Last November Clive Rose* sold two handmade Japanese swords on eBay, worth a total of £1,940. The buyer, once he had received them, demanded that the cost of the more expensive sword be slashed. Rose refused to haggle and asked for the items to be returned and a refund issued.

Eventually a box arrived. “We couldn’t open it until we had signed for it,” says Rose. “On the label it said two items were inside. When we had signed and opened it up we found the cheaper £540 sword badly damaged because of poor packaging, and a brick. The other £1,400 sword, for which he had been trying to barter, was not there.”

The buyer claimed Rose had forfeited his rights by signing for the parcel, while eBay’s response was similar. Although Rose sent photographs and message threads to support his case, eBay took the money from his PayPal account and refunded the buyer for both swords. Rose, who has a 100% satisfaction rating from other buyers, had his account suspended for withholding eBay’s seller fees and is now threatened with debt collectors because his PayPal account is overdrawn.

The tale will be familiar to many eBay sellers who have experienced difficulties with problem buyers.

It was only after The Observer intervened that the auction site examined the history of Rose’s buyer – what the company found was a pattern of suspect behaviour. “The buyer’s account has been suspended and we are happy to issue the seller with a courtesy refund to ensure he is not left out of pocket,” eBay says.

It is a year since The Observer reported that eBay had introduced a pilot programme to address issues around similar problems. At the time, critics claimed its measures to protect buyers from dodgy transactions left sellers at the mercy of fraudsters who can manipulate the system to effectively steal goods.

Readers related instances where a buyer falsely claimed to have been sent beetroot instead of a mobile phone, while another buyer stuffed an envelope with a used T-shirt instead of a £258 pair of trainers he claimed to be returning. Both were refunded under eBay’s “money back guarantee”.

“There is something wrong,” eBay admitted last April. “The system was built on the premise that most people are honest. It needs to be more intuitive.”

Under the experimental scheme, a seller can ask eBay to intervene before issuing a refund if a buyer returns a damaged or substitute item. Ordinarily, they have a week to resolve the dispute before having to part with their money, but an unscrupulous buyer can ignore contact and open a claim directly with eBay. In many cases it issues an automatic refund without any evidence from the seller being considered.

The seller has no recourse under PayPal’s seller protection scheme since this is invalidated when a buyer claims directly through eBay. And although eBay’s own rules require buyers to send disputed items back, refunds are sometimes released before this happens – or after damaged or substitute goods have been returned. Even eBay can see the flaw, and in a brainwave that would seem obvious to anyone else the pilot scheme requests photographic evidence when buyers or sellers allege damage or duplicity.

Twelve months on, has the trial made a difference? Not according to Londoner Catherine Lewis who sold a coat via the website. The buyer claimed that it never arrived and, because Lewis could only provide proof of postage and not of delivery, eBay forced a refund. “When I looked at the buyers’ feedback other sellers all told the same story,” she says. “The buyer claimed the item didn’t arrive but eBay gave a refund, even on items that were signed for. Worse, the buyer has been reported to eBay three times before for this and no action has been taken. They are free to keep buying items and claiming back the money – essentially stealing – and eBay is not doing anything about it.”

Ebay may have been duped by its own rules which only allow sellers to leave positive ratings for buyers in case, as it admits, criticism puts the latter off future spending.

The score of warning reviews that Lewis found were all spelled out beneath the obligatory heading of “positive”. Buyers, on the other hand, can damage a seller’s status with negative feedback, posted anonymously, and every case opened against a seller results in a defect against the buyer.

It’s a policy that appears to protect eBay’s profits at the expense of sellers’ reputations, as eBay’s own website explains: “We’re counting any activities we’ve found that decrease a buyer’s likelihood to come back and shop with us again, as defects”.

It only occurred to eBay to read the reviews of Lewis’s buyer on its own website after The Observer alerted it to them. It then discovered that the individual was a serial fraudster and suspended their account. “This is not good enough on our part,” it says. “We have a buyer abuse team that uses software to scan the site to spot this behaviour. In this case, this buyer clearly has been abusing the system and it wasn’t picked up.”

So anxious is the company to keep buyers spending that it turned a blind eye to a stream of violent threats sent by one to a seller in Australia. The victim made 10 complaints about the abusive messages to eBay which responded by restricting the messages to three a day to each of her three accounts. After her fifth complaint she was advised by customer service to ignore the abuse, which included rape threats. The sender’s accounts were eventually terminated when The Observer got involved. “This behaviour will not be tolerated,” says eBay, which had tolerated it for days until a headline loomed.

According to eBay, it will announce permanent policy changes in the autumn. “Learning from the experiences of the 50,000 UK and US sellers in the pilot, we have created a different returns experience, including putting obstacles in the way of suspected fraudsters to prevent refunds, or even blocking a buyer entirely when we suspect fraud before they’ve been refunded,” it says. “We’re also giving the sellers who offer free or 30-day returns the ability to allow partial refunds on faulty, damaged and lost item claims so that they can recover costs.”

The extraordinary fact that eBay has only recently “put obstacles in the way” of fraudsters is no surprise to Dean Marchant* whose business was threatened by the knee-jerk refund policies.

He sold a £400 turntable to a buyer who requested a return and sent back a different damaged device. Marchant sent photographs of the smashed item to eBay which, nonetheless, refunded the buyer. Because the buyer had contacted eBay’s dispute resolution service, a defect was recorded against Marchant.

“I had erroneously been issued with two previous defects and this third one put me ‘below standard’, excluding me from money-saving promotions,” he says. “It is crushing my ability to do business.”

Ebay decided to refund him as a goodwill gesture after an Observer investigation, but claimed that since it never gets sight of items it could not judge whether the correct item was returned. Marchant plans to start a lobby group of disaffected sellers to challenge what he sees as bias against sellers. “My experience, and that of other sellers I have spoken to, is that buyer-fraud of this kind is rife,” he says. “Every single seller I spoke to had a tale to tell of at least two incidents in the past year. The simple fact is the eBay policy allows this fraud.”

* Names have been changed