PayPal – Billing Agreements and Disputes

PayPalLet me start by saying that my organization has been using PayPal since 2007 and in all of this time we’ve generally been very happy with the service provided.  I have, over the years, seen where others were unhappy with PayPal for various reasons from accounts being locked to withdrawals being prohibited or delayed.  I’ve seen some complaints about PayPal disputes but by and large the dispute process has been good to us the few times we have had to use it.  Most disputes we have faced were resolved directly with the client as my organization has a refund policy and a general stance that we won’t hold onto funds for a service you do not need or want.

A few years ago we moved from PayPal Subscriptions to PayPal Billing Agreements.  The reasons for this change were fairly simple:

  1. Subscriptions can often be 24 to 48 hours late – resulting in suspended services at no fault of the customer.  We adjusted our grace period accordingly however.
  2. Clients cancel services and neglect to cancel subscriptions.  This has often resulted in, ‘WHY ARE YOU STILL CHARGING ME!?!?!?!? I CANCELLED THIS SERVICE!?!?!?!?!??!’
  3. Subscriptions are tedious to deal with – want to change plans or service levels? You have to cancel your current one and create a new one.

I am sure there are other reasons I am not thinking about – it has been a few years.

With PayPal Billing Agreements we have the following benefits:

  1. We can bill our customers recurringly in the same manner we do so with our Credit Card customers.
  2. We can bill our customers on their due date avoiding suspensions and overdue invoice ‘nastygrams.’
  3. When a customer cancels a service – there is no risk that they will continue to send us funds for services they are not using.
  4. A customer can cancel the agreement at any time without needing to reach out to us about it.
  5. Changes to service levels or plans can be done easily with no concern about errant subscriptions or payments.

When a customer signs up for our service and chooses to pay via PayPal they are sent to PayPal to accept a billing agreement with our organization.  Once they agree to the Billing Agreement we are able to charge them their initial invoice as well as any subsequent invoices on their due dates.  Many of our customers order annual services that renew every year unless canceled although some choose to go monthly, quarterly, semi-annually, or even 2 or 3 years at a time.

We recently had an issue where a customer’s account had renewed for ~$350 for 3 years of service.  The customer reached out to us explaining that they wished to change service levels and to have the difference refunded to them.  We had no issues with this and were working with the client to resolve the issue.  We had determined what plan level and the cost and even informed the customer of the total refund and needed only confirmation from the client to continue.  The refund amount was to be ~$275 and minutes later we received an email from PayPal stating that a dispute had been opened:

We’re investigating a payment reversal (Case # PP-REDACTED)

We recently notified you that a payment you received was made without the account holder’s permission, or was the result of a transaction error.

Here are the details:

  • Transaction date: Jun 1, 2015
  • Transaction ID: Redacted
  • Transaction amount: $351.90 USD
  • Sender’s email: Redacted

To help resolve this issue, log in to your PayPal account within the next 7 days and respond to our request for information in your Resolution Center.

I remember thinking, ‘No big deal – we’ll explain this in the dispute and that it has already been handled.  We’ll even tell PayPal to refund the $275.’  Within 60 seconds the following message was received:

Your case has been resolved. (Case ID #PP-REDACTED)

Thanks for your quick response about the following transaction:

Buyer’s name: Redacted
Buyer’s email: Redacted
Transaction ID: Redacted

Transaction date: Jun 1, 2015
Transaction amount: $351.90 USD
Your transaction ID: Redacted
Case number: PP-REDACTED

We completed our review of this case. Please log in to your PayPal account, and go to the Resolution Center to see the details of our decision.

Interestingly enough not only had we not responded – but we were not given the opportunity to respond.  Upon logging in to make a response/see what was going on this is what we found under the case:

Reason for Dispute: Unauthorized Use of PayPal Account or Transaction Error
Date of Complaint: Jun 1, 2015
Status: Case Closed
Status Details: We have reviewed the case. Because you have not met Seller Protection performance requirements , the transaction will be reversed. The case is now closed.

I called PayPal to ask what was going on and it was explained to me that the user claimed that their account was hacked/had unauthorized access and that PayPal had determined this was accurate and reversed our payment.  It did not matter that this was a second payment on a year-old PayPal Billing Agreement.  It, apparently, did not even matter that the Billing Agreement existed – I do have to wonder why PayPal presents the agreement terms to the customer when creating one if the terms are not going to be honored.

I spoke with our client concerning this as we had open communication with them during the whole matter.  They stated that they did not authorize the *one* payment to us and this is what they told PayPal.  The client called PayPal to attempt to reverse the dispute/reversal as they certainly did not intend, expect, or desire a full refund.  The client was informed, basically, that ‘What is done, is done.’  Even though the customer called PayPal to tell them that it was not unauthorized – PayPal refused to do anything about it.

PayPal’s explanation was that the customers’ last IP used to access PayPal had changed recently and, as such, they determined there was unauthorized access and this is why they reversed the payment to us.  Nevermind that it was a second payment on a pre-existing Billing Agreement that was over a year old.  Nobody signed into their PayPal account and made the recent ~$350 payment to us.  Furthermore as this was a second payment on a year old Billing Agreement – why was the original payment not also reversed?  I would think if the Billing Agreement was unauthorized that all payments under that agreement would be voided.

As it stands PayPal is making it easier and easier for individuals to buy services and then get their money back at a later date without any input or feedback from the service provider.  To be honest I have no issues with PayPal siding with a customer after we have the opportunity to provide our evidence to the contrary.  The largest issue with this whole situation is that a dispute was opened, we were not able to respond, and the dispute was closed in the client’s favor without any input from us.  I have to ask – what is the dispute process for if you’re just going to side with the client without seeing any additional evidence?

I imagine it’s only a matter of time before less ethical individuals out there learn that all they need to do to reverse *any* payment is simply sign into PayPal from a different IP prior to making that payment.

We are strongly considering sun-setting PayPal which is sad as it’s been an excellent run over the last 8 years.  Up until now PayPal and the Dispute Process have always been solid and easy to use.  More than likely within the next 6 months we will be discontinuing all new orders/renewals via PayPal and accepting credit cards exclusively.  We’re not the largest provider out there but we are talking about at least a couple hundred thousand dollars worth of revenue that PayPal will never see.  You simply cannot treat your merchants poorly and expect them to stick around.


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