FYI: Warning about Paypal processing

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Mac Daddy DJ
Nov 6, 2006
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If you are not already aware, Paypal is not an actual bank. They have also been playing fast and loose and I suspect soon to be in a lot of hot water.

What you need to know if you are processing transactions through Paypal is that you may unwittingly lose sales or customers should any of those customers have an independent or unrelated dispute with Paypal.

Here's two issues you should be aware of that I have personally experienced in recent months:

Blacklisting - This is where Paypal refuses to process credit card transactaions for you because your customer has an unrelated dispute with Paypal itself. Technically, a very clear violation of the Sherman Anti-Trust Act and almost certain to result in an eventual class-action or criminal complaint against Paypal.

For example, I recently had an issue with a credit card charge going through with a Stage Light Distriibutor in NY. My bank and Visa both confirmed that there was no card issue on my end and that the attempted charges/authorizations were not even showing up in the system.

As it turns out - the vendor was using Paypal as a card processor, and Paypal will not process the transaction for them. What Paypal has done is blacklisted for third party processing any card numbers on file with them where there is a separate member dispute. ANY business using Paypal as a processor will be unable to accept payment from me or others who might have an unrelated dispute with paypal.

For those of you unfamilair with anti-trust law - this is exactly what the law is designed to prohibit: Third party intrusion or prevention of commerce. Paypal is not a bank - and therefore escapes Federal Banking Regulatory oversight. It's credit card processing is subject to the same "member" agreement as their persoanl escrow services. It is still liable under anti-trade law and eventually is likely to catch the ire of the Justice Department or a thrid party law suit.

If you are using Paypal as a payment processor, you may be losing sales/customers because certain charges that appear to be "declined" are in fact not even being submitted for authorization!

Piggybacking of unauthorized charges - This is where Paypal attaches to your thrird party payment a balance transaction of it's own in order to circumvent the requirement to obtain credit card authorization for it's own balances.

I recently purchased a song from iTunes for $0.99 and my iTunes purchases are typically debited to my Paypal account.

Paypal presented the charge to my credit card as an: "iTunes purchase" for over $200 as a means to collect an unrelated Paypal balance.

Paypal, like any other merchant must get authorization for any charges it makes to your credit card as well as accurately present the purpose of that charge. Regardless of any Paypal policy - the misrepresentation and unauthorized charging of a credit card is both illegal and a violation of the merchant card agreement. As a result, my bank issued an automatic chargeback against Paypal.

Obviously, you can see the connection relative to what Paypal is trying to accomplish in getting my money - and if restricting the use of my actual Paypal account was what they were doing that would be fine. What they are doing however, goes far beyond that and is a prescription for real trouble, not just legally for Paypal but, also in lost sales/customers for vendors processig with them.

For my vendor, it meant a lost sale since I simply placed the order with another supplier using a legitimate bank card processor. It may also mean a lost customer after many years because, they are out of state - and as long as Paypal is their processor - they cannot accept my credit card and they have no other reasonable payment option.
 
So why haven't you paid your outstanding balance with Paypal?
 
That's none of your business, Steve. I'm sharing what I have learned about Paypal card processing - not soliciting people to take sides in a charge dispute.

Like many people, I've gotten a lot of solicitations from Paypal suggesting I switch my card processing to Paypal. I had considered looking into it and comparing costs.

A surpirse benefit of having a dispute with Paypal is that I have gained a separate insight into potential pitfalls of using Paypal as a card processor. I now have a much better appreciation for the traditional merchant processor I currently use.

The vendor with whom I had to cancel this order has been a supplier for more than a decade. They are not a mom/pop store front - it is a major wholesale industrial house that has recently switched their card processing to Paypal.

This is a big potential problem for them given the size of their customer base - the more people you do business with the more likley this is too occur. Even they knew something was fishy - my card was not prompting an "authorization declined" message as would normally come back from MC/Visa - it simply defaulted immediately to "decline" without actually requesting authorization. That's a case of Paypal covertly trying to control who they will sell too - known as blacklisting.

I placed my order with another vendor with whom I have open account terms because, I need the product Thursday. Establishing open terms with the first company will not be completed in time to make my deadline. So while we may continue to do business in the future - it has changed the flexibility we previously had in place; cost them a sale, and forced me to use a different brand than the one I had originally specified.

That's the lesson - that with Paypal processing comes ALL of Paypals other issues. Sellers beware.
 
You are right and it's none of our business that Paypal won't process a payment for you because you have failed to pay them what you owe!

I use paypal all the time and have only had one problem with them (they fouled up the routing number for my bank account) and it was straightened out in two phone calls!

