Plagued With PayPal Problems?

Avoid them if you can. If it’s too late, read on.

by staff writer
- Mar 05, 2008

When it comes to preferred methods of payment on eBay, PayPal is, without a doubt, the de facto standard. Whether due to ease of use, pervasive marketing, or simply the fact that it's the payment option eBay recommends, buyers and sellers seem to choose PayPal's money transfer service over other methods by an overwhelming majority.

While millions of people use PayPal without ever experiencing a problem, PayPal is not immune from the complaints of frustrated customers. Indeed, the Web is crawling with sites chronicling the horror stories of PayPal users. Typically, complaints stem from seemingly arbitrary decisions to freeze user accounts, and the bureaucratic nightmares experienced by those who have frantically tried to regain access.

Here are some of the more common problems faced by PayPal account holders and some advice for dealing with them:

Your account is frozen

There are a number of reasons, mostly to prevent possible fraud, that PayPal might block your account. These can range from changing your address to transferring funds in a significantly larger amount than you have in the past—or even purchasing something with your PayPal debit card that is on eBay's list of prohibited items. Accessing your account while you're vacationing in a foreign country or chilling at an Internet café can also invite a freeze on your funds.

When your account is locked down, you can't add or withdraw money, and you have to go through a lengthy process to prove you are who you say you are before PayPal will give back the keys. Any transactions you have in the pipeline could get scotched as a result. If possible, contact your buyers through your My eBay page and try to arrange for alternative payment methods.

The good news is, PayPal is in the process of buying a company called Fraud Sciences, whose technology will ostensibly improve PayPal's automatic fraud detection system—and hopefully mitigate the "false positives" that lead to accounts being suddenly, even inexplicably, frozen.

PayPal takes your money

It's a seller's worst fear—you've completed a deal, payment is received and verified, and you've just shipped the product. But when you go back into PayPal to retrieve your money, it's gone.

What happened? Most likely, PayPal determined the funds were from a fraudulent source, or the buyer filed a Non-Delivery complaint. Either way, you're out both the money and the merchandise. You can dispute the action, and even win a reversal. But even so, it can take up to 30 days to get your money back.

Funds vanish without a trace

Some users have reported money disappearing from their accounts with no explanation from PayPal. Is it an administrative error, and if so, on whose end? It's hard to tell since PayPal only displays your current balance, not an itemized list of transactions.

Whether using PayPal or other online payment services, it's a good idea to take precautions to minimize your risk

Don't fret. Just click on the History link once you're signed into your PayPal account and review previous transactions. Debits and credits to your account—even going back years—can be viewed online or downloaded in a number of file formats, including Quicken and Quickbooks.

Still unsure where your funds are? Contact PayPal customer support right away, through e-mail via the service's site or by calling (888) 221-1161.

An ounce of prevention

Whether using PayPal or other online payment services, it's a good idea to take precautions to minimize your risk. Take the time to thoroughly read the terms of your service agreement, and review it periodically for changes that might impact your use. This is as true for credit card companies as it is for PayPal: If the terms change, continued use of the account implies you have agreed to the changes.

It's also good practice to open a separate checking or secured credit card account to use only for clearing funds from PayPal. Regularly move any money you don't need right now into a separate, unlinked account. Remember, PayPal is a money transfer service, not a bank. Don't treat it like one.

If you sell a high-value item—more than $500—consider using a licensed, reputable escrow service like to securely handle the transfer. High-dollar transactions are closely scrutinized by PayPal, and some believe that $2,000 is the magic number to trigger an account freeze.

For the same reason, if you run an online business, consider opening a merchant account through a trustworthy credit card payment processing service. At the $1,000 to $2,000 per month level, merchant account fees start to become more competitive with PayPal anyway.

As a general rule, shun any e-mail that appears to be from PayPal asking you to click on a link to update your password or other personal information. These are online phishing scams, designed to steal your identity. If there's any question, go to PayPal from your own browser bookmark or by entering the complete Web address in your browser bar. Make sure you access the PayPal site through a secured "https" connection, not just an "http." And change your password regularly, just in case.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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