PayPal released an update to their Account User Agreement that will significantly impact sellers who use PayPal to accept payments.

Effective May 7, 2019 PayPal informed sellers that “We’re changing how we treat refunds. If you refund (partially or fully) a transaction to a buyer or a donation to a donor, there are no fees to make the refund, but the fees you originally paid as the seller will not be returned to you.”

This will add a significant cost to sellers for handling refunds as previously PayPal would refund the transaction fee (or prorated transaction fee if a partial refund) minus 30 cents.

In other words, for a full refund, a seller would be out only 30 cents when making a refund. Under this new policy, the seller will lose the entire transaction fee which for more expensive items could be very costly.

Another Hidden Cost Of Returns

Unfortunately, this new policy by PayPal will add another hidden cost to managing returns for many sellers.

While PayPal did not provide a reason for implementing this new policy, likely a rise in refunds from more buyers returning products caused the company to evaluate the cost of processing refunds and now is trying to recoup those costs from sellers.

To be fair to PayPal, most banks that offer merchant account services charge a transaction fee when refunding a customer. This new policy by PayPal appears to align its transaction fee policy with many credit card merchant accounts.

READ MORE: PayPal Launches Instant Transfer To Bank Solution

What are your thoughts on PayPal changing its policy how to manage refunds? Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.
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  1. Wow! This will make a huge difference in doing business using PayPal invoicing. Perhaps the better alternative is Zelle, which offers free U.S. bank account transfers between merchant and customer with NO FEES TO EITHER PARTY!

  2. “To be fair to PayPal, most banks that offer merchant account services charge a transaction fee when refunding a customer. This new policy by PayPal appears to align its transaction fee policy with many credit card merchant accounts.”

    I’m seeing statements like this a lot and it’s utter BS

    I’ve run ecom sites for 16 years and I’ve NEVER had a merchant provider keep the fees. I currently use Stripe and they DO NOT. Heck not even Amazon Pay does.

    1. There is a difference between payment processors and merchant accounts. The examples you mentioned are payment processors, not merchant accounts. Merchant accounts are usually offered by banks and tie directly to a bank account.


  3. This is completely ridiculous and not a industry standard! I am not going to eat these costs nor is it fair to ask the customer to as well.
    I recommend that every person reading this file and FTC complaint! This should not be allowed and is harmful to business!

  4. Does it affect buyer? There’s this seller who told me I won’t get my transaction fee back if I want a refund? Is he trying to pass the fee down to the buyer?

    1. Absolutely. PayPal have a monopoly especially with their partnership with eBay. Just imagine if you had the choice of ONE bank only…they could implement any evil scheme to grab more money from customers.
      I’m talking from the perspective of personal account user who is presently experiencing a deeply stressful episode for limitations on account and subsequent withholding of substantial amount of money that as a new-wannabe-seller on eBay is having dire consequences.
      I’m initiating legal action against them.
      There needs to be a campaign set up thats very visible to the public

  5. It’s very simple for me, I will no longer under any circumstances accept paypal.
    If we all did this they would sing a different tune very quickly.

  6. eBay forces you to do free returns or pay even higher fees and they do not return fees now PayPal won’t return fees either. Many of my sales net me 1 to 2 dollars. Even before this, a return cost me shipping, return shipping, eBay fee on shipping, $.30 for PayPal, now it will be more. I guess I have to quit providing the low-dollar items my customers need.

    Normal practice with credit cards is a void or 100% refund same day is no cost, and a later refund is a small fee. I don’t know where they get the idea that their new policy is “industry standard” – it’s certainly not when they do it though a processor.

  7. I recently have had several fraudulent purchases on my web site. Stolen credit cards with different ship to addresses than bill to. Paypal wont refund those fees either. So do I just keep the money and wait for a chargeback, or refund less the fees? Luckily after the first 2 purchases I am now verifying all orders with a different shipping address.

  8. We were already paying a .30 fee on refunds given so this new feature where NO fees will now be refunded to the seller when the seller issues a refund is just ridiculous and another way for the “BIG” companies continue to make money even when no money is made by anyone else. I have been using PayPal exclusively for my eBay business for over 10 years but definitely now am re-evaluating and looking to switch services as the benefits I receive from PayPal do not come anywhere close to the negatives or money it costs me to use them. A definite unhappy and unsatisfied customer who will not be with them for very much longer!!

  9. Paypal will also not refund fees from a Cancel transaction request by customer. So you end up taking in the shorts there as well. I think this is just a class action lawsuit waiting to happen…. Sign me up.

  10. So…eBay and Paypal, in their partnership, decide to make it IMPOSSIBLE for a seller to fight refunds, even fraudulent ones. And now because buyers have free reign and can essentially own your ass as a seller, they are refunding in massive numbers, and Paypal responds by stealing more of the seller’s money? How do they expect to stay in business? Somebody has to eventually rise up and take a more friendly stance. The problem is eBay has literally removed all other payment methods and created an illegal monopoly. This is corporate and political corruption at it’s finest. Nobody will stop them because they are a multi-billion dollar industry, and god knows those are more important than people.

  11. Paypal used to be internet vendor friendly. They recognized that some customers want a viewing period for an item they purchased without being able to hold it in their hands first. I get it and agree. However, when ebay implemented endless free returns, our returns rose 5 times from what they were before. Paypal is feeling that. Now they are acting more like a regular bank.
    I am changing over to Stripe because if you refund a customers payment, they only keep the access fee of about 35 cents. Plus they accept apple pay and chrome payment requests which my customers are using now.

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