Always try to avoid refunds when possible. NOT BY REFUSING, HOWEVER! Whenever a buyer tells me there is a problem, I always offer a replacement, or a refund - their choice. 95% of them choose a replacement.
If your refund rate exceeds 5%, I think that PayPal would start to look at your account. They will probably take into account your history, the age of the account, what you are selling, etc. But it is best to avoid this scrutiny if at all possible.
Someone asked "What is Risky?" The answer is, it depends. On a rock solid, older account that sells USB cables, maybe a 5% refund rate would be acceptable to PayPal. But a 5% refund rate on a new account selling DVD's would be the kiss of death.
Not to mention, when a human being gets involved with your account, they can look at several factors, not just your refund rate. AND they can also be having a bad day, or whatever. We do not know all of PayPal's internal policies, but we DO KNOW that it is best to avoid the scrutiny.
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