Disputes, claims, chargebacks, and bank reversals.

Apr 10 2018 | PayPal editorial staff

At PayPal, our goal is to make the buying and selling process as easy and secure as possible for our customers.
So when it comes to filing and resolving complaints, PayPal will treat both sellers and buyers fairly, while guiding both through the resolution process.

There are three ways that a buyer can initiate a complaint. And that process, including time frames and who is in charge of settling the dispute, will vary depending on how the purchase was funded.
  • Dispute/claim: Buyer contacts the seller directly through PayPal’s Resolution Center site to file a dispute, and the two parties work together to find a solution. If buyer and seller can't agree to a solution, buyer can escalate the dispute to a claim in order to request a refund/reversal where PayPal steps in to determine how the situation should be resolved.
  • Chargeback: Buyer contacts their card issuer and requests a refund.
  • Bank reversal: Buyer contacts their bank to request a refund.
If a buyer initiates a complaint, the seller will receive an email about it and will also see it in the Resolution Center. Additionally, the money the seller received for the transaction may be unavailable during the case investigation. If the case is settled in the seller’s favor, the money will be released back to their PayPal account.

Read on for an in-depth look at the various types of complaints, how to resolve them, and how to help avoid them.
 
Types of Objections: A Summary
Type of Resolution Center caseWho initiates the case?Who determines the case outcome?Who owns the process/ policy?Is there a processing fee?What types of issues?
DisputeBuyerBuyer and sellerPayPalNoItem Not Received (INR), Significantly Not As Described (SNAD)
ClaimBuyer or sellerPayPalPayPalNoItem Not Received (INR), Significantly Not As Described (SNAD), Unauthorized Transactio
ChargebackBuyerCredit/debit card issuerCard associationsYes, up to $20Item Not Received (INR), Significantly Not As Described (SNAD), Unauthorized Transaction
Bank ReversalBuyer/bankBankBankNoUnauthorized Transaction
 
Disputes: When buyers file a complaint through PayPal.
If buyers have a problem with a transaction, they can bring it to the seller’s attention by opening a dispute in our Resolution Center. The dispute process is an opportunity to resolve issues before they become escalated to a claim. It’s in a seller’s best interest to work with the customer to resolve the dispute. This is a seller’s chance to use great customer service to solve an issue and help prevent it from growing into something larger.

Why do disputes occur?
A buyer may file a dispute for two different reasons:
  • Item Not Received (INR). In this case, the buyer is claiming they ordered and paid for an item but didn’t receive it.
  • Significantly Not As Described (SNAD). In this type of claim, the buyer is stating the item they received is significantly different than they expected, based on the seller’s description. For instance, maybe the buyer ordered a red sweater but received a blue one instead.
How will I know if a dispute is filed against me?
If a dispute is filed against you, you’ll receive an email about it and a case will be created in the Resolution Center. The Resolution Center is a secure communication channel in the My Account section where buyers and sellers can work together to resolve disputes.
 
How can I respond to a dispute?
To respond to a dispute:
  1. Log in to your PayPal account.
  2. Go to the Resolution Center.
  3. Click View under Action next to your case.
  4. Respond to the buyer, making sure to include any relevant information (such as package tracking information), and then click Post Message.
The message will be sent directly to the buyer. Remember that this is an opportunity to resolve the dispute without intervention, so it’s best to be courteous and helpful.
 
How can I help prevent a dispute?
Good communication is important to help prevent disputes.
  • Start by providing detailed, accurate descriptions of items for sale and include pictures from multiple angles.
  • When a purchase is made, ship items promptly, and provide tracking information.
  • Post customer service contact information, including working hours and response time frames. A toll-free phone number is preferred over an email address.
  • Offer a refund and post your return policy where customers can see it.
  • If a customer contacts you, be professional, helpful, and courteous.
Set up a customer service message within your account.
 
What if I can’t come to an agreement with the buyer?
Once a dispute is opened, you have 20 days to work with the buyer to resolve it. (PayPal won’t be involved at this point.) If neither you nor the buyer escalates the dispute during the 20-day window, it will be closed automatically. If you can’t work out a resolution, either party can elevate the dispute to a claim, which we’ll cover in the next section.
Please note: Your funds may be temporarily unavailable when a dispute is filed. This hold will stay in place while you work with the buyer to resolve the dispute and will be released if the dispute is settled in your favor.
 
