Paypal has clarified that gift card purchases will not be covered under Paypal Seller Protection or Paypal Buyer Protection. This clarification will be added to Paypal’s User Agreement on June 25, 2016. (Source)
Link to Updated User Agreement for June 25, 2016
Link to Current User Agreement
Contents
Paypal Buyer Protection
Paypal Buyer Protection includes digital goods such as music downloads and similar but does not include prepaid cards or gift cards, “Items equivalent to cash, including prepaid or gift cards”(Section 13.3). In the updated agreement, they’ve clarified this further: “Stored value items such as gift cards and pre-paid cards.”
This exclusion covers both physical gift cards and electronic gift cards.
Paypal Seller Protection
Paypal Seller Protection excludes digital goods (section 11.5), but it doesn’t specify gift cards in particular. As of June 25, they language will clearly exclude gift cards. “Items equivalent to cash, including gift cards.”
This exclusion covers both physical gift cards and electronic gift cards.
Protection for Fraudulent Gift Card Use
eBay gift cards can only be used by checking out with Paypal. Suppose an eBay gift cards get fraudulently depleted, will that be protected by Paypal?
No, the terms seem clear that they don’t cover gift cards used through the Paypal checkout.
“If you add a Closed Loop gift card to your Account, but this card does not act as a funding source in your Account, then any use of this card is not considered a transaction in your Account. Accordingly, any Unauthorized Transaction, Other Error, or Remittance Transfer Error on this gift card is not PayPal’s responsibility and you are not covered under any PayPal protection programs.” (Section 12.1)
eBay Buyer & Seller Protection
While Paypal won’t protect the buyer or the seller for gift card purchases, you still do have protection when buying and selling gift cards on eBay under eBay’s Money Back Guarantee and eBay’s Seller Protection. Be sure to follow all the rules for selling gift cards on eBay such as shipping with tracking, otherwise, you won’t be protected.
In my personal experience, when I sold a gift card on eBay and got a chargeback from the buyer, I won the case since I had followed all the rules. Interestingly, it was Paypal who resolved the issue for me, and I didn’t have to contact eBay directly. Either Paypal works it out with eBay behind the scenes, or else it may have worked differently back when eBay and Paypal were one company.
Final Thoughts
For buying and selling on eBay, we have eBay’s protection so hopefully we’re covered there. For buying on other websites which offer Paypal as a payment option, we’ll have to rely on the credit card protections in case something goes wrong as Paypal won’t cover gift card purchases.
Hat tip to Milestomemories for some good info on this subject.
