The first thing you need to understand is that by using Paypal, you have agreed to all their terms and conditions. No if's or but's. This is carved in stone according to them. So, before you use it to pay someone, get a solicitor to decipher the terms and conditions. A couple of hundred dollars should cover it 
Please remember that Paypal is for transferring money. You don't have the protection that a credit card gives you, so don't expect Paypal to be enthusiastic in helping you recover your money if you don't receive your goods.
The Buyer's Protection Policy does not cover intangible/virtual items. Yes, intangible/virtual items is a fancy way of saying a service, like buying 'Web hosting'. In fact, anything where you are not going to receive any physical goods. The only thing Paypal guarantees in this case is that the seller will receive your payment. No refund! You're on your own.
I'm not a regular user of Paypal, but on this occasion, I thought I'd use it to pay for a new website to be hosting with a certain company. What a big mistake. I filled in the usual details online and clicked to pay with Paypal. Everything went through as normal. But, the following day, I received an e-mail saying I hadn't paid.
An Actual Paypal Case Study
I sent them details of my payment from my Paypal account, but got no satisfaction and was given the run-a-round. All my emails to them were ignored. Paypal confirmed that they had received my money, and I got nothing. Surely Paypal will sort this out? Well, no they wouldn't as it was a intangible/virtual item (their words, not mine).
So, you've tried to buy an actual item with Paypal, but haven't received it, and the seller is not responding to any mail you send to them. What do you do?
You can contact Paypal by using the 'Contact' link on their site, but all they will tell you is to initiate a 'Dispute' against the seller. DON'T dive in straight away. There is a time limit (I haven't included it here as it may change).
Think about what the seller is going to tell Paypal, as the seller may lie through his teeth. Get someone to go over what you are going to say. If you're annoyed, you'll get it all wrong.
The Paypal Dispute/Claim System and how it works
Now, the 'Dispute' system is great (for the seller). You're limited to how many characters you can type in, which makes it hard to explain your problem in a short message, but you type in your complaint and click the send button. Then you get the 'Timed Out' message. You hit your 'Back' button, which does take you back, but all you have typed in has disappeared. This happened 4 times and at this point, most people will just give up. I left their site and had a rethink.
Withdraw all your money
I have heard that in some cases, accounts have been frozen during Dispute/Claim procedures (i.e. you can pay money in, but you can't withdraw it). Do a Google search as there are some horror stories out there. Withdraw every penny before you start a 'Dispute' just in case.
Get the Transaction ID number
The first thing you need to know is the Transaction ID. This is not normally shown and you have to click a link to get it. Mine was 2D6025054Y017323R so you need to write it down. When you click the link to get your payment number, it will open in a new window. This caused the page to time out, but this could be because the server was overloaded with disputes.
You must prepare your Message first
Compose your message as a text file on your computer, then cut & paste it into their message box. No point in trying to formatting your message, as carriage returns (the Enter key) and blank lines are removed. OK, you hit the send button. Hooray! That's going to sort things out isn't it?
Well, no it isn't. All the buyer has to do is upgrade the 'Dispute' into a 'Claim'. Once this happens you're gagged. You can not reply or comment any more in the 'Claim' to what the seller has to say or do. What a fair system (again, great for the seller). Once the 'Dispute' has been upgraded to a 'Claim', Paypal now takes the final decision on who was right or wrong, and it's out of your hands.
So, we have a seller where Paypal make $100 a week from, and they make the occasional $1 from you per year. They provide fake data, and you say on your honour that you haven't received the goods. They are going to side with you, aren't they? I'll leave you to make your own mind up on that.
Do you have a website?
If you have a website or access to someone else's, you can include a link in your 'Dispute' message. On the site, you can put copies of any emails, conversations or any other information, which gets around the problem of the 'Dispute' form limiting your text.
Most email accounts come with a free website. Get someone to create a simple text page with all the details that you want to convey on it. Sellers know this trick, and now you know it too.
Save all communication
Any emails you send or receive should be saved to your computer. They may substantiate your claim later, or Paypal may ask for them. So as not to fill up your email client, create a folder called 'Dispute' on your computer and save them in .eml format. This will save the emails with full headers (time, date, to, from, message id) and not just the text.
My Personal Conclusion
I would think the majority of Paypal buyers assume they are well protected, and haven't bothered to read the Buyer's Protection Policy (maybe they didn't have a spare hour, or a solicitor to explain it), but you can bet that all sellers know every clause off my heart.
On the other hand, if you pay by Visa, Mastercard or any other credit card, you can write, phone (and probably e-mail) them as much as you require to explain your case. I know how I will be paying next time, and it won't be with Paypal.
If you're in the business of selling on-line, then Paypal is for you. That's why you read so many scams using it. But, make you're own mind up whether to use it or not.
