 Quick Facts
Thinking of bidding in an online auction, or selling some of your stuff?
Internet auctions are a great resource for shoppers and sellers, but you
need to watch out for some pitfalls. Here's how:
- Evaluate how soon you need to receive the item you're bidding
on, and whether you can tolerate it being delivered late, or even not
delivered. Many complaints about Internet auctions fraud involve
late shipments, no shipments, or shipments of products that aren't the same
quality as advertised.
- Whether you're a buyer or a seller, read each auction site's
Terms of Use before using it for the first time — sites
may charge fees, follow different rules, or offer different
protections.
- Carefully consider your method of payment. Learn what
recourse you have if something goes wrong. Don't send cash, and don't use a
money wiring service.
- Don't reply to "phishing" emails: messages
that look like they've been sent by an auction website or payment service
and ask for your password or other personal information.
- Know who you're dealing with. 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. Confirm the seller's
telephone number in case you have questions or problems.
- Know exactly what you're bidding on. Read and print a
copy of the seller's description of the product closely, especially the
fine print. Save copies of all emails you send and receive from the auction
site or seller, too.
It pays to learn the rules of the auction game before you bid or
sell. The following article offers in-depth advice for buyers and sellers,
including the pros and cons of various methods of payment.
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. OnGuard Online wants to help buyers and
sellers stay safe on Internet auction websites. Among the thousands of
consumer fraud complaints the Federal Trade Commission (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.
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.
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. OnGuard Online 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.
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.
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.
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 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.
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 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.
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.
FOR BUYERS AND 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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A to Z Communications Limited is based at:
#3, Hampton Villas,
Farmhill,
Douglas,
Isle of Man, IM2 2NH
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