Yes but that's PayPal's problem and it's up to them to find a solution that works for both sides, or leave the business and let a more competent company solve the problem. It's not an impossible problem to solve either, banks also have requirements to detect and block fraud and they do occasionally get it wrong but at the very least you are able to reach out to a human (and not a script-reading monkey, as in PayPal's case) and get any false-positives sorted out.
What is not right is presenting their service as easy to use, letting people sign up and sell items and then essentially steal the money unless they are lucky enough to pass their broken verification process.