Internet auction sites give buyers a “virtual” flea market with new and used
merchandise from around the world; they give sellers a global storefront from
which to market their goods. But the online auction business can be risky
business. The Federal Trade Commission (FTC) wants to help buyers and sellers
stay safe on Internet auction websites. Among the thousands of consumer fraud
complaints the FTC receives every year, those dealing with online auction fraud
consistently rank near the top of the list. The complaints generally deal with
late shipments, no shipments, or shipments of products that aren’t the same
quality as advertised; bogus online payment or escrow services; and fraudulent
dealers who lure bidders from legitimate auction sites with seemingly better
deals. Most complaints involve sellers, but in some cases, the buyers are the
subject.
Whether you’re a buyer or a seller, understanding how Internet auctions work can
help you avoid most problems.
Role of the Auction Site. Most Internet auction sites
specialize in person-to-person activity where individual sellers or small
businesses sell their items directly to consumers. In these auctions, the seller
— not the site — has the merchandise, and often, the site will not take
responsibility for any problems that may arise between buyers and sellers.
Before using an Internet auction site for the first time, buyers and sellers
should read the Terms of Use, and review any information the site offers.
Registration. Most Internet auction sites require buyers and sellers to
register and obtain a “user account name” (or “screen name”) and password before
they can make bids or place items for bid. Keep your password to yourself. If
you share it, another person could access your account and buy or sell items
without your knowledge. That could damage your online reputation — and
eventually, your bank account.
Fees. Some sites require sellers to agree to pay a fee every
time they conduct an auction, whether the item is sold or not. Other sites
charge a fee only when an item is sold.
The Auction. Many sellers set a time limit on bidding and, in
some cases, a “reserve price” — the lowest price they will accept for an item.
When the bidding closes at the scheduled time, the item is sold to the highest
bidder. If no one bids at or above the reserve price, the auction closes without
the item being sold.
Some auction sites allow sellers to set a price at which a buyer can purchase
the item without competing with other bidders. A buyer can choose to purchase
the item for the price the seller has set, without bidding.
After the Auction: Arranging to Pay and Deliver Merchandise. At
the end of a successful auction, the buyer and seller communicate — usually by
email — to arrange for payment and delivery.
Be aware of “phishing:” emails sent to you asking for your password or other
personal information that look like they’ve been sent by an auction website or
payment service. Usually, these emails are fishing for your information and are
coming from someone who wants to hack into your account.
If you get an email or pop-up message that asks for personal or financial
information, do not reply. And don’t click on the link in the message, either.
Legitimate companies don’t ask for this information via email. If you are
concerned about your account, contact the organization mentioned in the email
using a telephone number you know to be genuine, or open a new Internet browser
session and type in the company’s correct Web address yourself. In any case,
don’t cut and paste the link from the message into your Internet browser;
phishers often make links look like they go to one site, but actually send you
somewhere else.
Successful bidders can choose among many options to pay for an item they have
bought on an Internet auction — credit card, online payment service (which often
accepts credit card payments), debit card, personal check, cashier’s check,
money order, or escrow service. Sometimes, the seller limits the types of
payment accepted and posts that information in the auction listing. Many sellers
require receipt of a cashier’s check or money order before they send an item.
Higher volume sellers often accept credit cards directly. To protect both buyers
and sellers, some auction sites now prohibit the use of wire transfers as a
method of payment.
Credit Cards. Credit cards are a safe option for consumers to
use when paying for items bought on an Internet auction: They allow buyers to
seek a credit from the credit card issuer (also known as a “charge back”) if the
product isn’t delivered or isn’t what they ordered.
Online Payment Services. Online payment services are popular
with both buyers and sellers. They allow buyers to use a credit card or
electronic bank transfer to pay sellers. They also may protect buyers from
unlawful use of their credit cards or bank accounts because the online payment
service holds the account information, not the seller. Many sellers prefer
online payment services because the services tend to provide more security than,
say, personal checks.
To use an online payment service, the buyer and seller generally set up accounts
that allow them to make or accept payments. Buyers provide payment information,
like bank account or credit card numbers, and sellers give information about
where payments should be deposited. In some cases, sellers do not have to create
an account with the online payment service to receive funds. To complete a
transaction, the buyer tells the online payment service to direct appropriate
funds to the seller. The seller then gets immediate access to the funds. Most
online payment services charge the seller to receive the funds, but some payment
services charge the buyer.
Some online payment services offer protections to buyers if the seller fails to
ship the goods or ships goods that are not as described in the auction. Buyers
should read the terms under which the protections apply. Usually, if a buyer
uses a credit card to pay for goods or services through an online payment
service, charge back rights are available to the buyer who uses the credit card.
