PayPal Refunds $50 Defraud, Sics Collections On You

Last year, fraudulently took $50 from reader Adam’s Paypal account. He disputed the charge, Paypal agreed it was fraud and returned the funds, and Adam closed the account. Now all of a sudden Paypal’s internal collections agency is calling up Adam and making rude and insistent demands that he pay this $50 immediately.

They didn’t care about Adam’s explanation, they just wanted his money. True to form, all of Adam’s attempts to contact anyone at Paypal to resolve the issue were unsuccessful and unanswered. So far, though, the debt hasn’t appeared on his credit report.

So here’s what Adam, or anyone in an similar position should do. Here’s a sample letter for making them prove they own the debt. If they can’t come up with anything and keep contacting you, here’s a sample letter for telling them to drop dead (and stop contacting you).

(Photo: irina slutsky)


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  1. tjrchicago says:

    Doesn’t that only apply to third party debt collectors? If PayPal is attempting to collect their own debt, theoretically, can’t they pretty much get away with whatever they want?

  2. LorneReams says:

    Nope, as soon as a first party attempts to collect a debt, they become a debt collector.

  3. Loki_Monster says:

    @LorneReams: Wrong.

    And since when did consumerist start giving out legal advice? This post walks a very, very fine line, and the clickthrough to the letter walks an even more thin line because the person who posted that letter clearly doesn’t understand the validation requirement of the FDCPA.

  4. lawnmowerdeth says:

    That letter worked for me for getting a junk-debt collector to stop calling my wife.

  5. donjumpsuit says:

    This letter works but is too complicated.

    All debt collectors nationwide MUST stop calling you if you do the following:

    Send a letter to them requesting
    1) No more phone calls
    2)Proof of debt. (it is your signature on a contract of some type, like a credit card application)

    They never have it. Send it certified with confirmation. If they accept it, they can never contact you by phone. If they do, its an immediate $1000 fine for them. All you have to do is record to subsequent phone conversation (letting them know you are recording), and have them confirm they received the letter.

  6. bologna_wallet says:

    I think what we’re all thinking- what is

  7. nicemarmot617 says:

    Yikes. I haven’t looked at my PayPal account in years but this and all the other PayPal incidents makes me want to close it entirely.

    My usual policy when I get called by any debt collector is to tell them I’m recording the call (not true, I don’t own a recorder) and forwarding the tape to my lawyer and accountant. Also not true, but it usually works.

  8. @tjrchicago: Something like that.

  9. Telling the collection agency to stop contacting you doesn’t erase the debt or remove it from your credit report.

    It just stops them from bugging you.

    And this whole “proof of debt” thing is a becoming a very popular internet myth.

    Collection agencies don’t have to prove you owe the debt in the way that many people think. They just have to show they bought the debt from XXXXX. So even if XXXXX is lying or incompetent, the burden of proof on the collection agency is very very low.

    Also, a lot of collection agencies don’t really care and will keep trying to collect anyway.

  10. cortana says:

    They do have to prove ownership of the debt if they want to do anything more than call you.

  11. SOhp101 says:

    lol that’s funny. You think Paypal is really going to stop contacting you? They still haven’t stopped contacting me regarding my chargeback despite me showing them proof. It’s been 8 months now and I don’t think it will ever stop.

    They can go to hell for all I care.

  12. applecran says:

    I had an issue with paypal service a few months ago, I used some of the executive customer service phone numbers from this Consumerist post and got a very helpfull return phone call. Worth a shot if not tried already.


    specifically I called 1-402-935-2116 (Elizabeth Morey, Supervisor, Executive Escalations) and got a response.

    Good luck!

  13. LorneReams says:


    Sorry, but I am not. I may have been a little open though. If Paypal regularly collects debts (as in have an internal collection department), even if it’s for themselves, they are defined as a debt collector by the FDCPA. It’s even clearer if they are sending letters titled “Paypal Collections”. I can name a couple other reasons why they would be considered a debt collector (in terms of being a creditor, etc.), but this should be good enough.

  14. Rectilinear Propagation says:

    “Collection agencies don’t have to prove you owe the debt in the way that many people think. They just have to show they bought the debt from XXXXX.”

    @twophrasebark: But sometimes they don’t even have that much.

    In this case, since the company collecting is the same company that says the OP owes the debt, asking them to show proof he owes them money is a reasonable request even if it doesn’t mean anything legally.

