Auction Rules
Payment Options
Online Payment Services
Online Escrow Services
Types of Fraud
Tips for Buyers
Before Bidding
When Bidding
Before Paying
Tips for Sellers
Know Your Legal Obligations
Advertising Your Product
Dealing with Bidders
Arranging for Payment
For Buyers and Sellers
Where to Turn for Help
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-toperson
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-toperson
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.
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.
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 “offbrand” — 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
11
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 followup
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,
storedvalue
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.
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, http://www.ftc.gov/bcp/edu/pubs/business/adv/bus02.shtm.
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.
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 Federal Trade Commission 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
www.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. |