Common PayPal Scams and How To Avoid Them

What is PayPal? And Why do Scammers Like Using It?

PayPal is one of the most popular peer-to-peer (P2P) payment apps and is often cited as the best app for people who want to use just one app to transfer money and shop online. Unless you’ve been living under a rock, you’ve probably noticed that almost every online retailer accepts payment via PayPal, and with good reason. Retailers want to incentivize quick payments because the less friction you experience, the more likely you are to complete the transaction and populate their bank accounts with more cash. 

PayPal is also one of the oldest P2P services out there (over 20 years old!), and this means it has had a long time to fine-tune its security and lock everything down. However, no system is perfect, and as soon as one policy is pushed out, fraudsters immediately start looking for a way to exploit it. 

Furthermore, often the most significant weakness to any software is its users. That’s not to say the average internet user is stupid – not at all. Most of us are experts in something, whether baking the perfect apple pie, collecting all the stars in a Mario game, or (hopefully) our professions. However, we can’t be perfectly clued up on everything; we simply don’t have the bandwidth. Unfortunately, scammers know this. They try to exploit gaps in your knowledge or lull you into a false sense of security by leveraging something they think you know. Sometimes they can even convincingly persuade you to do something you know is risky. They can do this because they’re experts too, only in something much more nefarious. 

So if PayPal has a reputation for having good security, then why do scammers bother with it? Why not choose a less secure P2P service? The simple answer is, they’re not picky. As long as a scammer can see a route to getting your money without exposing their identity, they will use any service available to them. And with PayPal being one of the most popular apps, they have less work to do – they don’t have to convince you to download and trust PayPal because you likely already do. 

The Most Common PayPal Scams You Need To Be Aware Of

PayPal Overpayment Scams

If you’re selling something online, say on Facebook Marketplace, or Craigslist, or even as a small business, you might be a target for overpayment scams. In this type of scam, a seller will contact you and offer to buy your product. They then send you money; only it will be greater than the amount you agreed. For example, you might be selling your item for $200, but they send $450. 

The scammer then sends you a message with an apology and some excuse as to why they sent too much money. They will then politely ask that you send back the remaining balance. 

After you send back the overpayment amount (in this scenario, $250), the scammer logs a complaint with PayPal claiming that their account was hacked and they didn’t intend to send any money at all. PayPal then reimburses the full $450 – the scammer now has their original balance plus your overpayment reimbursement. 

There are a few iterations of this scam, and not all overpayment scams look the same. Here are some other versions of the overpayment scam you need to be aware of:

• They might claim the overpayment is to cover shipping or customs fees and that you need to pay these fees directly to a third party. Once you pay the fees to the company they recommend, they go silent. Later, you find out that the money they sent was fraudulent and has been deducted from your PayPal balance. And what’s worse, the money you sent for “fees” went straight into a fake company operated by the scammer. 
• Another version works much like the first example, but the scammer uses a fraudulent payment method like a stolen credit card, knowing that PayPal will later remove the money from your account. 

The PayPal Shipping Address Scam

In this scam, the fraudster will purchase an item from you and request that you send it to a specific address. Naturally, you comply and ship the item. 

However, there’s something sneaky going on here. In reality, the delivery address is invalid – maybe it doesn’t exist or is somewhere that can’t accept deliveries, like an abandoned lot. The shipping company will attempt delivery multiple times without success, eventually flagging the package as undeliverable. 

The scammer will then reach out to the shipping company and provide a new valid address the item can be sent to. Once they receive their shiny new package, it’s time to complete the final part of the scam. They now contact PayPal and claim the item was never delivered. PayPal will refund the money since the transaction records show the original address, and you have no proof the item was delivered there. Sadly, you’ve now lost your money and the item. 

Fake Email PayPal Scam (Escrow Scam)

In this scam, you receive an email claiming to be from PayPal stating that a buyer has paid money into your account, but the money is being held until you produce a tracking number for the shipment of the item. 

In reality, PayPal doesn’t work this way – they don’t hold any money in escrow, nor do they require tracking numbers for sales. 

However, the scammer is relying on a tactic that is very effective at getting people to act against their best interests – urgency. They’re hoping that you send the item quickly so you can get a tracking number and get your money. But of course, if you do this, you won’t get any money credited to your PayPal balance, and the scammer will get a free package.

“There’s a problem with your account” Scam

You get an email appearing to be from PayPal stating that there is a problem with your account. It might say they have noticed suspicious activity or your account has been signed in to from a location across the world. They will then ask you to update your account details and provide a link for you to do so. 

Of course, this link isn’t actually the PayPal website but a fake website disguised as the legitimate one. If you enter your username and password, they get sent straight to the scammer. The scammer will then log into your account and drain your funds or start purchasing things with your account. 

Advance Fee Fraud

This is one of the most common types of scams, and it takes many forms. However, at its core, it always works the same way. The scammer will ask you to send them a small amount of money before sending you a larger amount. For example, you might get an email saying you have won a prize or are eligible for a free item from a company you trust. This prize is usually a high-value item. They will then ask you to send a small fee via PayPal to claim your prize. Of course, when you send the money, the prize never materializes. 

