Why does PayPal ask buyers to send counterfeit merchandise purchased on eBay to a warehouse in Texas belonging to a liquidator? That's the question some eBay members are asking, and some are questioning whether PayPal is directing the liquidator to resell counterfeit items rather than destroying them.

"The Purse Forum," an online discussion board calling itself a "community for handbag lovers and shoulder fashion fetishists," has an active discussion in which users speculate Liquidity Services is reselling counterfeits on their site on PayPal's behalf. The person who started the thread about PayPal's request for her to send a fake Chanel handbag (in its original condition) to Liquidity Service's address in Texas later wrote to say she had filed a complaint with the FBI over the matter.

One buyer who wrote to AuctionBytes had similar concerns. "I became suspicious as to why (PayPal) would want the bags in original condition. Why wouldn't they want me to cut the handles in half or put a big black X on the outside with permanent marker?" she asked.

In response to an inquiry about these claims, Liquidity Services spokesperson Julie Davis told AuctionBytes, "If we receive goods from PayPal that have evidence of or are suspected to be counterfeit, they are destroyed. Liquidation.com would not knowingly sell counterfeit goods in our marketplace."

PayPal explained why it was working with Liquidity Services and how the "Significantly Not as Described" (SNAD) claims process works. Spokesperson Michael Oldenburg said PayPal works with the liquidation firm in a very limited number of cases in Buyer Protection claims where the buyer has filed a Significantly Not as Described claim, and the buyer and seller cannot work it out. "We usually encourage the buyer to return the merchandise to the seller," Oldenburg said.

In cases where they buyer doesn't want to return the merchandise to the seller, or the seller doesn't want the merchandise back, PayPal compensates both parties, he said. In those cases, PayPal asks the buyer to send the merchandise to Liquidity Services.

Liquidity Services does not act as an authenticator, Oldenburg said, and what happens to the item in Texas then depends on the type of SNAD claim. If there is an accusation that the item was counterfeit, PayPal says it directs Liquidity Services to destroy the item. Otherwise, Liquidity Services liquidates the item on its own marketplace. "That helps us recover some of our losses because, as I mentioned before, we've already paid out both the buyer and the seller."

However, claims are handled differently if the buyer initiates a chargeback with their credit card company.

"PayPal agents work with sellers, and we advocate on their behalf," Oldenburg said. If the seller can prove the item is authentic, they can give that proof to PayPal who will give it to the credit card company. But if the credit card company sides with the buyer, PayPal complies and withdraws the money from the seller's account.

However, Oldenburg said, sellers in that case can request that PayPal return the item to them if the buyer sends the item to Liquidity Services. "If the situation is a credit card chargeback, the credit card company works with the buyer to have him or her return the merchandise either directly to the seller or to PayPal via Liquidity Services. The buyer is usually required by his or her credit card company to provide proof that the item has been returned." The exception is if the claim is for a counterfeit item, he said.

"We always encourage people to use the online dispute resolution center," Oldenburg said, adding that PayPal tries to facilitate a dialog between the buyer and the seller so they can come to a mutual resolution.

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Update 7/2/08: PayPal got back to AuctionBytes after press time with the answer to a follow-up question, "Why does PayPal request that buyers send counterfeit items to Liquidity Services in Original Condition?":

The intent behind using the wording "Original Condition" is to infer that the buyer should not be tampering with the merchandise in any way and should send it back in the same condition it was when received. This applies not only to counterfeit items but to all items that are sent to us as a result of Buyer Protection claims.