Update 3/21/20: PayPal has announced that due to COVID-19 this is currently being suspended:

At PayPal we are here to support you and we know that the spread of COVID-19 and its impact on the global economy has serious implications for your business. We have seen that you have been particularly impacted by recent customer behavior and so we would like to offer a temporary refund policy on your account. This means that from today until April 30th, PayPal will not withhold any of the transaction fees when we process a refund on your behalf.

Hat tip to DDG

Update 9/18/19: another email went out today on some Paypal accounts indicating the change will go into effect on October 11, 2019 at which point you won’t be refunded for the fee on returns “in line with industry practice”. (Maybe the earlier May 7 date was for personal accounts and this new one is for business accounts? Not sure, in any case, if you are a business owner, you’re going to want to keep an eye out on the fees.)

Original Post:

Paypal sent out an email today with an update today to the Paypal terms which will go into effect on May 7, 2019. Here’s a link to the new terms. There are 3 changes mentioned there, here’s the one we are focused on:

We’re changing how we treat refunds. If you refund (partially or fully) a transaction to a buyer or a donation to a donor, there are no fees to make the refund, but the fees you originally paid as the seller will not be returned to you.

The new terms seem to indicate that the entire 2.90% + $.30 fee will not be refunded in case of an order cancellation/refund. Currently the policy is that the $.30 does not get refunded, but the 2.90% fee does. This makes sense: Paypal likely gets hit with some small transaction fee which gets covered by the $.30, and then there’s the interchange fees which are not charged in the event of a refund.

This is literally insane! It means that an eBay seller or online retailer who makes a $1,000 sale and gets an order cancellation will lose the $29 fee charged by Paypal.

It’s likely larger websites who accept Paypal (e.g. Walmart.com) have special deals with Paypal and won’t be affected by this change. For eBay sellers and other online retailers, this could result in a nice spike in cost of payment processing, depending on what your rate of return/cancellation is.

Hat tip to u/Golden-Squirrel on r/ebay