  15. Bahnburner says:

    I my own case on a paypal buyer credit account which i closed with a $25 credit back in June. They sent a letter telling me they closed the account, along with a $25 check and they notified the credit bureaus the account is “paid and closed”. Now, they say that due to an error (which they admit is theirs) I owe them $500. My position is, “sorry about your mistake, you shouldn’t have closed the account and notified the credit bureaus.” Opinions?

  16. cortana says:


    The only problem with your statement: First party collectors are NOT bound by the FDCPA, only third party collectors are. Paypal is the first party, which means they don’t have to follow most of those rules.

  17. opposablethumb says:

    Why would anyone use PayPal to begin with? They have reputation for arrogance and screwing over their customers. If a website has PayPal as their only payment option, I don’t buy from them.

  18. terminalboredom says:


    Oh geez. Here we go with blame the poster again. *facepalm*

    I use paypal because I buy a lot of vinyl records. Since people want to get top dollar for their stuff, of course the rare stuff is going to end up on ebay before they take it to a local record store (if they even have one that buys and grades vinyl) and get maybe 1/3-1/2 the value.

    Unfortunately, a lot of people only accept paypal. It’s either suck it up and use it, or search in vain for/never find what I’m looking for.

    I’ve used them since 2000 without issue other than this.

    Update: I’ve finally gotten a call back from them. They are being friendly and helpful to a point, but pretty much stalling on admitting any fault here, despite the fact that I have produced bank records and fraud affidavits to the contrary.

  19. snoop-blog says:

    Yeah, pay pal scammed me also, it’s checks and money orders from now on, and when ebay stops allowing checks and money orders, which they have recently been talking about, I’m moving to a different auction site… any suggestions on some good auction sites?

  20. RodB says:

    I’ve won about $6k in FDCPA lawsuits. My standard routine for debt collectors goes like this.

    Ideally I try to record all times/dates of calls and either take notes during the call or record it. Regardless you can always go back to your call log and take down the time/date and then summarize what happened.

    If you haven’t received a written notice, anytime they call you you should request it. You’re not sure what this is about, and you need to see it in writing, thanks. To cover your own butt I would also make sure they have your correct address. This is a gray area in the law since the FDCPA says you have 30 days from when you receive their notice, but most other times the burden of receipt is on the recipient and not the sender.

    Keep going this way until you receive the physical notice. If they keep calling without a notice being sent, you keep recording the date/time and summary. If it gets obscene (this has never happened to me so I’m now speaking from conjecture) you can use that as a basis for harassment.

    Once you get the notice, you use the letter posted here and send it certified mail, return receipt requested. It’s not perfect (for example, a debt collector reporting the debt to a third party is not a violation of the FCRA, but the FDCPA) but it will get the job done. Probably nine times out of ten the whole thing goes away.

    If for some reason the debt appears on your credit report, prepare a way to win some money in court. Any lawyer will represent you when you bring in your records. This is a great way to win a lawsuit and pay off some real debt.

    If they provide proof (this hasn’t happened to me), even if it’s any proof (from what I’ve been told by my lawyers), it’s going to have to go to court. Good luck in that case, but it’s very unlikely to get that far.

  21. Petra says:

    I have used Consumerist’s sample dispute letter twice now for collection agencies trying to get me to pay money I didn’t owe, and let me tell you, it works like a dream! Just make sure you send it certified, so they can’t deny receiving it.

  22. Dyscord says:

    This isn’t a blame the victim comment. More of a “Why the hell do people still use paypal?” comment. They’re known for being a hassle to deal with if something goes wrong, they’ve been known to screw people over. They’re just an all around bad company.

    I remember selling a phone on ebay and the buyer said they never got it. Paypal’s response is for me to submit proof that I sent it (They wanted a tracking number). There’s really no way to get in touch with a human being and since I sent it USPS, there IS no tracking number. So they awarded the money to the buyer, so they got the phone and the money.

    Another horror story is when I first signed up a few years ago. They make it sound all easy to use, but every time I tried to do something, they would hound me for a credit card number or a bank acct, both of which I didn’t have at the time. Then when I ordered a debit card from them I never received it. So yeah, they’re an all around bad company. How they’re still in business I’ll never know.

  23. Pro-Pain says:

    Pay Pal = Some sort of legal scam. They need to be investigated along with ebay. Lots of stealing/borrowing people’s money going on over there…

  24. DogRidingRodeoMonkey says:

    While I haven’t sold anything on E-bay in over a year, PayPal was typically my preferred method of payment, for a number of reasons. That said it was far from perfect.
    For those of you in the “Eff PayPal in it’s stupid face, why are you using them anyway?” is there a better service that I could use in future EBay transactions / is there a better Ebay out there somewhere?