PayPal Phishing Scam

The PayPal phishing scam works similarly to the “there’s something wrong with your account scam,” only this time, the email brings positive news instead of negative news. You get an email claiming to be from PayPal saying that funds have been transferred into your account. Curious and excited at the prospect of some extra cash, you click on the link in the email and submit your PayPal log-in credentials. Unfortunately, this website isn’t operated by PayPal, and you’ve just given the scammers access to your account. 

How to Avoid PayPal Scams

The best thing you can do is familiarize yourself with the warning signs of common scams and be vigilant in looking out for them. If you get the sense that something doesn’t feel right, it’s better to trust your instincts than risk being scammed. With this in mind, here are some of the warning signs you should look out for. 

Sellers Offering More Than the Asking Price

If someone offers you more than the asking price for a listed item, this could mean they intend to hit you with an overpayment scam. While it can be tempting to accept this offer (who doesn’t want more money?), it typically means something is off. Remember the scene in The Notebook when Noah is selling his beautifully renovated house, and the interested party offers more than the asking price? He chases them off the property with a gun. Why? Because he believes only crazy people would offer more than the asking price, and he doesn’t want crazy people living in his home. 

You shouldn’t go as far as Noah (keep guns out of it), but consider why someone would want to offer you more money. There could be a legitimate reason for doing so. For example, you have told the potential buyer that there’s a lot of interest in your item, and they want to beat the competition. However, if you can’t see a logical reason they would overpay, it’s best to decline the sale. 

Verify the Shipping Address Before Sending the Item

To avoid falling victim to a PayPal shipping address scam, it’s best to verify the shipping address and scout out any other red flags. Here are some things you can do:

• Look for red flags like properties that appear vacant, hotels, or industrial buildings that typically don’t have a formal office onsite. You can Google the address for information and even look it up on Google Street View. If you Google the address and find that it’s listed as for rent or sale, there’s a strong possibility it’s currently vacant. 
• Be wary of getting multiple orders all going to the same address. Some scammers use money mules (people they pay to have orders shipped to their address). Scammers do this to hide their identity by distancing themselves from the scamming process – if the scam gets noticed by law enforcement, the mules are the people who take the fall. 

Get Shipping Insurance

If you plan to sell items online regularly using PayPal, it’s a good idea to get shipping insurance. Lots of things can go wrong in transit, and insurance can take the pressure off by covering the cost of lost or stolen items and provide protection against customers who claim they haven’t received the item when tracked delivery shows they have. 

Stop Clicking On Links

As a general rule, avoid clicking on links within emails. There are exceptions. For example, if you’re sure that the email is legitimate and want to take advantage of a special offer within the email, go ahead. However, if you don’t need to click on the link, then don’t. For instance, if you get an email that looks to be from PayPal asking you to update your details, it will only take you a few seconds extra to make your way to the legitimate website yourself. 

Become a Suspicious Message Detective

To avoid falling victim to a PayPal (or other) phishing scam, it’s best to become an expert at spotting the anatomy of suspicious messages. They typically have certain things in common:

• Authority: The sender claims to be someone official, like the representative of a company like Paypal, a bank, or a government department. They’re banking on you putting higher trust in someone in a position of authority. 
• Urgency: They want you to act quickly because you don’t leave as much room for critical thinking when you do. 
• Emotion: This ties into urgency because we typically act quickly when we feel emotional. If a message makes you feel panicked, for example, an email from PayPal claiming your account has been hacked or is about to be shut down, it could be a scam. Sometimes the emotion evoked is positive (excitement at winning a prize) or neutral (curiosity at funds being deposited into your account). 
• Scarcity: This is where scammers offer you something rare or unusual, hoping that you’re curious enough to take the bait. They’re trying to leverage your fear of missing out. 
• Current events: The message references something currently happening in the world, like COVID-19. They do this to make the scam seem more relevant or because you might be unfamiliar with current messages surrounding these events. For example, you might believe that PayPal is updating their security because of coronavirus and needs you to send them your details. 

Sign Up For PayPal’s Seller Protection Program

The PayPal Seller Protection Program can cover you in the event of chargebacks, claims, or reversals from unauthorized purchases or items your buyer claims they didn’t receive. There are a few requirements to join the program, like your account must be in good standing, and the transaction must be marked as eligible. You can find out more about the program here. 

How To Get a Refund on PayPal if Scammed

So you’ve been scammed. What next? Does PayPal refund money if scammed? The simple answer is yes, but the long answer is “it depends”. As one of the biggest P2P services, PayPal has fairly extensive refund policies. However, the typical route is as follows:

• Go to the Resolution Center and click “Report a Problem”. 
• You can now open a dispute on the transaction you suspect is a scam. You have 180 days to do this after a transaction takes place. 
• You now have 20 days to contact the seller through PayPal to see if the problem can be resolved between yourselves. 
• If the problem can’t be solved, you can go back to the dispute and select “Escalate to PayPal”. It now officially becomes a claim, and PayPal will investigate it. 
• If PayPal finds your claim to be legitimate, you’ll get your money back. 

How to Report a Scam on PayPal

If you think you’ve been scammed or have noticed an unauthorized transaction on your account, you can report it to PayPal using the Resolution Center. Once there, click “Report a Problem,” and then select the transaction you wish to dispute. You can then follow the process through to completion. 

If you think you’ve received a fake email, you can also forward it to spoof@paypal.com, and they will investigate it for you.