Claims: When a buyer complaint is escalated to PayPal, or the buyer filed an unauthorized transaction.
If a buyer dispute can’t be resolved, either party can escalate it to a claim during the 20-day period. At this point, PayPal becomes directly involved and will make a decision using the information that’s provided. A buyer can also file a claim (without first initiating a dispute) if they feel their account has been used fraudulently. During the resolution process, we may ask either or both parties for more information via email.
 
Why do claims occur?
Claims are based on three factors:
  • Item Not Received (INR). In this case, the buyer is claiming they ordered and paid for an item but didn’t receive it.
  • Significantly Not As Described (SNAD). In this type of claim, the buyer is stating the item they received is significantly different than they expected, based on the seller’s description. For instance, the buyer ordered a red sweater but received a blue one instead.
  • Unauthorized Transaction. If a complaint is filed for this reason, it means the buyer’s account may have been compromised or hacked and someone made a purchase from the account without their permission.
How do I escalate a dispute to a claim?
If you can’t resolve a dispute with a buyer, you may feel the need to escalate it to a claim. To do so:
  1. Log in to your PayPal account.
  2. Go to the Resolution Center.
  3. Click View next to the dispute you want to escalate.
  4. Click Escalate this dispute to a PayPal claim near the bottom of the page.
  5. Follow the instructions.
  6. Click Escalate to a claim.
How will I know if a claim has been filed against me?
If a claim has been logged, you’ll be notified via email. You’ll also see that a case is created in the Resolution Center.
 
How can I respond to a claim?
To respond to a claim:
  1. Log in to your PayPal account.
  2. Go to the Resolution Center.
  3. Click Respond in the Action column next to your claim.
  4. Select how you would like to respond and click Continue.
After you make a selection, follow the instructions. Keep in mind that once you upload the files, you won’t be able to view them again – you’ll just see a summary of the information you’ve submitted.
 
How can I help prevent a claim?
You can work to help prevent claims by following the same customer service tips we gave to help prevent disputes.
 
How will the claim be processed?
If a claim is filed, the seller is asked to respond within 10 days. If the seller doesn’t respond, the claim will automatically close in the buyer’s favor, and a full refund will be issued. If the seller does respond, PayPal will work to evaluate the information provided and determine the outcome of the claim. This process usually takes about 30 days, but more complex cases could take longer than 30 days.
 
Will I be penalized?
Having a claim filed against you doesn’t necessarily mean you’ll be penalized. There are no automatic fees levied against you, and your seller feedback won’t automatically be affected. However, if a claim rate is too high or other indicators are trending negatively, your account could be reviewed, and reserves or limitations could be put in place. A temporary hold may automatically be placed on money when a claim is opened. This hold will stay in place while you work with the buyer to resolve the claim and will be released back to you if the claim is settled in your favor. For Item Not Received (INR) claims, if you provide the relevant information as outlined in the Seller Protection Policy, and the claim is decided in your favor, the money will be released to you. Once a claim has been filed, the best thing to do is promptly provide any requested information.
 
Chargebacks: When buyers file a complaint with their credit/debit card issuer.
Rather than filing a complaint with PayPal, a buyer could contact their credit card or debit card provider. In this case, they may file a chargeback.
 
What is a chargeback?
A chargeback is when a buyer asks their credit or debit card issuer to reverse a transaction after it’s been completed. They are available only to buyers who make a payment with their credit or debit card. Because they are initiated with and decided by the debit/credit card issuer (not PayPal), the process is bound by the card issuer’s regulations and time frame.
 
Why might a chargeback occur?
Buyers usually request a chargeback for the following reasons:
  • Their credit card was used without their permission to purchase an item fraudulently.
  • The buyer does not recognize the charge.
  • The item that was purchased didn’t arrive.
  • The item received was significantly different than described.
  • The buyer was charged twice for the same item.
How will I know that a chargeback has been filed against me?
When PayPal is notified of the chargeback, we’ll send you an email to let you know about it. A case will also be generated in the Resolution Center at this time.
 
