The more I think about it, the more questions I have! I’m trying to understand how these things work and how the safeguards are failing.
If they send you a check or other transaction, why doesn’t it just bounce instead of initially clearing and then later having issues?
Is Paypal subject to the same sort of scam?
As for number 1, our banking system is very antiquated. I learned a few months ago that EVERY transcation in the US needs to be cleared through the Federal Reserve before it is permanent. If a check is written, it will be a few days before it goes through their bank and then your bank to be paid (the float period). This is true even with ACH transactions. Whether it is law or inertia, there is certainly no technical reason that transactions should take more than a few minutes to transfer money from one account to the other via check.
As for paypal, google “paypal chargeback scam”. Basically. Paypal makes it nearly impossible for a seller to protect themselves against fraudulent behavior from the buyer and so a transaction never really clears in that after the money is deposited, Paypal can go into your account (or the account you have linked to it) and give money back to the buyer just on their word.
So, checks are cleared twice, and banks let you take the money out after the first clear, but before the second?
WRT PayPal, is there no period limiting how long a transaction can still be charged back?
Yes and no. A bank at their discretion will make money available before the first clearing if it is something like automatic deposit from payroll or a tax rebate. They will usually allow a smaller amount from a personal check. But my bank will not allow me to wire money to the UK from that account until my auto deposit paycheck clears the Fed. I’ve never tested it but I believe that I could get the cash from the teller and then wire the cash as a workaround.
On Paypal there may be a time limit on the chargeback but the fraud is claiming that the product was never received so I imagine any deadline is a few weeks at least, long enough for them to already have the product.
When Paypal is mentioned in this kind of scam, it’s not really Paypal at all. The scam goes like this;
1 - Scammer sends generic email saying “I would like to buy your item, the one you have on eBay”
2 - Victim replies with price and paypal details.
3 - Scammer then sends a spoof email which looks like it’s from Paypal, this email says that the scammer has paid the money, but Paypal is holding it in escrow until the victim sends tracking details for the item.
4 - Victim mails the item, either directly to the scammer or to a mail forwarding service closer to home. Tracking details are sent to ‘paypal’.
5 - ‘Paypal’ says the funds will be released in 48 hours or so, and that’s the last the victim ever hears from either of them. By the time the victim gets suspicious, the item will be long gone.
Paypal can’t do anything about it, they were never involved, so in this kind of fraud, there are no safeguards, the victim is just being fooled by the spoof email.
Or the scammer buys something using a hijacked PayPal account, or a PayPal account funded by a stolen credit card, and hurries the transaction through before anyone notices (often by communicating or making the payment outside of the normal eBay mechanisms)
Later, Paypal reverses the payment, because it was fraudulent.
I remember reading about one of these scams - the “we send you an oversized money order as payment, also send us the change”. The fellow asked the bank clearly, several times “this cheque is good, right?” The bank assured him it was; but later reversed the transaction when the cheque bounced, turned out to be fraudulent.
IIRC, the guy sued and the judge found the bank liable, since they assured the guy the cheque was good - based, I assume on the first clearing.
In Catch Me If You Can (based on a real story in the 60’s) the fellow figured out that if he put valid tracking numbers on the cheque, but for the other side of the country, it would clear initially, then take a week or more to travel to the wrong bank, get rejected, and come back to the original bank. Electronically, that is not as simple to pull of today; but apparently a lot of money order scams use a similar trick. The codes appear legitimate, but when the final clearance is processed, the cheque is discovered to be a forgery.