Which PayPal Buyer Protection Program Applies?

Answer Center celebrity kathiesklown1970 asked me a question the other day about how the various PayPal protection programs work together, and it got me thinking that the answer would make a good blog post.  I know there's a lot of confusion out there on this topic, so let me try to clear things up a bit.

Consider this situation: a buyer sends a seller $1000 via PayPal for an eBay purchase that only has $200 worth of protection. The buyer never receives the item, so he files an Item Not Received (INR) claim with PayPal. The seller has $500 in his account at the time the claim is filed.  If the buyer wins the claim, how much does he get?

First, regardless of where the transaction takes place and with what seller, PayPal recovers all the money we can get from the seller. In this case, it would be $500.

Second, because the purchase was only eligible for $200 worth of protection, and the buyer already got more than that back from the seller ($500), then PayPal would not provide any additional reimbursement. However, if the purchase had qualified for PayPal Buyer Protection (PayPal's top tier coverage, up to $2000) then we would top off the coverage to the full amount of the purchase or the full protection amount (in this case, an additional $500) from PayPal's pocket.

All that takes place behind the scenes, invisible to the buyer. Third, and finally, in one refund we give the buyer all the money they're entitled to. If the payment was PBP eligible, we would refund the buyer $1000 and then take the seller negative (in this case -$500) the amount that PayPal had to pay on the claim.

The coverage the payment is eligible for is important. For instance, off-eBay the buyer can only get money from the seller, there's no additional PayPal protection. However, we do keep trying to get the remainder back from the seller, but with no guarantee that we'll be able to secure it. We also do not take the seller negative, because PayPal didn't have to pay out any money in protections; we just restrict the account until the seller pays the remainder, so we can give the buyer the rest of the money they're owed once the seller pays up.

I understand it can seem a little complicated, especially because the buyer receives their refund in one lump sum without much explanation about how it was computed.  Hopefully this explanation helps to clear things up a bit!