However, if the service considers the transfer of funds to be a method of
sending cash rather than paying for goods, then charge back rights may not
apply. If you cannot find out what will happen if you need a refund, or if you
don’t understand how the payment service works from reading the website, find a
different service or use another method of payment.
Debit Card, Personal Check, Cashier’s Check, or Money Order.
Many smaller sellers accept forms of payment that are cash equivalents. These
sellers often wait to receive the payment (and may wait for a personal check to
clear) before shipping the item. Buyers should use this type of payment only
when they trust the seller. At the same time, sellers should ensure that checks
and money orders they receive from buyers are legitimate before shipping the
goods; they should be suspicious of checks or money orders for amounts that
exceed the price of the merchandise. Unlike credit cards or some online payment
services, cash equivalents (and wire transfers) cannot be reversed if something
goes wrong.
Wire Transfers. The FTC recommends that buyers not wire money
(via a money transmitter or directly to a seller’s bank account) unless they
know the seller personally or can verify the seller’s identity. Buyers should be
suspicious of sellers who insist on wire transfers as the only form of payment
they will accept. If something goes wrong with the transaction, you most likely
will lose your payment and not have any recourse. In fact, to protect both
buyers and sellers, some auction sites now prohibit the use of wire transfers as
a method of payment.
Online Escrow Services and Bonding Services. For big-ticket
items like computers, cars, or jewelry, buyers should consider using an escrow
service or purchasing from a bonded or insured seller to protect their funds.
The primary purpose of online escrow services is to protect buyers and sellers
from fraud. Escrow services accept and hold payment from a buyer — often a wire
transfer, check, money order, or credit card — until he receives and approves
the merchandise. Then, the escrow service forwards the payment to the seller.
The buyer pays the fee for an online escrow service — generally a percentage of
the cost of the item.
Before using an escrow service, both the buyer and the seller should verify that
it is a legitimate, reputable company.
Some sellers may state that they are bonded or otherwise insured against fraud.
If a buyer intends to rely on a seller’s bonded status or the seller’s insurance
to protect against fraud, he should investigate the legitimacy of the bonding or
insurance company and then make sure that the seller really is a member of — or
certified by — that company. If a problem arises with a bonded seller, the buyer
usually has to engage in a dispute resolution process with the seller before
being able to submit a claim to the bonding or insurance company.
Most people who complain to the FTC about Internet auction fraud report
problems with sellers who:
- fail to send the merchandise.
- send something of lesser value than advertised.
- fail to deliver in a timely manner.
- fail to disclose all relevant information about a product or terms of
the sale.
Some buyers experience other problems, including:
- “bid siphoning,” when con artists lure bidders off legitimate auction
sites by offering to sell the “same” item at a lower price. They intend to
trick consumers into sending money without delivering the item. By going
off-site, buyers lose any protections the original site may provide, such as
insurance, feedback forms, or guarantees.
- “second chance offers,” when con artists offer losing bidders of a
closed auction a second chance to purchase the item that they lost in the
auction. Second-chance buyers lose any protections the original site may
provide once they go off-site.
- “shill bidding,” when fraudulent sellers or their partners, known as
“shills,” bid on sellers’ items to drive up the price.
- “bid shielding,” when fraudulent buyers submit very high bids to
discourage other bidders from competing for the same item, then retract
their bids so that people they know can get the item at a lower price.
Escrow Service Complaints. Another type of fraud occurs when sellers or
buyers pose as escrow services to improperly obtain money or goods. The
so-called seller puts goods up for sale on an Internet auction and insists that
prospective buyers use a particular escrow service. Once buyers provide the
escrow service with their payment information, the escrow service doesn’t hold
the payment: It is sent directly to the so-called seller. The buyer never
receives the promised goods, can’t locate the seller, and, because the escrow
service was part of the scheme, can’t get any money back.
In some cases, a fraudster poses as a buyer and, after placing the highest bid
on an item, insists that the seller use a particular escrow service. The escrow
service tricks the seller into sending the merchandise and doesn’t send the
payment or return the goods to the seller.
Sellers can be victims of fraud when buyers send fake checks or money orders
that are detected by the bank only after the seller has shipped the goods. A
buyer might offer to use a cashier’s check, personal check, or corporate check
to pay for the item you’re selling. Sometimes, the buyer sends a fake check or
money order that exceeds the cost of the item that has been purchased. The
so-called buyer (or the buyer’s “agent”) states that he made a mistake, or comes
up with another reason for writing the check for more than the purchase price.
