WHILE fears about internet fraud have fuelled the success of the eBay auction site’s e-money provider PayPal, a growing number of customers are concerned about its service standards and accountability.

Daniel Eddy, 23, used to be a big fan of PayPal until he sold a DVD on eBay. He said: “I got back from holiday to find an e-mail stating the buyer hadn’t received the DVD and that PayPal had ruled against me in my absence and gone into my account, taken the money I was paid and returned it to the buyer.

“I did send the DVD. I can’t prove it, because, as stated in my eBay terms, I sent it via first-class post. Whether or not this guy received the product is by the by. As far as I’m concerned, he knew the terms. If it got lost in the post, I can’t be responsible.”

PayPal is the global leader in online payments, with 86.6m accounts worldwide. It allows buyers and sellers to send and receive money online without having access to each other’s bank details.

Eddy went through the e-mail complaints procedure, which he says is run like a call centre. “All the responses I have had from them were either automated or straight out of a handbook.”

He went to his local trading-standards office, which referred him to the Financial Ombudsman. Eddy said: “The ombudsman service could only offer me advice on how to deal with PayPal, but because I couldn’t engage with PayPal on any level, I felt there was nowhere else I could turn. I find it scary that PayPal is so unaccountable.”

Eddy’s money would have been protected had he had a seller-protection insurance policy and proof of shipping.

PayPal said: “Mr Eddy sold an item on eBay in late 2005. In October PayPal was contacted by the buyer, who lodged a claim for non-receipt of goods under PayPal’s buyer-protection policy. In accordance with PayPal buyer protection, we returned the funds to the purchaser. PayPal contacted Mr Eddy to ask if he had any proof, such as a shipping docket, to show that he had posted the items. Had this proof been available, Mr Eddy would have been protected under PayPal seller protection and he would have been reimbursed. Unfortunately, Mr Eddy had sent the item by first-class post, which cannot be tracked and therefore does not qualify for seller protection.”

Another problem is where an eBay buyer has paid money into a PayPal account and not received the goods. Under what is called a chargeback, PayPal can take money from the seller’s account and return it to the buyer.

When buying on eBay, PayPal recommends you purchase only products that offer PayPal buyer protection, which is illustrated with a PayPal sign followed by a tick. If you then don’t receive the goods you can complain and receive up to £500 compensation.

PayPal Europe is regulated by the Financial Services Authority (FSA) as an e-money provider. To make a complaint against PayPal Europe you must first complain to PayPal. If you are unhappy with its response, you must ask it for what is called a stalemate letter, accepting that there is a dispute. You can then refer the complaint to the Financial Ombudsman.

The ombudsman service (telephone 0845 080 1800) will look at any complaints where there has been a misdirection or a delay in transfers of money. If buyer and seller protection applies to a specific transaction, the ombudsman will look to see that these obligations are fulfilled.

If the ombudsman rules in favour of the customer, the FSA expects PayPal to settle the complaint. The ombudsman can’t help when the complaint is not one about the e-money provider, but about the internet transaction itself, such as the quality of the goods.

Dr Christine Riefa, law lecturer at Brunel University in west London, said: “In its current state, the legal framework in which Ebay and PayPal are operating in England does not efficiently protect consumers, victims of a fraud or a party to a sale gone wrong. Indeed, under Ebay’s terms and conditions, Ebay does not intervene in disputes involving users.”

Riefa believes that the best protection is through PayPal’s insurance system. But she said: “The PayPal system does not apply to all sales, only those where goods are not delivered or where goods are ‘significantly not-as-described’ in the listing, and applies only to sales of up to £500.”

David Walsh, marketing manager for PayPal UK, part of PayPal Europe, said the company was working on making the system more accessible and that he was aware there had been problems with customer service.

He said: “We have an extensive Q&A section on the site, which should answer most queries. If this doesn’t work, we encourage people to e-mail, and we don’t discourage people from phoning.”

The fact that millions of people use the service daily shows it generally works well, but PayPal’s terms and conditions are complex and you must take a few hours to read them and guard against being stung.

Click here to read Jessica Bown's experience of selling on eBay

HOW PAYPAL WORKS

TO USE PayPal, click on the Pay Now button on Ebay’s website, which takes you to Checkout. The first time, you must register for one of three PayPal accounts:

There is a limit on how much you can send and withdraw until you gain verified status. PayPal won’t disclose this limit as part of its anti-money laundering policy. The verification process varies from person to person as it is based on account type and how payments are funded.

Once PayPal has your bank details it deposits two small security amounts into your bank account. You then check your bank statement, log in to PayPal and say what these two amounts are.

After PayPal has verified your contact details, you get a Pin, which PayPal will ask you to confirm by phone.

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