This is a situation that happened to my brother yesterday, and it illustrates a warning to people who are using Paypal to accept payments for eBay auctions.

My brother sold a laptop computer on eBay for $940. The winning bidder had email correspondence back and forth with my brother several times, paid for the item through PayPal, and gave him the address where it should be shipped.

Once the computer was paid for through PayPal, my brother shipped it via USPS with a tracking number. He provided the tracking information to the customer and the transaction was completed, or so he thought.

A week later my brother gets an email from PayPal stating that the customer filed a claim with their credit card company saying that did not authorize the charge. PayPal put a hold on the funds in my brother’s account and told my brother to pay the customer back. Obviously, my brother said no. He no longer has the computer, since it was sent in the transaction, and does not believe that if a person is reckless with their own financial information they should be rewarded while my brother, who did what he was supposed to do in the transaction, is out the value of the computer.

My brother opened a dispute through PayPal and provided them with the tracking information as proof that the computer was sent. A week later his automatic ebay seller fee payment was due, which is normally deducted automatically through PayPal. Since there was a negative $900+ balance in his PayPal account from the claim, they withdrew over $940 from my brother’s checking account to cover the negative “hold” balance as well as the $28 in seller fees. The PayPal investigation has not even concluded and now my brother doesn’t know if he can make his car payment.

This serves as a warning to be cautious when using PayPal and eBay. PayPal obviously doesn’t offer the security that it claims, and if you sell products and use PayPal as a payment method, remember that apparently you are liable for the potential irresponsibility of your customers.

As for now we are looking at putting together a consumer protection/fraud claim against eBay/PayPal, as well as launching a public awareness campaign against the company. If people don’t stand up to these companies when they take advantage of people already struggling in a weak economy, nobody will.