No need in bashing Paypal because you have a single dispute with them, the vendor never even burped with your lost sale, they probably go through it 15 to 20 times each day with credit cards that are denied for various reasons!

Since many online vendors are now going the paypal route sometimes it is a good idea to get any disputes settled quickly!

I recently bought an item on E-bay that was never delivered and Paypal had the money back into my account within days of my complaint! They are simply doing what it takes to protect both the buyers and sellers in their care!
 
Thunder said:
You are right and it's none of our business that Paypal won't process a payment for you because you have failed to pay them what you owe!
Click to expand...

If I actually owed them money - I wouldn't have a dispute, would I?

Duh.

I'm not asking Paypal to process anything for me.
The vendor is the one trying to contact VISA throuhgh Paypal and they can't. (BTW: without any disclosure by Paypal.)

Imagine if you took your customer's check to the bank and it bounced - not because your client or his bank refused payment - but, simply because your bank doesn't want you to do business with him and refuses to accept your deposit on the false pretense that the check is no good. Do you want your bank telling you who's money you can have and who you can sell too?
 
I moved completely back to PP, after getting hammered with chargebacks from another processor.

They're certainly not perfect, but better than anything else I've found, unless you want to run yer own merchant account -- which is a major PITA.
 
Um...Steve, regardless of your thoughts on personal issues, tacking on additional monies other than what has been authorized (the iTunes example above) is illegal and should be of concern to anyone using PayPal. We shouldn't have to call to make sure things get done right and legally.
 
Guess what - you're both right!

Paypal is a great option for business who process a small volume of credit card tranactions, and it's becoming more visible as a payment option online... But they do charge more than a merchant account, and they have been known to be vindictive to both specific industries in a whole and any time you have a legimate gripe.

I for one had my Paypal account put on hold for over 3 weeks when a ruthless cheat bought some lights from me on ebay and said he got empty boxes. Guess what - why would I pay for shipping 60 pounds if there were nothing in there?

And why would Paypal hold my account with close to $400 in it for a lousy $125 dispute? Why because they hold the merchant account and want to look great to their processor and especially to the networks (visa, mc & discover). I get it...just don't like being on the wrong side of it all without an option to defend myself.
 
Steve, if what you want to take away from this is fantasy and personal shots, you're welcome.

Otherwise here's a dose of reality:
This was not an online sale.
(I don't think they even do sales on the web,)

This was a wholesale transaction not a retail purchase.

Paypal was never even a consideration, it simply turned out to be the reason they could not access the VISA authroization center and hence could not make a sale.
​

Others who might be considering PP as a merchant processor may get a heads up about a risk they didn't know about - the leveraging of your sales.
 
Thunder said:
Then I would be looking to settle the dispute with them sooner rather than later!
Click to expand...

That easier said then done, Steve. I had an issue with someone charging back it took me 3 months to fix it because customer service is almost non-existant.

It took me just under a year to get a replacement debit card from PayPal after I lost my wallet. I even offered to pay for the new card they still dragged their feet. A year to have convenient access to my Paypal funds -- Isn't that a little ridiculous?

Unless you're shipping a physical product paypal will do very little for you as far as charge backs and the like.

==
Bob I haven't heard of the black listing yet. That certainly isn't right.

I've heard of overcharging transactions to settle a dispute that's par for the course with PayPal unfortunately.
 
Just a thought here...

I have over 50 grand in PP accounts. They call me to ask how I'm doing, and if they can do anything for me today :sqbiggrin:


My regular bank doesn't do that, until I 'm over a hundred... :sqerr:
 
Big Dan said:
That easier said then done, Steve. I had an issue with someone charging back it took me 3 months to fix it because customer service is almost non-existant.

It took me just under a year to get a replacement debit card from PayPal after I lost my wallet. I even offered to pay for the new card they still dragged their feet. A year to have convenient access to my Paypal funds -- Isn't that a little ridiculous?

Unless you're shipping a physical product paypal will do very little for you as far as charge backs and the like.

==
Bob I haven't heard of the black listing yet. That certainly isn't right.

I've heard of overcharging transactions to settle a dispute that's par for the course with PayPal unfortunately.
Click to expand...

Dan,

My experience has been quite different from yours and Bob's, when it comes to Paypal, I have had very little grief from them and excellent response for customer service! Perhaps I am just one of the licky ones!

Bob,

I was not taking fantasy or making personal digs, just simple observations on my part, it apparently didn't come across right!

I don't understand how your transaction would go through Paypal if you were dealing directly with a wholesaler who does not sell online and they were dealing directly with your credit card company! unless Paypal flagged your card because of a dispute you have with them, in which case just use another card!
 