How can I respond to a chargeback?
To respond to a notice or check the status of a chargeback:
  1. Log in to your PayPal account.
  2. Go to the Resolution Center.
  3. Click Respond in the Action column next to your claim.
  4. Select how you would like to respond and click Continue.
How can I help prevent a chargeback?
Providing good customer service and communicating with buyers will go a long way toward helping to prevent chargebacks. For instance, making it easy for buyers to contact you could keep a small problem from growing into a chargeback. It’s also wise to take steps to prevent fraud, such as by becoming a Verified Seller.
 
How can I avoid chargeback losses and increase my chances of winning a chargeback?
First, you should follow seller protection guidelines, provide relevant information when asked, and review orders for fraud. If a chargeback is filed against you, be sure to provide information to help resolve it and be careful to follow any guidelines outlined by the credit or debit card issuer.
 
How will a chargeback be processed?
Once a chargeback has been filed, you’ll have 10 days to respond to it. The chargeback process could take 75 or more days to be resolved. Because the debit/credit card issuer determines this process, allowable time frames are determined by the credit card industry. During this review process, a temporary hold may automatically be placed on the transaction funds. This hold will stay in place while the chargeback is resolved with the debit/credit card issuer and will be released back to you if the chargeback is settled in your favor.
 
Though the debit/credit card issuer determines the outcome, PayPal is here to help you through the process. For instance, PayPal will compile internal information and combine that with information you provide to dispute a chargeback, per credit/debit card guidelines. Simply having a chargeback filed against you will not automatically affect your seller feedback.
 
To help avoid chargeback losses, follow the guidelines outlined in our Seller Protection Policy for Unauthorized Transaction or Item Not Received chargebacks.
 
Bank Reversals: When buyers file a complaint with their bank.
A bank reversal, sometimes called an ACH return, is when PayPal receives a request to return funds for a transaction that was funded by a bank account. This request might come from the buyer or the bank itself. Usually this request is filed because of suspected unauthorized use of a bank account.
 
Why might a bank reversal occur?
A reversal may occur if a buyer or their bank suspects or discovers that someone has accessed the buyer’s account or financial information without their permission. The following events may trigger a reversal:
  • The buyer's bank account was used without their permission to purchase an item fraudulently.
  • The buyer does not recognize the transaction.
  • The item that was purchased didn’t arrive.
  • The buyer was charged twice for the same item.
 
How will I know if a bank reversal has been filed against me?
As soon as PayPal is notified of the reversal, we’ll send you an email to alert you about it. A reversal case will also be filed in the Resolution Center.
 
How do I respond to a bank reversal?
To respond to a reversal:
  1. Log in to your PayPal account.
  2. Go to the Resolution Center.
  3. Click Resolve under Action next to your case.
  4. Select how you would like to respond and click Continue.
The next steps will depend on how you choose to respond. You’ll be instructed about any additional information you need to provide that can help PayPal resolve your case, such as entering a transaction ID to prove that a refund has been issued or adding context for accepting the liability. In some instances, you may not be liable for the reversal.
 
Note that once a reversal has been filed, please refer to the email on the number of days you have to respond. Based on the situation, the response time frame is between 7 and 10 days.
 
How can I help prevent a bank reversal?
The best way to help prevent a bank reversal is to follow security guidelines and review orders for fraud.
 

 
The contents of this site are provided for informational purposes only. You should always obtain independent, professional accounting, financial, and legal advice before making any business decision.

Frequently asked questions.

Unfortunately, chargebacks are a standard part of doing business—especially if you accept payments online. There are a number of things you can do to reduce chargebacks, but first, it’s important to know what happens behind the scenes.
  1. A customer disputes a transaction (issues a chargeback) with their bank or card issuer asking for a full or partial refund.
  2. The transaction amount is debited from the merchant’s bank account and goes back to the customer’s bank account.  The associated fees for processing the chargeback are also debited from the merchant’s bank.
  3. The merchant is notified of the chargeback and can choose to either accept the chargeback or dispute it with documentation showing that the transaction was legitimate.  The time allowed to respond is limited so review the required submission date carefully.  If you do not respond by the deadline, the dispute is expired and the buyer will keeps the funds.
  4. If the merchant wins the case, the transaction amount will be returned to their bank account (the associated processing fee will not be refunded); if the merchant loses or accepts the chargeback, the customer will keep the funds.

