how does paypal work

I have never had a problem and love it's ease of use BUT Ed sawyer is right. I've personally heard horror stories. Probably one in a few thousand go wrong BUT I'd hate to be that person. I still use it; with trepidation.

A family member sold an item with payment received through Paypal. The buyer some weeks later made a bogus complaint about the item to Penpal. Before Paypal even contacted seller, Paypal refunded the previously received payment from seller's Paypal account. The seller was without his payment or his merchandise! This was an exploitable flaw in the Paypal business model which victimized a significant number of sellers on Ebay. Free merchandise was the best Ebay bargain, as discovered by some clever Ebay Paypal purchasers.
Paypal then tries to collect the refunded amount from the seller with the threat of impairing seller's credit rating. The seller has to close his linked bank account so that funds not drainable by Paypal.
The buyer is left with both his refunded money, and the seller's merchandise, and the seller is supposed to reimburse Paypal for their unjustified, unilateral, undiscussed gift to the buyer. As mentioned by writer above, there is no way to "resolve" any poor business practice by Paypal. Unless it happens to a seller it would never even be considered a potential problem before using Paypal. Unless one is a Ralph Nader type of crusader there is no response from a virtual monopoly like Paypal.

Ed, you bring up an interesting point regarding PayPal operating like a bank. It seems that many states feel PayPal should fall under the jurisdiction of a banking commission and subject to their laws and regulations.

Thanks for the information regarding paypal. Has anyone used an escrow service and what would you expect to pay for such service.

After reading all these, I agreed with those who are not satisfy with paypal. I've used it for a few years without any problem (except for the high fees) and one time they really messed me up. I made an error and decided to call up to explain. There was one customer service rep who either is new or being mean and unprofessional, which provoked me deeper in disliking their customer care. So for a whole month or so, I was locked out of my account, even repeated calls to them and requesting for manager and supervisor didn't help. It's a case when you mess with one of "their people" he or she will lock in your account as
"problem customer" for all to see (I work for many customer service jobs and knows how it functions). All these years I've done many transactions with paypal and always had enough money in their "bank" and by law I understand I have a right to my money and service I paid for. So paypal management thinks it has grown so big and successful and can mess with any one it wishes. I wish sometime in the future there will be a better company to beat paypal out and offers alternative payment services and more friendly customer reps.