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PayPal’s Policies Support Scammers – And They Don’t Care

US Economy
An employee of a money changer holds a stack of U.S. dollar notes before giving it to a customer in Jakarta, October 8, 2015. REUTERS/Beawiharta/File Photo

PayPal claims it is the safest way to send money. That’s not really true as it was reported last month that in 2021 alone, online payment fraud on platforms such as PayPal cost users over $20 billion. 

In addition, the service now accounts for 10 percent of all money laundering by criminals.

While the latter figure is alarming, it doesn’t actually impact average Americans, who are increasingly being scammed on services such as PayPal.

Fell Victim

Just this week, this reporter – who has covered cybersecurity and online scams for over a decade – fell victim to what should have been an easy-to-detect scam. In fairness to the service, it occurred because I was in a rush, and broke several of my own rules. 

Whenever I buy something that requires PayPal, I give the payment process my undivided attention. Likewise, I try to gather as much information about the seller as possible.

Simply put, I failed on both accounts. 

I have no excuse. It was late in the work day and I was rushing to wrap up a few things before hitting the gym. That should be a warning to anyone. Paying for goods digitally shouldn’t be so casual that we do it while multi-tasking. In my case, I had always intended to pay using the Goods/Services method on PayPal, but the seller of an antique I was buying had removed all those options, making the Friends and Family method the only option of payment.

For the record, PayPal’s customer service could not explain how this occurred, but it did. There was never an option to pay for goods and services, and without thinking I paid via Friends and Family, which is how such scams work. Had I been just slightly more diligent and not rushing so much I would have caught this. I wouldn’t have been a victim. 

There were plenty of red flags I should have seen, but this scammer was quite good at being a bad guy.

He created a fake Facebook profile that appears to be updated regularly, and he posted items on multiple Facebook Groups. Though not particularly active in the collector community, he had enough of a presence – slowly offering items for “display” or “show and tell” before moving on to items for sale. It wasn’t an especially long con, but it was long enough that it fooled me, and could fool others.

What is also notable is that my attempts to alert Facebook were essentially rebuffed as well. The social media platform makes it increasingly hard to alert the company that there are scammers posing as regular users. Because of that multi-layer effort, I was taken in, and sadly I won’t be the last.

The same is said when fighting terrorists, you need to do everything right every time. The scammer only has to get lucky once.  

How It Worked – Friends and Family Scams Will Increase

Scammers pressure buyers to use Friends and Family, and this is because those aren’t technically transactions. Instead, you are basically transferring money, and thus it has no protection. 

Once the money is sent, it is virtually impossible to stop it.

In my case, I realized my mistake as soon as I completed the transaction. Immediate and repeated calls to halt the transfer did little, even as PayPal’s customer service representatives initially assured me multiple times that this could be stopped. PayPal was even able to put the transfer on hold – yet couldn’t cancel it. The exact reason was never clear other than it was a transfer. PayPal is still handling the funds, so surely it should have a way of blocking the final release.

What is also noteworthy is that even if you use a credit card there is no protection.

PayPal says never to use this option with someone you don’t know, but in my defense, they do very little to warn you via the service when you try to pay using Friends and Family. We live in a world where pop-up warnings are common for everything, yet PayPal doesn’t even bother. 

It wouldn’t be all that difficult to have a box pop up that explains this fact to users – and even provide an option to opt out. It is my opinion that PayPal knows this would be bad PR and bad for its business as it would convince people that maybe the service isn’t actually all that safe after all.

What is especially ominous is that these scams will almost certainly increase because beginning with the 2023 tax season, sellers who have been paid more than $600 via PayPal and other services can expect to receive Form 1099-K, which reports income to the IRS.

What is notable is that before 2022, you may have received a 1099-K only if you had more than 200 transactions worth an aggregate above $20,000. The American Rescue Plan Act of 2021 slashed the threshold to just $600, and even a single transaction can trigger the form, CNBC reported.  This week the IRS delayed the rollout of the Form 1099-K reporting, but it is still coming.

Sellers will no doubt try to get around this by demanding that they’re paid via friends and family, not only to avoid the four percent fees but also to avoid the income being reported. This will be against the rules, but it doesn’t seem as if there will be any way for PayPal to actually enforce it.

And sadly for future victims, because of this, scams will increase.

As a collector of old junk no one really needs, I can attest that there will be sellers who will be adamant that they won’t accept payment via Goods and Services even though the rules demand as much. 

They would rather lose a sale.

Finally, I’ll get over being scammed. Fortunately, in my case, it wasn’t a great deal of money, and a very small part of me almost feels bad that some people must get through life by scamming others. I just wish I had donated the money to Toys for Tots or another charity in need. But as a friend – who is a dealer of antiques – said, “This happened to me. It is the cost of doing business, like if someone shoplifted from you.” It is just unfortunate we have to accept it – because it would be so easy for PayPal to stop it.

Author Experience and Expertise: A Senior Editor for 19FortyFive, Peter Suciu is a Michigan-based writer. He has contributed to more than four dozen magazines, newspapers, and websites with over 3,200 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, politics, and international affairs. Peter is also a Contributing Writer for Forbes and Clearance Jobs. You can follow him on Twitter: @PeterSuciu.

Written By

Expert Biography: A Senior Editor for 1945, Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers, and websites with over 3,000 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, and international affairs. Peter is also a Contributing Writer for Forbes. You can follow him on Twitter: @PeterSuciu.