bank account

I’ve been an active and satisfied PayPal user for 24 years and [crosses fingers] have not yet had any problems with the service. But I just experienced a PayPal refund gotcha that could have easily overdrawn my PayPal-tied bank account. Luckily, I had a large enough balance at the time. No harm resulted, but I’m sharing what happened and how you can prevent the same thing from happening to you.

A client had paid for his spot in one of my upcoming workshops, but needed to cancel shortly afterwards. He had paid me 900 euros so I issued him a full PayPal refund from my euro balance. (Yes, PayPal accounts can work with multiple currencies, which is convenient when you are providing services internationally and your clients want to pay in local currencies.)

When you issue a full refund in PayPal, the company refunds your full variable transaction fee, but not the fixed portion of the fee. For transactions in the US, that’s a mere $0.30. For refunds on international transactions, it’s higher due to currency conversion issues. But the gotcha I’m about to share is not restricted to international transactions; it can occur for any kind of refund.

The gotcha

Here’s the gotcha. My euro PayPal balance wasn’t quite large enough to cover the refund. I assumed that PayPal would zero out my euro balance and then take their small fixed fee out of my US dollar balance or my bank account.

Wrong! A few days later I scanned my online bank statement and discovered that PayPal had taken the entire refund out of my bank account, which now had a thousand dollars less in it than I’d thought! The euro balance was untouched.

Why did this happen? Here’s a PayPal FAQ on refunds with the crucial paragraph outlined:

{If you can’t read this, it says “If your PayPal account balance does not have enough money in it, the entire refund will be issued from the primary bank account linked to your PayPal account“ — here’s a link to the FAQ How do I issue a full or partial refund?}

Before I found this FAQ, I thought PayPal had made a mistake. I opened a case at the Resolution Center, which, to make a long story short, was a complete waste of time. So I called PayPal (888-221-1161), something I’d never done before. It took about 25 minutes on hold, which is apparently not unusual, but the service rep I eventually spoke to explained what had happened and, unexpectedly, said she would issue a refund to make up the difference in the currency loss I would incur in turning my euros back into dollars. Sure enough, a ~$50 credit quickly appeared in my account once I’d zeroed out my euro balance — good service!

Prevent this PayPal gotcha

So how can you prevent this PayPal refund gotcha from happening to you? Simply, before making a refund ensure that your PayPal balance is large enough to completely cover it! This may require you to add a relatively small amount to the balance to cover the non-refundable fixed fee. Do this and you’ll avoid the possible financial consequences of an unexpectedly overdrawn bank account.

Hope this helps some folks. I’ve heard plenty of angry stories about PayPal over the years but have been fortunate to have none of my own. Feel free to share your own experience in the comments below.