Paypal & Credit Card Charge Dispute without Cardholders Consent

credit card dispute-2

For the third time, I got a message from an online seller about a credit card dispute notification from Paypal.  It cites the credit card issuer got a report from the cardholder (customer) about a transaction being disputed  — as it was “unauthorized payment” in nature.

In this situation, the merchant is requested to provide information to Paypal so it can determine if the dispute can be resolved or not.

Contacting the buyer

As I know the customer and merchant in the dispute, I contacted the customer and mention that the merchant will email to understand what went wrong.

The customer replied about receiving a Paypal notification that also put the status of her account to “limited”. Requiring to submit documents and other validation process. But she emphasized that no dispute or complaint was made with the credit card or Paypal in the first place. The customer was also confused on what happened.

This is not the 1st time

Unfortunately, this is not the 1st time I encountered this issue. This is the third (3rd) one since December 2016 about credit card payment disputes being lodge through Paypal where the cardholder did not initiated a complaint to begin with.

What needs to be done?

  1. Can Paypal check if the cardholder filed a dispute to begin with? If the cardholder did not file a dispute but the credit card company did — that resulted to this inconvenience – who is accountable? Note that this usually puts the cardholder’s Paypal account and even of the merchant on “limited” status as a result.
  2. Paypal needs to improve their response time. Merchants who have accounts for almost a decade becoming a subject of a dispute for the first time – of this nature – were put on limited status. After submitting documents for verification, 3 months have passed, no update on the status of their account despite several follow-ups.
  3. Another merchant Paypal account was closed as a result of a dispute of this nature. Three transactions were voided and tagged as unauthorized when the buyer said it wasn’t. It becomes awkward for the customer and merchant to do another settlement again as the buyer did not had any dispute to begin with – resulting to confusion. They would call their bank refuting the purchase dispute but it is unclear if the charges that were reversed can be corrected again and be returned to the merchant. Moreso if their Paypal account got close or put on limited status as a result (can’t send or receive payments).

Finding an alternative to Paypal

Paypal is an interesting payment platform because it allows anyone to create an account and start sending / receiving payments. Although it now created three (3) conditions that need to be met to ensure the quality of members signing up with the platform.

But the above situations presents a clear disadvantage when your payment gateway service provider does not have an office in the Philippines. You won’t get details on the transactions such as the credit card used to further screen payments received. Therefore you don’t know which credit card company to contact about the disputed transaction.

If they had an office here, I would have advised customers and merchants to file a DTI and BSP complaint on the matter calling the credit card company’s attention and request Paypal to provide additional evidence on the matter for proper clarification.

At the moment, most merchant follow-up requests usually get a scripted reply or no response at all.

This also presents a problem to service providers as the delivery of service is done online such as e-learning, freelance work, etc.

Are credit card companies liable? Is this a chargeback fraud?

If a credit card company is making payment dispute in behalf of a customer, without consent, they owe an explanation especially if it will affect my purchase transactions and Paypal accounts (of the customer and the entity where they bought products from).

It is my 3rd time to encounter this situation. Three different customers and three merchants (2 product-based and 1 service-based) affected. All whose Paypal accounts were immediately put into “limited” status. Is this an isolated case?

It will be interesting to know where the chargeback really came from if the cardholder did not initiate it to begin with. Was there a breach in the issuing bank or acquirer? This I asked as these payments were properly settled already.

Ways for MSME merchants to protect themselves when processing orders paid through credit card via Paypal

The little things we often overlook in doing Paypal and credit card transactions may become a headache later on. But I hope the following tips will help.

  1. Make sure that your buyer’s name and Paypal account payer’s name are one and the same. Some will have their spouse, sibling, office peer pay for the transaction (especially for company purchase). Whether they initiated the dispute or not, your documentation may get problematic in these situations.
  2. Use a 3rd party logistics courier for deliveries. Or have full documentation when doing deliveries yourself including delivery receipt, sales invoice, collection receipt, etc.
  3. If the person and Paypal account name are one and the same, request for a valid ID and this also needs to be presented when the delivery is performed.
  4. If you are a service provider, it may be good to start exploring the use of 3rd party platforms to process the payment for you rather than accepting it directly via Paypal.


(March 10, 2017) I got a call from Paypal this week to understand the nature of this problem. Referred the merchants and hope Paypal will be able to resolve these unauthorized dispute by credit card companies in their supposedly customer’s behalf.

I hope the banking and credit card sector will also take action. If more will approach me sharing similar stories as this, perhaps the credit card issuers and acquirers involved should be audited / reviewed for their processes.





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