In either case, the buyer asks you to wire back the difference after you deposit
the check. You deposit the check, learn that it has cleared, and wire the funds
back to the “buyers.” Later, the bank determines that the check is fraudulent,
leaving you liable for the entire amount. The checks were counterfeit, but good
enough to fool unsuspecting bank tellers.
Despite complaints of fraud, online auctions remain a fun, efficient, and
relatively safe way to shop — if you act prudently. Here’s how:
Become familiar with the auction site. Never assume that the
rules of one auction site apply to another. If the site offers a step-by-step
tutorial on the bidding process, take it. It may save you frustration and
disappointment later.
Find out what protections the auction site offers buyers. Some
sites provide free insurance or guarantees for items that are not delivered, not
authentic, or not what the seller claims. Know exactly what you’re bidding on.
Read the seller’s description of the item or service, and if a photograph is
posted, look at it. Read the fine print. Look for words like “refurbished,”
“close out,” “discontinued,” or “off-brand” — especially when shopping for
computer or electronic equipment — to get a better idea of the condition of the
item. Sometimes this information and other important terms are in a contract
that may be found by following a hyperlink in the listing to the seller’s online
store.
Try to determine the relative value of an item before you bid. Be
skeptical if the price sounds too low to be realistic. “Brick-and-mortar” stores
and price comparison sites may be good for reality checks.
Find out all you can about the seller. Avoid doing business
with sellers you can’t identify, especially those who try to lure you off the
auction site with promises of a better deal. Don’t trust emails alone. Some
fraudulent sellers have used forged email headers that make follow-up difficult,
if not impossible. Get the seller’s telephone number as another way to get in
touch. Dial the number to confirm that it is correct. Some auction sites post
feedback ratings of sellers based on comments by other buyers. Check them out.
Although these comments and ratings may give you some idea of how you’ll be
treated, comments sometimes are submitted by the seller or “shills” paid by the
seller. In other cases, a seller may build up his reputation by selling many low
cost items before making fraudulent sales of higher cost items.
Consider whether the item comes with a warranty, and whether follow-up
service is available if you need it. Many sellers don’t have the
expertise or facilities to provide services for the goods they sell. If this is
the case with your seller, be sure you’re willing to forfeit that protection
before placing a bid.
Find out who pays for shipping and delivery. Generally, sellers
specify the cost of shipping and give buyers the option for express delivery at
an additional cost. If you’re uncertain about shipping costs, check with the
seller before you bid.
Check on the seller’s return policy. Can you return the item
for a full refund if you’re not satisfied with it? If you return it, are you
required to pay shipping costs or a restocking fee? Sometimes the return policy
is found in the listing, but other times you may have to access it by following
a hyperlink in the listing to the seller’s online store.
Email or call the seller if you have any questions. Don’t place
any bids until you get straight — and satisfactory — answers.
Establish a top price and stick to it. This can help ensure that you get a
fair price and protect you from “shill bidding.” Don’t bid on an item you don’t
intend to buy. If you’re the highest bidder, you’re obligated to follow through
with the transaction. Some auction sites bar “non-paying” bidders, also known as
“deadbeats,” from future bidding.
Save all transaction information. Print the seller’s identification, the item
description, and the time, date, and price of your bid. Print and save every
email you send and receive from the auction company or the seller.
Protect your identity. Never provide your Social Security
number or driver’s license number to a seller. Don’t provide your credit card
number or bank account information until you check out the seller and the online
payment or escrow service, if you’re using one, and ensure their legitimacy.
Examine the online payment and escrow service’s privacy policy and security
measures. Never disclose financial or personal information unless you know why
it’s being collected, how it will be used, and how it will be safeguarded.
Protect your funds. Know what form of payment the seller
accepts. If the seller accepts only cashier’s checks or money orders, decide
whether you’re willing to risk sending your payment before you receive the
product. Never wire money to a person you don’t know or whose identity you can’t
verify.
If the seller insists on using a particular escrow or online payment service
you’ve never heard of, check it out. Visit its website. Be suspicious of any
site that is generally of poor quality with misspelled words or claims that it
is affiliated with the government. Call the customer service line. If there
isn’t one — or if you call and can’t reach someone — don’t use the service.
Before you agree to use any online payment or escrow service, read the service’s
terms of agreement. If it’s an online payment service, find out whether it
offers buyers any recourse if sellers don’t keep their end of the bargain,
whether it prevents sellers from accessing their funds if buyers are not
satisfied with the product, and who is responsible for paying for credit card
charge backs or transaction reversal requests. If the online payment service
cannot recover the loss from the seller, it might try to recover its loss from
you, using the credit card or bank account information in its file. To limit
your exposure, consider reserving a separate credit card, stored-value card, or
bank account to use just for your online transactions.
