Yep, you're going to have no choice. Ebay will force it. Give him a refund, but I wouldn't do it until you get the card back.
As far as the reason for wanting the refund, honestly, if it were me, I wouldn't care. At least the guy is being honest and isn't trying to claim the card looks like crap in hand or something stupid like that.
Return policies should always be no questions asked.
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