Thunder said:
I don't understand how your transaction would go through Paypal if you were dealing directly with a wholesaler who does not sell online and they were dealing directly with your credit card company! unless Paypal flagged your card because of a dispute you have with them, in which case just use another card!
Click to expand...

Paypal offers merchant credit card processing services, and yes - the merchant should be talking transparently to VISA to obtain authorization.

However, because they are using Paypal as the processor - ALL transactions are FISRT screend by Paypal BEFORE Paypal will allow them to obtain an authorization from MC/Visa/Amex etc.

It's as if EVERY customer you want to sell your DJ services too has to be pre-screend and approved by me before you can accept the job. If your customer happens to have a dispute with me - I won't let you complete an independent transaction with him.

Somewhere in the fine print of the agreement there may be some reference to this - but, I can assure you that no one is actually being made aware of this at the time they sign up with Paypal for a merchant processing account. It's also illegal but, since Paypal is not a bank there is no regulator reviewing their practices.

I like many others receive repeated solicitations from Paypal regarding this service - understanding that they do this is a definite deal breaker for me even without the accompanying personal experience. It really doesn't affect my ability to buy - it under-handedly affects the ability of the vendor too SELL to a certain subset of potential customers.
 
Thunder said:
No need in bashing Paypal because you have a single dispute with them, the vendor never even burped with your lost sale, they probably go through it 15 to 20 times each day with credit cards that are denied for various reasons!
Click to expand...

Since they don't sell retail or online the corresponding flurry of denied charges doesn't occur for them. I can assure you that in the 5 phone converstaions I had with them they were very dissapointed to find out that their sales effort is secondary to Paypal's unrelated collection interests.

I've had plenty of occassion to lose a sale to a declined credit card - but, I always had the assurance of knowing that the denial came directly from Visa/MC/Amex and was due to the buyers lack of funds or proper identity. If I found out my processor was pre-screening my customers against it's own collections and interfering with my credit card process to leverage their own gain I would sue them and file a complaint for racketeering.
 
PayPal is the devil. I had an account with them, they locked it when somebody attempted to hack it.

I tried to get it sorted. No soap. They would not reopen it. All I got for my trouble was canned replies and phishing emails. I am serious... every time I wrote to PayPal I got phishing emails. Their email was being hacked. Or someone at PayPal was releasing email addresses.

If anyone wonders why sellers are leaving eBay and setting up shop at Amazon, look no further than PayPal. ;)
 
FYI: The vendor did attempt to contact Paypal - but Paypal did not return their calls.

I needed to get this material in 48 hours. I didn't have time to wait for them to resolve the issue with Paypal; nor did I need to redirect my attention to serve Paypal's interest. My best interest was served by calling another supplier and getting this task off my desk right away.

This is instructive for anyone in sales. ANYTHING that delays the connection between the customer and what they want can jeopardize the sale. Most people don't even want to listen to long drawn out sales pitches - certainly they are not going to wait while you try to resolve issues with Payapl.

When a customer has their money in hand you need to be ready and able to take it. If Paypal is your credit card processor that may not always be possible.

I like this vendor, and I will continue to do business with them. They have always done right by me. However, now they are the ones doing the extra work to setup an open account with a customer from whom they used to get immdiate payment.
 
Update

Today I got a final resolution on the matter from my credit card bank.

Itunes has agreed with the dispute, and the charge for the original purchase of $0.99 has been reinstated - while the fraudulent $202.00 tacked on by Paypal will not.

I believe my paypal account is still restricted. But, last I checked the resolution center is not available to me to communicate with Paypal. The reason is very likley because they are in a very bad position that has probably gone too their legal department and is now out of the hands of customer service.

The charge was never authorized, and then further complicated by creating a fraudulent purchase record (a crime.) They have likley forfeited any legal right to collect this $202.00 regardless of any legitimate transaction from which the amount originates. That is certainly my position - and I'm sure they find it easier to be obstinate than to own up to a resolution they don't like, or a legal and/or regulatory complaint.

I don't need Payapl, and likley will avoid any kind of transaction associated with that logo. I'm probably not alone with this perspective and that is ultimately the point of this thread: - is there a potential hidden cost in terms of consumer confidence to using Paypal as a merchant processor?
 
It's been YEARS since I've heard of any PayPal horror stories. I thought they went away when PayPal and eBay merged a few years back. Guess I was wrong.

I avoid PayPal as much as possible.

I sum it up in this phrase, which may or may not be accurate, but describes it pretty well: Unregulated banking
 
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