Beware of PayPal Donation Chargebacks

Yesterday I got a $10 charge from PayPal when someone who had donated $1 to me ($.67 after PayPal fees) disputed the payment.

Besides being obviously frustrating, this is also quite interesting. The e-mail I received from PayPal stated:

After careful consideration of the evidence provided by you and the buyer in the case referenced above, we have determined that you are liable for the chargeback amount. The amount of the above-referenced transaction has been debited from your PayPal account.

PayPal has been charged a fee from the buyer’s card issuer, and a result we have had to assess your PayPal account a chargeback settlement fee of $10.00 USD.

If you have not already received your merchandise from the buyer and would like the merchandise returned to you, we encourage you to contact the buyer directly to arrange for the return of the merchandise.

I was never able to issue a refund to avoid this charge – the refund link was unavailable as the payment was listed as in dispute. I also had no request for information from PayPal, just a notification that the payment was in dispute. Of course, there was no merchandise to ship, etc.

This seems like a potential problem for Open Source developers that accept donations, should someone or group decide to try to game the system. Seems like you could go around making $1 donations, then disputing the charges to cause chargebacks and $10 fees to happen against developers.

Also, don’t forget that this person decided to dispute a $1 (one dollar!) charge in the first place, and that the bank/PayPal went ahead with the process to do so – which is quite remarkable.

Perhaps I’m naive in all this, feel free to educate me in the comments.