[slapshot]

> PayPal must reverse the transaction and eat the loss because it was against their policies for the transaction to ever have taken place

It's far from clear that PayPal must reverse forbidden transactions. In fact, the behavior seems to be "PayPal can do whatever it chooses with forbidden transactions." In computer science terms, the result of submitting a forbidden transaction is undefined: it might go through, it might not go through or something entirely unexpected (party van?) may occur.

Given the number of people who try to scam PayPal every day (it's a huge and visible target, to the extent that a security company basically spun out of PayPal), I'd be very surprised if this hadn't been tried already.