Collections Law/Credit Card Chargeback, paypal and possible debt collections
Hi this question isn't strictly about collections but it could potentially be about one.
I sold a nontangible digital service (programming service) using Paypal. After a few back and forth emails between myself and the buyer we reached an agreement and the buyer sent payment via Paypal. We successfully concluded our transaction shortly afterwards. However, the buyer filed a charge-back (via her credit card company) claiming it was an unauthorized transaction a few weeks later. I argued that the buyer willfully and purposely engaged in misconduct and fraud - however, Paypal sided with the buyer.
Reading up after some research, I now understand that this is essentially a chargeback scam (the buyer buys something then uses his/her credit company to reclaim the funds). I also understand that this is a problem among many merchants and especially part- time sellers online.
As a result of losing this dispute. Paypal has essentially charged me for the full amount of the transaction (which was chargeback by the credit company) and slapped on a 20 dollar chargeback fee. The credit card company went after Paypal and Paypal's going after me.
I understand that my position is tenuous. No doubt about it, alot of this is on me for not doing my research properly. I also understand that according to Paypal policy, I'm essentially not covered by anything and basically at a loss. I really expected paypal to do the right thing and be reasonable but I now see (and feel firsthand) that they're just trying to cover their own butts.
I received news that I lost the chargeback claim (or rather Paypal wasn't willing to intervene and fight on my behalf) approximately 2 days ago. I understand that most credit card companies generally side with their customers when their customers claim an unauthorized transaction and I've also had similar experiences which were easily resolved in my favor by the credit card company and bank. Paypal on the other hand is not as easy to deal with - especially because I'm not running a full business and selling as a side-job/hobby for some extra income.
Currently, because I lost the chargeback, Paypal has thrown my balance into a negative (for the total amount of the credit card chargeback) and in addition slapped on a 20 dollar "chargeback processing fee". Due to this negative balance, I essentially owe Paypal money.
Talking to paypal hasn't yielded anything more than standard frustrating bureaucratic company responses. Paypal's essentially ignoring me and hanging me out to dry with the short stick.
I also understand that Paypal isn't really a bank so many banking guidelines don't apply to them. I've read online that Paypal is the merchant or the record of the transaction when somebody uses Paypal to conduct a financial transaction. Thus (accordingly to what I read) it's actually Paypal's responsibility to process/verify these transactions and their responsibility to minimize and prevent fraud. Thus Paypal shouldn't really be able to charge me in this kind of situation.
I know the chances of resolving this in my favor are somewhat slim and I know I will probably need to pay Paypal back. I, of course, don't believe that I should have to pay Paypal back and I'd like to exhaust all possible options first before I have to pay.
I apologize for how convoluted this question has become. Essentially, I would like to seek advice on how to go on from here. How should I respond? Does Paypal have the legal grounds to charge me the entirety of the chargeback + the chargeback fee in this situation? Do I have legal remedies in a situation like this?
Should I file complaints to any relevant agencies (I reside in the state of CA).
I've already set the money in dispute aside because I am fully prepared to pay it back. However, I would like to ask what might happen legally should I simply refuse to pay and what legal remedies might I have in this situation?
Thank very much for your patience in reading this. I'm trying to gather as much information and advice as possible to see my options. I appreciate your help and advice.
Hello Alex: Believe it or not, but I read through and considered your entire question (it turned out to be four pages long when I enlarged it so I could read it and put it in word format).
Your position may not be as "tenuous" as you think - and I think that you making this way too much of a technical banking issue. If I were in your shoes, I would simply bring an action in civil court against all of them, the card company, paypal, and the original debtor. There appears to be grounds for fraud here, and also a cause of action for breach of contract. Keep it simple - hit them in the face with a lawsuit. I suspect that they will get reasonable real quick.
I can help you with this if you wish. However, it would be much easier to talk on the phone. Please call me at this number to speak to me directly. I will not charge you just to talk on the phone.
Jack Hall, J.D.