Online auction fraud is one of the most commonly reported cases of Internet fraud reported to the Federal Trade Commission each year. The 2005 Internet Crime Complaint Center Report states that 62.7 percent of all reported Internet fraud claims regarded Internet auctions. This is an 11.9 percent decrease from 2004. With these statistics, no one would argue this is a problem within the online auction community; however, eBay, the Internet s leader of online auctions, reaches approximately 32,000 people a week and the number of people participating in Internet auctions continues to grow.
Buyers who have received damaged products, misrepresented products or no product make most of these reports; however, some have had credit cards or bank accounts compromised. Sellers are also among the victims, although not nearly as often.
Don t get scared off by the statistics, may people have excellent experiences with online auctions, but like any other business or shopping endeavor it is always smart to remain shopping savvy. The following are a few common frauds and scams performed by con artists and ways to avoid them.
- Always do your Research.
Before ever placing a bid, always do your research about the auction site, the seller and the product. Read the terms and services agreement presented by the auction site. Some have hidden fees or don t offer any kind of fraud security.
Additionally, many auction services have feedback centers. Read the feedback about the seller. Feedback is used by auction sites to help sellers and buyers establish a reputation and creditability within the auction community. If they have an extraordinary number of negative feedbacks, reconsider the purchase. However, don t disregard a seller for not having any feedback, this person may be new to the auction circuit and everyone has to start somewhere.
In the end, consider the product price and what the seller says about it. Since the buyer has to take the seller s word for the product s authenticity, always approach genuine, authentic, or autographed merchandise with caution. Research how much the item usually costs in retail stores or what the seller s situation is and why they might be selling the items so cheap, especially high ticket items like computers and cars. If the price is too good to be true. it probably is.
- Read the Fine Print
Sometimes sellers will slip fine print into detail pages or item descriptions. It is illegal for sellers to misrepresent their products; however, fine print is a legal loophole and the responsibility to find it is placed on the buyer. Sellers sometimes do this to save their hides about the quality or condition of the product. This is not a common practice and auction sites and buyers frown upon sellers who use it.
Additionally, make sure the seller has some kind of return policy. If the seller refuses to agree to a return or refund policy, reconsider the purchase; this is especially imperative for expensive items like TVs, laptops and collectables. Online auction services encourage honest business practices and try to detour scam artists; however, many are too large to police every person that sells online. They rely on buyers and feedback to help monitor the system.
- Don t be Fooled by Second Chances
Second chances occur when a seller contacts the losing bidders and offers them the same product on a different website. This is sometimes called luring, because the buyer is being lured from the legitimate auction site to another, less secure and potentially dangerous website. In instances like this, the seller will take the buyer s credit card number and never deliver the product. In some cases the person s identity is completely stolen. Unfortunately, since the buyer has left the legitimate auction site they are no longer covered by the auction's security policies and procedures and it is easier for the seller to get away with their crime.
The most popular auction sites like eBay, Overstock.com and Yahoo! Auctions will never offer buyers a second chance, even if emails and offers look legitimate, report them to the auction service.
- Find a Third Party
Most sellers accept cashier s checks and credit cards. However, giving credit card information to a stranger can be dangerous. Cashier s checks are a fairly safe way to pay for products, but often sellers will not ship an item until the check clears and there is no paper trail for the buyer if the seller takes off with the money without delivering the goods.
The safest, most popular and recommended way to pay for an item bought or sold at auction is through a third party payment company like Pay Pal. A company like Pay Pal provides both the buyer and seller with an additional sense of security because the seller has no access to the buyer s personal credit or back accounts; additionally the seller can ship the product immediately without waiting for a check to clear.
Using wire transfers is highly discouraged and some auction sites refuse to allow sellers who insist on them. Wire transfers are dangerous because they can be sent anywhere in the world, the seller has access to a buyer s personal account and there is no receipt. Often, money wired outside the United States is no longer protected under United States Internet fraud laws and prosecutions. This is true for other countries as well. The law can become fuzzy between international waters. If the seller insists on using wire transfers as the only means of payment, reconsider the purchase.
- Be Aware of the Address
Beware of sellers that claim the item is located in one place, and then ask for the money to be sent to another. This could be a red flag for a number of reasons: the item may not exist, the person may live in another country or it may not be theirs to sell. However, there can be legitimate reasons like the person has recently moved. This is a good reason to contact the seller before placing a bid. For these same reasons, also be wary of sellers using P.O. Box numbers for addresses.
- The Duality of Escrow
Escrow can be a buyer s best friend or their worst enemy. Escrow is usually used in high ticket purchases and acts like a middleman between the exchange of money and product. If the seller or buyer insists on an unknown escrow company, beware. This can be the plot of an elaborate scam where the seller establishes a bogus escrow establishment then the money is sent but the product isn t. This scam can also happen to sellers, where the buyer creates the escrow company then never sends the money.
Many auction services suggest trusted escrow companies, with good reputations. If the seller or buyer insists on a different company, proceed with caution.
Although sellers can sometimes be the victim of auction fraud with deadbeat bidders, fake checks or escrow scams, buyers are more likely to be taken advantage of. Just remember to stay sharp. Just because it s on the Internet doesn t make it legitimate.
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(2006, March). Internet Auctions A Guide for Buyers and Sellers. Retrieved August 31, 2006, from http://www.ftc.gov/bcp/conline/pubs/online/auctions.htm
(2001, May 15). Internet Fraud. Retrieved August 31, 2006, from http://www.internetfraud.usdoj.gov/
(2006). IC3 2005 Internet Crime Report. Retrieved August 31, 2006, Web site: http://www.ic3.gov/media/annualreport/2005_IC3Report.pdf
Microsoft Corporation. (2006). Bidding at online auctions: 10 safety and privacy tips. Retrieved August 31, 2006, from http://www.microsoft.com/athome/security/online/auctionbid.mspx