Understanding Chargebacks

This overview provides information about how to investigate a chargeback and how to identify and prevent situations that might lead to chargebacks.

What is a chargeback?

A chargeback occurs when a buyer asks their credit card company to remove a charge from their credit card statement. The credit card company will ask the buyer to provide an explanation about why they are disputing the charge.

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 (e.g. 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).
How does PayPal notify a seller when a chargeback has been filed against them?

When PayPal is notified that a buyer has filed a chargeback against a seller, PayPal emails the seller as soon as possible. Then, the seller can log into their PayPal account and go to the Resolution Center to monitor the status of the case and provide information to help resolve the matter.

How can a seller recover funds when a chargeback occurs?

When a chargeback occurs, the money that is subject to the chargeback is deducted from PayPal's bank account. In turn, PayPal places a temporary hold on the same amount in the seller's PayPal balance (i.e., the funds related to the transaction are frozen).

The seller and PayPal can work together to investigate the chargeback with the buyer's credit card company. While the chargeback is being investigated, PayPal will debit the seller for the amount in question. If the investigation is resolved in favor of the seller with the credit card company, 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 calendar days. In a dispute over a chargeback, the decision is ultimately made by the credit card company and PayPal cannot control the outcome.

How do PayPal and the seller work together to investigate a chargeback with the buyer's credit card company?

Sellers can provide PayPal with evidence to dispute the chargeback through the Resolution Center, by email at chargeback-response@paypal.com, or fax. PayPal uses this evidence plus any evidence PayPal may already have to investigate the chargeback with the buyer's credit card company. Because of deadlines imposed by the credit card companies, sellers must respond quickly (usually within three calendar days) once they are notified of a chargeback. Response deadlines can be found in the email PayPal sends to the seller when notifying them of a chargeback.

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.

Why do some chargebacks occur so long after a seller receives the payment?

Certain laws and credit card issuer policies usually allow buyers to file chargebacks weeks or sometimes months after the initial transaction occurs. If a buyer waits to file a chargeback, a seller may encounter a temporary hold on funds in their PayPal account for a transaction that occurred weeks or months ago.

What are some best practices for avoiding chargeback losses?

  • Follow the Seller Protection Policy guidelines by retaining proof of postage that can be tracked online and delivering to the buyer's address listed on the Transaction Details page.

  • 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 any emails or other correspondence.

  • Publish your return policy in your auction listings or on your website. Also include your 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.

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

Some types of information that sellers can provide to PayPal to increase the chances of winning a chargeback include:

  • Proof of postage or 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 returns policy that was communicated to the buyer
Does receiving a chargeback affect a seller's eBay feedback?

The chargeback system is independent from eBay feedback. Filing a chargeback does not limit a buyer's ability to leave feedback for a seller. In fact, a buyer can file a chargeback even if they have already left positive feedback for the seller. Receiving a chargeback does not in itself negatively impact a seller's eBay feedback rating.

Where can I get more information?

We've created a step-by-step guide to help you through the chargeback process. Take a look at PayPal's Chargeback Guide.