  25. Julia789 says:

    Once a third party has the debt, it’s a nightmare to correct even if you don’t really owe money.

    This happened to me when I switched health insurance companies. I gave the pediatrician’s office my new insurance company (NIC) card during my son’s visit. The girl behind the desk billed the old insurance company (OIC), who of course denied the claim. Instead of sending ME a past due notice, the girl kept sending the past due notice to the OIC, who denied it again and again. The OIC didn’t send ME a notice that it was denied because I wasn’t even their customer anymore.

    Three or four months later, I get a $400 collections notice in the mail, very threatening sounding. I called the pediatrician’s office, and the billing girl insisted I had “canceled my insurance”. Finally, I got the actual doctor on the phone, who looked through my file and found the copy of the NIC card still stapled in the file, not entered in the computer. She resubmitted the claim to the NIC, and it was paid after some trouble explaining why it was submitted so late.

    So the doctor was off my back but the collections guy told me it didn’t matter that it was paid by another insurance company, he bought that debt and that debt was his to collect. It took six months of fighting with the collection guy, even when the doctor called him to explain, it took months of carefully recorded campaigning to get the debt “off the books.”

  26. Julia789 says:

    Oh sorry, should note I was writing in response to the “third party collectors” comments. Since the OP was dealing directly with the company, there should be ways to clear it up with aggressive and careful follow up. Hopefully, at least.

  27. evslin says:

    @RodB: The fact that you have a “standard routine” for fending off debt collectors intrigues me. How in the world did you get to the point where you’re banking thousands of dollars from debt collectors like that? Did you get a deadbeat’s phone number or something?

  28. Parting says:

    @snoop-blog: Since September, so don’t hold your breath. (Check seller’s news)

  29. Parting says:

    @opposablethumb: It’s not that there is a viable choice to eBay.

    Once we get one, PayPal will get flushed, too. (eBay owns PayPal)

  30. FLConsumer says:

    @Julia789: How the hell did you ever get to speak with an actual dr on the phone? I’m waiting for 3 months just to get a damn office visit, let alone a personal phone call.

    • Julia789 says:


      I said I had a medically related question, and left my number for the pediatrician to call me back. I’ve also done this with my own internist, and she usually calls me back if I leave a message, although it may be a few hours. Sometimes the nurse calls back, and is just as helpful. Of course, this was the only time I’ve done it for a billing question – and I felt bad being a bit misleading – but my credit report and $400 were at stake.

      The other few times I’ve called over the years have been legitimate questions about medication, or whether my son should be brought in for treament or if he should just ride out the sickness at home – this one is great – it’s saved me from over-reacting as a mom, and wasting two hours and a $40 co-pay on several occassions.

      I have to wait three or four months for regular exam appointments as well – it’s a pain. But they always fit me in on the same day if I’m sick or my kid is sick.

  31. newfenoix says:

    The “proof of debt” applies to removing items from your credit report. If you challenge the validity of an item on your credit report, the party that listed that item must then PROVE that you owe the debt. Since most past due accounts are sold off at face value to third party collectors, most often than not, they can’t prove that you actually owe the debt. I had to do this twice. A first party collector is harder to deal with in some ways but easier in others. I went through that after I married my wife. Her first died in 06 and Bank of America tried to force her to pay a credit card that he had IN HIS NAME ONLY. The court basically said that they had to eat the debt because they did not request payment from the estate within the legal time frame. Oh, in case your wondering, I filed the suit, not BOA.

  32. Onouris says:

    Great, lots of people saying don’t use PayPal and yet mysteriously not offering an alternative for those of us using eBay.

    Really, well done.

  33. Aevan says:

    From the Fair Debt Collections Practices Act, for the term debt collector as defined by the act:

    “The term does not include-any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;”

    In this case, PayPal is the creditor, and the person collecting is an employee. A first party collector is not bound by the act unless they represent themselves as a third party (ie, pretend not to be affiliated with PayPal). If the PayPal collector pretended to not be affiliated with PayPal, the Act applies, otherwise, no good.

    The FDCPA is designed to stop abusive third party collectors, because the have no stake in the consumer, only the debt. It is assumed, rightly or wrongly, that a first party debt collector has a greater stake in the consumer.

    I am not an attorney, I’m a regulatory compliance officer for a federal credit union.


  34. lakai says:

    Um why would you even bother giving PayPal or their debt collectors the time of day. I don’t ever remember giving paypal my SSN so why would you be afraid of it showing up on your credit report? Another thing is that PayPal is NOT a financial institution.