A customer might file a chargeback because they:

  • Didn’t receive their item.
  • Received a damaged or defective item.
  • Don’t recognize a credit card charge.
  • Were charged more than once for something.
  • Didn’t authorize a payment.
In addition to a chargeback, there are some other types of disputes you may receive:

A retrieval is also issued by the customer, but it is just a request for information about an unidentifiable charge. In the event of a retrieval, funds are not removed from the merchant's bank account. The merchant is notified of the retrieval request and they can then respond with the requested information.

A pre-arbitration, or pre-arb, happens when a chargeback is filed, the merchant wins, and then the customer disputes the charge for a second time. While you can dispute pre-arbs, it's been our experience that merchants rarely win these cases without the introduction of new and compelling evidence.

Responding to all credit card chargebacks are handled through your PayPal powered by Braintree control panel. Within the Control Panel you'll have the option to either Accept or Dispute the chargeback.  If disputing you will have the opportunity to provide additional comments and upload documentation to support the dispute.  Please do not refund your customer outside of the chargeback process.  If you have already refunded your customer, click Dispute and provide the transaction ID of the refund you have issued.

Chargebacks, retrievals, and pre-arbitrations
The bank that manages the chargeback or pre-arbitration will charge a non-refundable $15 fee regardless of whether you win the dispute. This fee only applies to chargebacks and pre-arbs; retrievals do not result in a fee at this time. For more information on chargebacks, look here.



If you need to provide additional information about your chargeback, please contact us at PPpbBTMerchantSupport@paypal.com.

When a customer files a chargeback with their credit card issuer, it means that they’re disputing a charge and asking the card issuer for a refund.

A customer might file a chargeback because they:

  • Didn’t receive their item.
  • Received a damaged or defective item.
  • Don’t recognize a credit card charge.
  • Were charged more than once for something.
  • Didn’t authorize a payment.

If you receive a chargeback, we’ll let you know. If you don’t agree that the chargeback is valid, you can help us dispute it by providing information about the transaction in the Resolution Center. It typically takes 30 days for us to dispute the chargeback, and it may take your buyer's card company up to 75 days to resolve a chargeback and come to a final decision.

To resolve a chargeback complaint, please follow the instructions listed below:
1.  Go to the Resolution Center.
2.  Click Respond under “Action” next to your case.
3.  Read the status details of the complaint and click Resolve Chargeback Now.
4.  Choose one of the below options listed to resolve the chargeback:

  • Provide valid tracking information in order to dispute the chargeback received.
  • Provide valid proof of a refund (either within or outside of PayPal) in order to dispute the chargeback.
  • Accept liability for the chargeback.

5.  Provide evidence for dispute (other than tracking information).
6.  Click Continue and follow the instructions provided.

A chargeback isn’t the same as a PayPal claim. The chargeback process is initiated outside of PayPal, between the card issuer and their cardholder. In a dispute over a chargeback, the decision is ultimately made by the card issuer and we don't decide the outcome.

PayPal charges a fee (based on the currency received) to the seller when the buyer files a chargeback with his/her credit card issuer. If the transaction is protected by Seller Protection Policy, PayPal will cover the amount of the chargeback and waive the chargeback fee. You can view the chargeback fee and process in the User Agreement.

Chargeback Decision (Made by Card Issuer)
 For SellerAgainst Seller
Seller Protection?YESNot AssessedNot Assessed
NOAssessedAssessed


To find out how you can avoid chargebacks, see the PayPal Chargeback Guide.

Create a Customer Service Message to help prevent disputes and claims

Providing great customer service can go a long way and can even help prevent disputes and claims. If customers can get in touch with you about a problem with their purchase, they will be less likely to file a dispute or claim. Use the Customer Service Message to tell customers how to get in touch with you or to notify them about shipping delays. You can provide your customer service phone number, email address or support web site in the message. Customers will see this information before they submit their dispute or claim.

Here are some example messages:

  • Shipments to New York may be delayed by 5-7 days because of the weather.
  • To request a refund, please contact our Customer Service department at 1-800-888-8888 or support@bizname.com.

