If disputing a charge with PayPal, approach merchant first
Ask a question.
Dear Your Business Credit,
I opened a buyer's dispute with PayPal Credit (Bill Me Later) and asked that 50 percent of the charge be disputed. Instead of following my directions, they disputed 100 percent to the seller and he went berserk, causing damage to my business. Is PayPal Credit responsible for this snafu? Earlier, they had assured me that a partial chargeback request could be made. Later, they admitted that someone gave me bad information. -- Diane
I can understand why you're frustrated. I contacted PayPal about your case and got a pretty noncommittal answer from a spokesman who looked into it.
"While this reader's situation is rare, we would recommend [to] your readers that when they're having any issues with PayPal Merchants, they can always report any issues to PayPal," the representative said in an email. "Once a dispute is initiated, the customer no longer has to contact the merchant [which is what this particular reader did]. PayPal/PayPal Credit will reach out on the customer's behalf."
Of course, it sounds like you contacted PayPal already and were not satisfied with how the situation was handled.
To find out if you have any other avenues to pursue, I spoke with Vito Pagano, CEO of Independent Merchant Group, a consulting firm in Westbury, New York, that advises businesses on merchant processing and has no ties to banks or credit card companies.
As he explained it, when a customer such as you calls the credit card issuer to complain about a charge, the issuing bank-- not PayPal -- is ultimately responsible for managing the dispute process. "It sounds like this is a charge-back," Pagano says. "That's not PayPal's fault. The issuing bank reached out to PayPal and reached out to the merchant to resolve the dispute."
Typically in a case like this, the issuing bank would tell PayPal it was freezing the funds, he says. And in Pagano's experience, a charge-back would generally be for the full amount of a purchase, not a portion of it, so that is likely why there was not a partial charge-back.
I'm not surprised the merchant is upset about what happened. For merchants, charge-backs are the equivalent of a man-o'-war jellyfish showing up on the beach where they expected to go for a relaxing swim. Charge-backs take time to resolve -- so much so that there are even businesses that handle charge-backs for them. In your situation, the merchant is now at risk of losing the funds because of the charge-back and has a limited window to resolve the matter, Pagano says. Typically, a merchant has 30 days before he will automatically lose the funds, Pagano says.
It may be too late for you to help the merchant -- except by providing accurate information about what you were disputing. But for future reference, if you want to continue to maintain a good relationship with a merchant, it is always better to try to seek a refund from him directly than to go straight to a card issuer or a third-party processor such as PayPal. An honest merchant will want to work things out for you. That will save him the hassle of disputing a charge-back. Call the card issuer as a last resort if the merchant is not cooperative.
Hopefully, this merchant won't ban you from his store like the greengrocer in "Seinfeld" who got angry with Kramer for returning a bad peach. If you still want to do business with the merchant and he loses the charge-back, perhaps you could make an extra purchase this month to make up for what he lost. It's not easy for small businesses to survive these days, and every sale makes a difference.
See related: Can I pass on charge-back fees to my customers?
Meet CreditCards.com's reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- Is it safe for merchants to accept new digital payment forms like PayPal, Venmo, Zelle? – New payment options such as PayPal, Zelle and Venmo can be convenient for small businesses, but only with people you know and trust as they don't offer the same protections as credit cards, checks or ACH payments ...
- What are my rights regarding credit card surcharges? – Many businesses impose surcharges when customers use a credit card for under a certain amount. However, there are laws in place to protect you from being charged extra unfairly ...
- Can retailers offer digital-only receipts? – If you're a small business considering issuing electronic-only receipts, start by checking what local and state laws dictate. But you should also consider any possible privacy and liability concerns ...