PayPal dispute ends in destruction of violin

Posted by Eric Jacksch on Jan 5, 2012 in Business, News, Web | 0 comments

CNET ran an interesting article yesterday on how a PayPal dispute ended in the destruction of a violin. In summary, the allegation is that the purchaser disputed the authenticity of his $2,500 puchase, PayPal agreed, and they instructed the purchaser to destroy the violin it in order to obtain a refund.

People are asking a lot of questions about this one, and while I haven’t heard directly from the seller, her letter is posted on Regretse. (The buyer’s identity has not been disclosed.)  The dispute appears to focus on the violin label. I’m certainly not qualified to discuss violin labels and associated traditions, but these folks are and have something interesting to say.

I was a bit surprised to hear that PayPal had the instrument destroyed rather than returned to the vendor, but I found this in PayPal’s user agreement:

If a buyer files a Significantly Not as Described (SNAD) Claim for an item they purchased from you, you will generally be required to accept the item back and refund the buyer the full purchase price plus original shipping costs. You will not receive a refund on your PayPal fees. Further, if you lose a SNAD Claim because we, in our sole discretion, reasonably believe the item you sold is counterfeit, you will be required to provide a full refund to the buyer and you will not receive the item back (it will be destroyed). PayPal Seller protection will not cover your liability.

Merchants take heed — “in our sold discretion” gives PayPal at lot of power.

In response to my query, a PayPal spokesperson replied via email,

“While we cannot talk about this particular case due to PayPal’s privacy policy, we carefully review each case, and in general we may ask a buyer to destroy counterfeit goods if they supply signed evidence from a knowledgeable third party that the goods are indeed counterfeit.  The reason why we reserve the option to ask the buyer to destroy the goods is that in many countries, including the US,  it is a criminal offense to mail counterfeit goods back to a seller.”

A lot of small businesses rely upon PayPal, and this type of incident causes concern among merchants.  For example, one commenter on Regretsy pointed out,

This scheme of PayPal’s makes a great way to perpetuate fraud. Want to swap the fake Vuitton bag you bought on Canal Street for a real one? Just buy that real one on eBay, pay through PayPal and report the ‘fake’!

Credit card transactions in general place the burden of proof on the merchant. For example, if I ordered goods and subsequently advised the credit card issuer that the product didn’t arrive, the merchant would face a chargeback unless they were able to provide strong evidence to the contrary. PayPal adds an additional layer. If a buyer who has purchased through PayPal using a credit card is not satisfied and disputes the charge through their credit card issuer, the burden of proof falls to PayPal.

My point is not to excuse PayPal of their responsibilities.  They’re in the payment game and need to treat all parties fairly as well as manage their own risk. However, it’s also not fair to assume that these type of disputes or the potential for merchant losses are specific to PayPal. It’s also not realistic for sellers to assume that PayPal will protect them from all potential fraud scenarios.

I’m happy to see PayPal take a strong stand against counterfeit goods, but I just wonder if destroying a violin — even if the label was wrong — was the right answer in this case. I suspect executives at PayPal are asking that same question.