PayPal Axes Buyer Protection for Rewards Crowdfunding Campaigns

Worried Benjamin MoneyPayPal has announced it will no longer provide Purchase Protection for rewards-based crowdfunding campaigns. Beginning June 25th, if you used PayPal to support a crowdfunding campaign on Indiegogo (Kickstarter does not use PayPal) and you have backers regret – you are out of luck. Until this date, you may dispute a transaction within 180 days of your purchase.

Typically supporters of a campaign that has either failed to deliver or simply committed an act of fraud, compel backers to attempt a refund. If you have paid with a credit card AND depending on how much time has passed since the transaction, you stand a pretty good chance of recouping your loss. If  you are paying with PayPal after June 25th your money will be gone so you better be pretty confident the creator is going to deliver.

Over time, rewards crowdfunding has seen some pretty sizeable campaigns. Multiple high-profile projects have failed when backers gave up or simply disappeared. Rewards crowdfunding platforms make it clear in their Terms of Service the agreement is between creator and backer so do not expect much help from the platform if a project goes dark.  The best you can do is to only back something you truly feel compelled to support. Otherwise, it may be better to wait until is shows up on Amazon (or perhaps Alibaba).

While there have been many accusations of fraudulent rewards campaigns there have only been a few prosecutions. The cost to pursue an alleged act of fraud is high and the sums of money remain small. The Attorney General of the state of Washington prosecuted a blatant act of fraud for a deck of playing cards while announcing, “Washington state will not tolerate crowdfunding theft”.  The AG has pursued no other crowdfunding campaigns since (as far as we know).

The FTC settled charges when a creator of a board game raised money for the project on Kickstarter only to use the cash for personal expenses. We are not certain if they have pursued any campaigns since.

PayPal has clearly decided it just was not worth the hassle.  Crowdfunding will now join a broader list of transactions that do not benefit from purchase protection.  At one point Indiegogo tested campaign insurance but after an initial trial did not pursue the program. The rule of thumb is always: buyer beware.

(Editors Note: An earlier version of this article erroneously stated Kickstarter used PayPal. The article has been edited to correct this error)


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