How to create a Customer Service Message

  1. Log in to your PayPal account.
  2. Click the Profile icon next to "Log out" and select Profile and settings.
  3. Click My selling tools.
  4. Click Update under "Customer service message."
  5. Enter your Customer Service Message and contact information.
  6. Click Preview to see how your Customer Service Message will be displayed to customers.
  7. Click Back to editing to return to the previous page and edit or save the message.
  8. Click Save once you are happy with how your message is displayed.
An account reserve is an amount of money that is on hold in your PayPal account to cover potential financial risk such as payment reversals you may receive like chargebacks and claims. PayPal uses three types of reserves: rolling reserves, minimum reserves and jumpstart reserves.
  • A Rolling reserve is a reserve where a percentage of each transaction you receive each day is held and then released later on a scheduled basis. This is the most common type of reserve.
    • For example, your reserve could be set at 10% and held for a 90-day rolling period – meaning 10% of the money you receive on day 1 is held and then released on day 91, 10% of the money you receive on day 2 is held until day 92, etc.
  • A minimum reserve is a specific minimum amount of money that’s held in your reserve balance. The minimum reserve is either taken as a percentage of money held until a certain amount has been reached, or a one-time amount.
    • For example, 5% of your daily transaction volume is held until a balance of $5,000 is reached.
  • A Jumpstart reserve is when funds are held from your available balance immediately.
    • For example, if we make the determination to keep a $10K jumpstart reserve and there is $20K in the PayPal account balance, $10K is moved to reserves straight away.
We may also use a combination of a reserve types on your account.

Why does PayPal use reserves?

Reserves are used to prevent transaction losses that may occur from payment reversals like chargebacks and claims filed by your buyers. Ordinarily, if you have a reserve on your account and receive a chargeback or dispute, we will deduct that amount from your available balance and not from any reserve balance. However, if a seller goes out of business or stops processing payments through PayPal, we will use any reserve to satisfy future payment reversals.

Reasons for placing reserves

Reserves are a common industry practice. They are used to minimize losses and to create a safer shopping experience. If you would go out of business or would be otherwise incapable of covering your financial obligations, we would still need to pay back the buyer. If a buyer contacts PayPal or their financial institution because they didn’t receive what they ordered, we’re responsible for making things right. A reserve can be placed on your account for a number of reasons and is set on a case-by-case basis. PayPal considers a list of factors to determine this including:
  • Your processing history with PayPal and other providers
  • Whether your industry has a higher likelihood of chargebacks or refunds
  • Whether your account has an elevated number of customer claims and disputes
  • Your business and/or personal credit history
  • Whether you are selling products or services in advance (preselling orders).
  • Your delivery time frames - whether there are extended delivery timeframes
PayPal will periodically review the account to determine whether the reserve placement and amount needs to be adjusted. Reserves may be eligible for the reduction or removal with positive changes to key areas such as performance, industry, claims reduction, etc.

When will I get my money?

Once a reserve is placed, you will receive communications outlining the terms of your reserve. Your terms are also outlined in your account. When your money will be released depends on what type of reserve you have.

If you have a rolling reserve, the funds will be released after a certain period of time. For example, if you have a 90 day rolling reserve, funds from Day 1 sales will be available on Day 91.

For minimum reserve, reserves are reviewed every 90 days. PayPal proactively reviews reserves and based on improvements to your business performance it is possible that your reserves could be adjusted or removed.


How to prevent reserves from being placed on an account

Reserves may be a necessity throughout your relationship with PayPal. Preventing reserves isn’t always possible, and depending on your industry and your credit history, you might never be able to fully remove a reserve from your account.
However, you can reduce the likelihood of having a reserve and improve your customer service in the process by following Seller Best Practices – and that’s a win-win for everyone.

Seller Best Practices
Some best practices to follow are:
  • Ship promptly and give your customers valid tracking information through PayPal, so they can keep tabs on their purchases and know when to expect delivery
  • Communicate early and often with your buyers and let them know about any changes, delays, or other important information
  • Monitor your buyer complaint rates regularly and try to keep complaint rates below 1% of your sales.
  • Avoid long refund times, which can lead to complaints from unsatisfied customers
A customer who receives prompt service, accurate order fulfillment, and speedy billing is a customer who will be less likely to file complaints or make returns in the future – and more likely to buy from you again.

You can also access additional information on account reserves by reviewing our Business Resource Center.