Be suspicious of an online escrow service that cannot process its own
transactions and requires you to set up accounts with online payment services.
Legitimate escrow services never do this.
Check with the Better Business Bureau, state attorney general, or consumer
protection agency — where you live and where the online payment or escrow
service is based — to see whether there are any unresolved complaints against
the service. A lack of complaints doesn’t mean that a service doesn’t have any
problems. Many scammers change their company names often.
Under federal law, you’re required to advertise your product or service and
the terms of the sale honestly and accurately. You can’t place “shill” bids on
your item to boost the price or offer false testimonials about yourself in the
comment section of Internet auction sites.
You’re prohibited from auctioning illegal goods; some auction sites have further
prohibitions on sales of other items. While many auction sites monitor to ensure
that illegal items are not being offered, the responsibility for ensuring that a
sale is legal rests with the seller and buyer. Some auction sites post a list of
prohibited items.
You are required to ship merchandise within the time frame specified during the
auction, or within 30 days, if a time frame is not specified. If you can’t meet
the shipping commitment, you must give the buyer an opportunity to agree to the
new shipping date or cancel the order for a full refund. To learn more about
your responsibilities when shipping products, see A Business Guide to the
Federal Trade Commission’s Mail or Telephone Order Merchandise Rule.
- When describing your item and its condition, state whether it’s new,
used, or reconditioned.
- Anticipate questions buyers might have and address them in the
description of your item or service.
- When possible, include a photograph of the item. There’s much truth to
the saying that “a picture is worth a thousand words.”
- Specify the minimum bid you’re willing to accept.
- Specify who will pay for shipping, and whether you’ll ship
internationally.
- State your return policy, including who’s responsible for paying
shipping costs or restocking fees if the item is returned.
- Let prospective bidders know whether you provide follow-up service; if
you don’t, tell them where they can get it.
- Respond as quickly as possible to bidders’ questions about the item
you’re auctioning or the terms of the sale.
- When the auction closes, print all information about the transaction,
including the buyer’s identification; a description of the item; and the
date, time, and price of the bid. Save a copy of every email you send and
receive from the auction site or the successful bidder.
- Contact the successful buyer as soon after the auction closes as
possible; confirm the final cost, including shipping charges, and tell the
buyer where to send payment.
- If you accept credit card payments from the buyer directly, bill the
credit card account only after you’ve shipped the product.
- If a buyer insists on using a particular escrow or online payment
service that you’ve never heard of, check it out by visiting its website or
calling its customer service line. If there isn’t one, or if you call and
can’t reach someone, don’t use the service. If the service claims to be
affiliated with a government agency, that’s a sign of a scam.
- Before agreeing to use an online payment or escrow service, read the
terms of agreement. If it’s an online payment service, find out who pays for
credit card charge backs or transaction reversal requests if the buyer seeks
them.
- Examine the service’s privacy policy and security measures. Never
disclose financial or personal information unless you know why it’s being
collected, how it will be used, and how it will be safeguarded.
- Don’t use an online escrow service that does not process its own
transactions, but that requires you to set up accounts with online payment
services. Legitimate escrow services never do this.
- Check with the Better Business Bureau, state attorney general or
consumer protection agency — where you live and where the online payment or
escrow service is based — to see whether any unresolved complaints are on
file against the service. But remember that a lack of complaints doesn’t
guarantee that the service has no problems.
Sometimes, your bank may not alert you that a fake check or money order has
been returned until after you have shipped the merchandise. If you are
suspicious about a check because it is written by a third party or for any other
reason, call the person who wrote the check to verify that they have authorized
it. If you receive a check or money order for an amount that exceeds the
successful bid, and the buyer asks that you wire the excess funds back to him or
to a third party, do not wire the money. Instead, return the check to the buyer,
and do not ship the merchandise.
If you accept payment by check, ask for a check drawn on a local bank, or a bank
with a local branch. That way, you can make a personal visit to make sure the
check is valid. If that’s not possible, call the bank the check was drawn from
and ask if it is valid. Get the bank’s phone number from directory assistance or
an Internet site that you know and trust, not from the person who gave you the
check.
If you have problems during a transaction, try to work them out directly with
the seller, buyer, or site operator. If that doesn’t work, file a complaint
with:
- the attorney general’s office in your state.
- your county or state consumer protection agency. Check the blue pages of
the phone book under county and state government.
- the Better Business Bureau.
- the Federal Trade Commission. File a complaint online at ftc.gov.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information to help
consumers spot, stop, and avoid them. To file a
complaint or to get
free information
on consumer issues, visit
ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY:
1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and
other fraud-related complaints into
Consumer Sentinel,
a secure online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
Source: Federal Trade Commission (http://www.ftc.gov)
