for the benefit of a class represented by plaintiffs in a suit that alleged, among other things, that PayPal’s disclosure regarding the effects of users’ choice of funding mechanism was deceptive. Although PayPal did not admit any liability for any of the allegations in the two cases, changes to our disclosure practices could result in increased use of credit card funding, which could harm PayPal’s business.
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• Our PayPal website has suffered intermittent unavailability for periods as long as five days.

• Reliability is particularly critical for PayPal, especially as it seeks to expand its Merchant Services business. Because PayPal is a regulated financial entity, frequent or persistent site interruptions could lead to fines, penalties, or mandatory changes to PayPal’s business practices, and ultimately could cause PayPal to lose existing licenses it needs to operate. Some of our systems, including our Shopping.com and Skype websites, are not fully redundant, and our disaster recovery planning is not sufficient for all eventualities. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.