I believe you are correct and that is concerning because, like a PP mentioned, this would prohibit you from using your gift cards AT ALL, which is illegal. Think about it...what if you purchased $1000 of eBay gift cards and PayPal suddenly said, "Sorry, we think your account is a security threat so we are going to close it and keep the $1K that you just paid us"? I'm fairly certain that would qualify as fraud (if not outright theft!) on their part.
Now, if PayPal and eBay are truly separate entities, then closing your PayPal account shouldn't effect your ability to use an eBay gift card...but the way it is set up, it does. I'm trying to figure out an equivalent scenario...I know that if a store closes or goes out of business completely, then any outstanding gift card funds are useless, but I'm not sure of the legality of simply banning an individual from using their gift cards when the store/business is in operation.
I don't know about everyone else, but I do feel a little "dirty" when I churn. I know that I am not doing anything wrong, but for some reason, I feel like I am raising suspicion with every purchase. I have combed over policies and rules and I have not found anything that remotely points to anything fraudulent in what we are doing.
Best Buy and eBay both clearly do NOT prohibit purchasing gift cards with gift cards. In addition, they have no published limits on how much (value or quantity) an individual can purchase. Ebay awards eBucks on gift card purchases (which is where a bulk of the money is made in this process) and they certainly don't have to, but they do. Based on this, I would think that PayPal is in the wrong by simply stating that an individual's account is fraudulent or a security risk based solely on the volume of their purchases. If the individual is not in violation of any policies, then what is the alleged security risk?
Yes, I agree that it is a complete PITA to have to spend 45+ minutes on the phone to get my PP account verified and unlocked so that I can make a purchase, but it is a heck of a lot better than having to go through the same thing (or worse!) to try to get your funds back when someone has hacked your account. That happened to me several years ago and I have no problem going through the rigamarole of security checks if it means that I don't have to spend WEEKS trying to recoup money that has been taken from my account. What I do have a problem with is PayPal getting sick of their own security checks and saying, "to heck with this...if we have to keep verifying you, we will simply close your account". THAT'S not right...