Fraud forces PayPal to suspend money-back pledge

Fraud forces PayPal to suspend money-back pledge

Online payments operator PayPal is suspending a $5000 reimbursement pledge for defaulted transactions in a bid to crack down on fraudulent misuse of the scheme.

The scrapping of the scheme is sweetened by a promise to double the anti-fraud insurance offered by leading online auction site eBay. PayPal says this new policy is aimed at increasing consumer confidence in purchasing at online auctions.

Under the new scheme, consumers who use the Californian company's person-to-person e-mail transaction service to purchase through eBay and fail to receive the item can receive up to $200 from PayPal in addition to the maximum $200 award from eBay's own insurance policy with Lloyd's of London.

"Confidence in the online marketplace is critical to the success of the Internet," says PayPal chairman Peter Thiel. "We hope to be able to extend this supplemental guarantee to additional online marketplaces where PayPal is used."

He says that PayPal's decision to suspend its guarantee programme of full reimbursement (up to $5000) for transactions among qualified users of its network follows incidences of "double-collecting" of insurance payments and evidence that the scheme was attracting professional high-dollar fraudsters.

Thiel say PayPal will continue to aggressively investigate any allegation of use of its service to commit fraud, and to take appropriate steps to restrict the accounts of users with multiple complaints against them and refer them to law enforcement.

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