Well you are not the 1st...
Ebay Issue....I need help!
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I reply with: I typically don't track items under about $20, unless the buyer specifies they want tracking and pay for it.
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Really?....You charge $2.35 to ship but if it's less than $20 you will charge the buyer more? WOW.
Also I would have refunded just the full purchase price. I would tell him to kiss off for the return shiping.