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.
How Internet Auctions Work-Rules of the Marketplace
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.
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Phishing
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.
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Payment Options
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.
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Types of Fraud
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.
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Fake Check Scams Target Sellers
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.
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Tips for Buyers...
Despite complaints of fraud, online auctions remain a fun, efficient, and relatively safe way
to shop - if you act prudently.
Here's how:
Before Bidding
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 sellers 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.
When Bidding
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.
Before Paying
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 cant 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.
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Tips for Sellers...
Know Your Legal Obligations
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.
Advertising Your Product
- 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.
Dealing with Bidders
- 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.
Arranging for 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.
Look Out for Fraudulent Checks or Money Orders
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.
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For Buyers & Sellers...
Where to Turn for Help
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.
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