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The
Following is from The Federal
Trade Commission:
 Whether
you're looking for a collectible or thinking about selling
an antique, an Internet auction may be just the place
for you. Since
they began in 1995, Internet auctions have become perhaps
the hottest phenomenon on the Web. They offer buyers
a "virtual" flea market from which to choose
an endless array of merchandise from around the world,
and they provide sellers a worldwide storefront from
which to market their goods.But online auctions can
be risky business, according to the Federal Trade Commission
(FTC), a federal agency that works to prevent fraud,
deception and unfair practices in the marketplace. Among
the thousands of consumer fraud complaints the FTC receives
yearly, those dealing with online auction fraud consistently
rank at or 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 focus .Whether you're a buyer
or a seller, understanding how Internet auctions work
can help you avoid these problems. Auction Rules Internet
auctions are online bazaars. Some are the scenes of
business-to-person activity, where a Web site operator
physically controls the merchandise for sale and accepts
payment for the goods. But most specialize in person-to-person
activity where individual sellers or small businesses
auction their items directly to consumers. In these
auctions, the seller — not the site — has the merchandise.The
person-to-person sites require sellers to register and
obtain a "user account name" (or "screen
name") before they can place items for bid. Sellers
also must agree to pay a fee every time they conduct
an 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 highest bidder "wins."
If no one bids at or above the reserve price, the auction
closes without a "winner."At
the end of a successful person-to-person auction, the
buyer and seller communicate — usually by email — to
arrange for payment and delivery.
Payment
Options
Successful bidders usually pay by credit card, debit
card, personal check, cashier's check, money order,
or cash on delivery. Credit cards may offer buyers the
best protection in that 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. Typically, sellers on business-to-person
auction sites accept credit card payments. In contrast,
most sellers in person-to-person auctions require a
cashier's check or money order before they send an item.
In
many cases, an online payment service or an escrow service
is used to facilitate payment.
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 who may not
be set up to accept credit card or electronic bank transactions.
They also may protect buyers from unlawful use of their
credit cards or bank accounts because the online payment
service, not the seller, holds the account information.
Many sellers prefer online payment services because
payment services tend to provide more security than,
say, personal checks.
In
online payment services, both the buyer and seller set
up accounts that allow them to make or accept payments.
Buyers provide payment information, such as bank account
or credit card numbers, and sellers give information
about where payments should be deposited.
To
complete a transaction, the buyer tells the online payment
service to direct appropriate funds to the seller. The
seller then has immediate access to the funds, minus
any service fee.
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Online
Escrow Services
Online escrow services operate differently. Their primary
purpose is to protect buyers and sellers from fraud.
Escrow services accept and hold payment from the buyer
— often a wire transfer via check, money order or credit
card — until the buyer receives and approves the merchandise.
Only then do they forward the payment to the seller.
The buyer pays the fee for an online escrow service
— generally a percentage of the cost of the item. Online
escrow services usually are used for big-ticket items,
like computers, cars or jewelry.
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.
But 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. Their intent is to trick consumers
into sending money without proffering the item. By going
off-site, buyers lose any protections the original site
may provide, such as insurance, feedback forms or guarantees.
"shill
bidding," when fraudulent sellers or their "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 and then retract those bids so that
people they know can get the item at a lower price.
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: The payment
goes 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 winning 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.
Tips
for Buyers... Despite
complaints of fraud, online auctions remain a fun, efficient
and relatively safe way to do business — 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, do 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 undelivered, not authentic or not what
the seller claimed.
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 being auctioned.
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. Be aware that some fraudulent sellers
may use a forged email header that makes follow-up difficult,
if not impossible. Get the seller's telephone number
so that you have 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, know that sometimes, comments may be submitted
by the seller or "shills" paid by the seller.
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?
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 you bid on the item. Print and save every
email you send and receive from the auction company
or the seller.
Before Paying:Know
and understand 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.
Protect your privacy. Never provide your Social Security
number, driver's license number, credit card number,
or bank account information until you have checked out
the seller and the online payment or escrow service,
if you're using one, to ensure legitimacy.
If the seller insists on using a particular escrow or
online payment service you've never heard of, check
it out. Visit its Web site. A site that is generally
of poor quality with, say, misspelled words or claims
that the service is affiliated with the government,
is suspect. 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 online transactions.
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.
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. Keep in mind that a lack of complaints
doesn't necessarily mean that a service has no problems.
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. While
many auction sites monitor their sites 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 as a guide.
You are required to ship merchandise within the time
frame specified during the auction, or, if a time frame
is not specified, within 30 days. If you can't meet
the shipping commitment, you must give the buyer an
opportunity to cancel the order for a full refund or
agree to the new shipping date. 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. The
saying that a picture is worth a thousand words is especially
relevant in Internet auctions.
Specify the minimum bid at the lowest fair price you're
willing to accept.
Specify who will pay for shipping, and note whether
you'll ship internationally.
State your return policy, including who's responsible
for paying for 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 sales terms.
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 "winning" bidder 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 once 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. Visit its
Web site. Be suspicious of claims about being affiliated
with a government agency. 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 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.
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. Be mindful that a lack of complaints
doesn't necessarily mean that the service has no problems.
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 FTC. File a complaint online at www.ftc.gov or call
toll-free 877-FTC-HELP
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