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Chargeback FAQ - PayPal

Chargeback FAQ


Overview

What is a chargeback?

A chargeback, also known as a reversal, occurs when a buyer asks a credit card company to reverse a transaction that has already cleared. A buyer may file a chargeback with his/her card issuer based on credit card association regulations and timeframes.

Although a chargeback may appear similar to a PayPal claim, it’s actually a process that is granted to a cardholder by their credit card company and initiated outside of PayPal. In a dispute over a chargeback, the decision is ultimately made by the credit card company and PayPal can’t control the outcome.

Two common reasons for reversals or chargebacks are:

  • A buyer’s credit card number is stolen and used fraudulently.
  • A buyer makes a purchase, but believes that the seller failed to fulfill their side of the agreement (for example, they did not ship the item, shipped an item that was very different from the seller's description, or the item was damaged when the buyer received it).

All sellers who accept credit card payments run the risk of being liable for chargebacks. Chargebacks are among the unfortunate costs of doing business. Many sellers factor this cost into their business risk model.

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What is the difference between a chargeback and a PayPal dispute?

A chargeback occurs when a buyer asks their credit card company to reverse a transaction that has already cleared. A buyer may file a chargeback with their card issuer based on credit card association regulations and timeframes.

A PayPal dispute is the first step in the PayPal buyer complaint process. This is when buyers and sellers can post messages to each other in the PayPal Resolution Center and try to find a mutually acceptable resolution to the problem.

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What is the difference between a chargeback and a PayPal claim?

A chargeback occurs when a buyer asks their credit card company to reverse a transaction that has already cleared. A buyer may file a chargeback with their card issuer based on credit card association regulations and timeframes.

Although a chargeback may appear to be similar to a PayPal claim, it’s actually a process initiated outside PayPal, which is granted to a cardholder by their credit card company.

A PayPal claim is typically an action taken by a buyer on the PayPal site against a seller, when the buyer has purchased an item and it either: didn’t arrive or did arrive, but was significantly different from the item description. Claims require PayPal customer support to render a decision either for or against the seller based on evidence collected from both parties. A claim can only be filed after going through PayPal Dispute Resolution in the PayPal Resolution Center.

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What are some best practices for avoiding chargebacks?

  • Describe the item that you are selling in as much detail as possible and as accurately as possible. Include pictures, measurements (if applicable), and other relevant specifics.
  • Make every effort to know your customer and to respond promptly to any customer service requests.
  • Keep as much information as you can about the transaction and your customer, including email or other correspondence.
  • Publish your return policy in your auction listings or on your website. Also include your return policy in email correspondence with your customer. Please note that certain laws and credit card issuer policies provide that buyers may have chargeback rights for merchandise that is not delivered or is defective, even if your policy indicates that all sales are final and that you do not allow returns.
  • Ship to the buyer's address listed on the Transaction Details page and retain proof of delivery that can be tracked online.
  • Use this helpful checklist for typical decision points when considering whether or not to accept payment.
  • You can find more Best Practices to avoid chargebacks in Security Tips for Sellers, Communication Tips, and Chargeback Guide Part 2: Minimizing Chargebacks.
Decision PointConsideration
Price of ItemThe higher the price, the lower your tolerance for risk.
New BuyerThere could be higher risk in dealing with a new buyer.
Confirmed AddressYou may lower your risk when you know you’re shipping to a confirmed address.
Auction or eBayTo assess risk, use feedback scores and comments as well as checking that shipping information is highly visible to the buyer.
Questionable BehaviorRush shipments at any cost, sending partial payment from different PayPal accounts, or not making full payments should be cause for concern. If you’re asked to send a high-priced item to a location in one country but billed to another, there could be a higher risk and you should use your best judgment.

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Why do some chargebacks occur so long after payment has been received?

Certain laws and credit card issuer policies usually allow buyers to file chargebacks weeks or sometimes months after the initial transaction occurs.

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Chargebacks and Sellers

How does PayPal notify a seller when a chargeback has been filed against them?

When a buyer files a chargeback, the buyer's credit card company notifies PayPal’s merchant bank. Our merchant bank informs us of the chargeback, and we immediately email the seller. The seller can then log in to their PayPal account and go to the Resolution Center to monitor the status of the case and provide information to help resolve the matter.

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What happens to the seller's funds when a chargeback is received?

A chargeback sets in motion a chain reaction. The buyer’s bank pulls the funds from PayPal’s merchant bank. PayPal’s merchant bank pulls the funds from PayPal. And we, in turn, pull the funds from the Seller.

Had PayPal’s merchant bank not pulled the funds for that chargeback, PayPal would not have needed to pull the seller's funds. Note that if the dispute is found in favor of the seller, PayPal will credit the Seller’s account with the disputed funds.

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Does receiving a chargeback affect a seller’s eBay feedback?

No. When a seller receives a chargeback, it will not negatively impact the seller's eBay feedback rating.

The chargeback system is provided by third-party credit card companies and is independent from eBay feedback. Filing a chargeback does not prevent a buyer from leaving feedback for a seller. Nor does leaving feedback – whether positive, negative, or neutral – limit the buyer from filing a chargeback against the seller.

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Disputing Chargebacks

How can a seller recover funds when a chargeback occurs?

In many cases, when a chargeback occurs, the money that is subject to the chargeback is deducted from PayPal. In turn, PayPal places a temporary hold on the same amount in the seller's PayPal balance (the funds are frozen).

The seller and PayPal can work together to dispute the chargeback with the buyer's credit card company. While the chargeback is being disputed, PayPal will debit the seller’s account for the amount in question. If PayPal and the seller ultimately win the chargeback dispute, the credit card company will reimburse PayPal for the chargeback, and PayPal will transfer the recovered funds back to the seller. Depending on the credit card company involved, the process may take up to 75 days.

In cases where the Seller has either resolved a dispute amicably with the Buyer through PayPal Dispute Resolution or won a PayPal claim, the Seller will be protected against any chargeback the buyer's credit card company later files for that transaction.

To be covered, however, the seller must honor agreements made with the buyer during the dispute resolution process. And, if the chargeback comes in before the dispute or claim is resolved, the seller will not be covered.

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What information can a seller provide to increase the chances of winning a chargeback dispute?

The following types of information can increase the chances of a chargeback dispute being ruled in favor of the seller:

  • Proof of delivery, such as online tracking numbers.
  • Copies of the original item description or auction description, including any photos.
  • Proof that the buyer was already refunded.
  • Proof that the buyer was provided with a replacement product.
  • Correspondence with the buyer or feedback from the buyer.
  • Any agreements signed or accepted by the buyer at time of purchase.
  • Any return policy that was communicated to the buyer.

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If a seller amicably resolves a PayPal dispute or wins a claim, is the seller covered against chargebacks?

Yes, if a seller amicably resolves a dispute through PayPal Dispute Resolution or wins a claim, the seller is protected against any chargeback the buyer's credit card company later files for that transaction.

To be covered, however, the seller must honor agreements made with the buyer during the dispute resolution process. And, if the chargeback comes in before the dispute or claim is resolved, the seller will not be covered.

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Does PayPal dispute every chargeback with the buyer's credit card company?

PayPal reserves the right not to dispute a chargeback even if the seller has provided some evidence, particularly if PayPal believes the dispute is not likely to be successful.

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Where can I get more information about chargebacks?

To help you through the chargeback process, take a look at PayPal's Chargeback Guide.

A step-by-step Guide on how to Respond to a Chargeback Filed with a Credit Card Company is available at the PayPal Resolution Center.

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Where can I find out more about selling safely online?

To learn more about Selling Safely, go to: