I believe this to be a case of telephone (no pun...scratch that, pun definitely intended). That sounds plausible, so the CSR probably believes it and regurgita

I believe this to be a case of telephone (no pun...scratch that, pun definitely intended). That sounds plausible, so the CSR probably believes it and regurgitated it. But chargebacks do not signify immediate fines (or else a merchant would never take cards!). An inability to counter chargebacks with evidence of your compliance is what gets a fine. If you swindle your customers and they file chargebacks, you have a problem. On the other hand, if you have a (or had a) customer who tried to game the system, but you have proof of purchase, good faith attempts to resolve, and written rules that are clear, conspicuous, and reasonable, then you can fight them successfully. PayPal just doesn't care, and apparently neither does their merchant bank.