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F T CEDERAL RADE OMMISSION F T COR HE ONSUMER

1-877-FTC-HELP www.ftc.gov

InsideAuction Rules ................................................................ 2

Payment Options .......................................................... 3

Online Payment Services .......................................... 4

Online Escrow Services .............................................. 5

Types of Fraud ............................................................... 5

Tips for Buyers .............................................................. 9

Before Bidding ....................................................... 10

When Bidding ......................................................... 13

Before Paying ......................................................... 13

Tips for Sellers ............................................................ 17

Legal Obligations ................................................... 18

Advertising .............................................................. 19

Dealing with Bidders .............................................. 20

Arranging for Payment .......................................... 21

For Buyers and Sellers ................................................ 23

Where to Turn for Help ........................................... 24

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Whether youre looking for acollectible or thinking aboutselling an antique, an Internetauction may be just the place for you.

Since they began in 1995, Internetauctions have become perhapsthe hottest phenomenonon the Web. Theyoffer buyers avirtual fleamarket from whichto choose an endlessarray of merchandisefrom around the world, andthey provide sellers a worldwide store-front from which to market their goods.

But online auctions can be risky business,according to the Federal Trade Commis-sion (FTC), a federal agency that worksto prevent fraud, deception and unfairpractices in the marketplace. Among thethousands of consumer fraud complaintsthe FTC receives yearly, those dealingwith online auction fraud consistentlyrank at or near the top of the list. Thecomplaints generally deal with lateshipments, no shipments, or shipments ofproducts that arent the same quality asadvertised; bogus online payment orescrow services; and fraudulent dealerswho lure bidders from legitimate auctionsites with seemingly better deals. Most

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complaints involve sellers, but in somecases, the buyers are the focus.

Whether youre a buyer or a seller,understanding how Internet auctions workcan help you avoid these problems.

AUCTION RULESInternet auctions are online bazaars.Some are the scenes ofbusiness-to-personactivity, wherea Web siteoperatorphysicallycontrols themerchandise for saleand accepts paymentfor the goods. Butmost specialize inperson-to-person activity where individualsellers or small businesses auction theiritems directly to consumers. In theseauctions, the seller not the site hasthe merchandise.

The person-to-person sites require sellersto register and obtain a user accountname (or screen name) before theycan place items for bid. Sellers also mustagree to pay a fee every time theyconduct an auction.

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Many sellers set a time limit on biddingand, in some cases, a reserve price the lowest price they will accept for anitem. When the bidding closes at thescheduled time, the highest bidder wins.If no one bids at or above the reserveprice, the auction closes without a win-ner.

At the end of a successful person-to-person auction, the buyer and sellercommunicate usually by email toarrange for payment and delivery.

PAYMENT OPTIONSSuccessful bidders usually pay by creditcard, debit card, personal check, cashierscheck, money order, or cash on delivery.Credit cards may offer buyers the bestprotection in that they allow buyers to seeka credit from the credit card issuer (alsoknown as a charge back) if the productisnt delivered or isnt what they ordered.Typically, sellers on business-to-personauction sites accept credit card payments.In contrast, most sellers in person-to-person auctions require a cashiers checkor money order before they send an item.

In many cases, an online payment serviceor an escrow service is used to facilitatepayment.

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ONLINE PAYMENT SERVICESOnline payment services are popular withboth buyers and sellers. They allowbuyers to use a credit card or electronicbank transfer to pay sellers who may notbe set up to accept credit card or elec-tronic bank transactions. They also mayprotect buyers from unlawful use of theircredit cards or bank accounts because theonline payment service, not the seller,holds the account information.Many sellers preferonline paymentservices becausepaymentservices tendto providemore securitythan, say,personalchecks.

In online payment services, both thebuyer and seller set up accounts thatallow them to make or accept payments.Buyers provide payment information,such as bank account or credit cardnumbers, and sellers give informationabout where payments should be depos-ited.

To complete a transaction, the buyer tellsthe online payment service to direct

appropriate funds to the seller. The sellerthen has immediate access to the funds,minus any service fee.

ONLINE ESCROW SERVICESOnline escrow services operate differ-ently. Their primary purpose is to protectbuyers and sellers from fraud. Escrowservices accept and hold payment fromthe buyer often a wire transfer viacheck, money order or credit card until the buyer receives and approves themerchandise. Only then do they forwardthe payment to the seller. The buyer paysthe fee for an online escrow service generally a percentage of the cost of theitem. Online escrow services usually areused for big-ticket items, like computers,cars or jewelry.

TYPES OF FRAUDMost people who complain to the FTCabout Internet auction fraud reportproblems with sellers who:N fail to send the merchandise

N send something of lesser value thanadvertised

N fail to deliver in a timely manner

N fail to disclose all relevant informationabout a product or terms of the sale.

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But some buyers experience otherproblems, including:N bid siphoning, when con artists lure

bidders off legitimate auction sites byoffering to sell the same item at alower price. Their intent is to trickconsumers into sending money withoutproffering the item. By going off-site,buyers lose any protections the originalsite may provide, such as insurance,feedback forms or guarantees.

N shill bidding, when fraudulentsellers or their shills bid on sellersitems to drive up the price.

N bid shielding, when fraudulentbuyers submit very high bids to dis-courage other bidders from competingfor the same item and then retract thosebids so that people they know can getthe item at a lower price.

Another type of fraud occurs when sellersor buyers pose as escrow services toimproperly obtain money or goods. Theso-called seller puts goods up for sale onan Internet auction and insists thatprospective buyers use a particularescrow service. Once buyers provide theescrow service with their paymentinformation, the escrow service doesnthold the payment: The payment goesdirectly to the so-called seller. The buyernever receives the promised goods, cant

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locate the seller, and, because the escrowservice was part of the scheme, cant getany money back.

In some cases, a fraudster poses as abuyer and, after placing the winning bidon an item, insists that the seller use aparticular escrow service. The escrowservice tricks the seller into sending themerchandise and doesnt send thepayment or return the goods to the seller.

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Tips forBuyers...

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Despite complaints of fraud, onlineauctions remain a fun, efficient andrelatively safe way to do business ifyou act prudently. Heres how:

BEFORE BIDDINGN Become familiar with the auction site.

Never assume that the rules of oneauction site apply to another. If the siteoffers a step-by-step tutorial on thebidding process, do it. It may save youfrustration and disappointment later.

N Find out what protections the auctionsite offers buyers. Some sites providefree insurance or guarantees for itemsthat are undelivered, not authentic ornot what the seller claimed.

N Know exactly what youre bidding on.Read the sellers description of theitem or service, and if a photograph isposted, look at it. Read the fine print.Look for words like refurbished,close out, discontinued, or off-brand especially when shopping forcomputer or electronic equipment toget a better idea of the condition of theitem being auctioned.

N Try to determine the relative value ofan item before you bid. Be skeptical if

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the price sounds too low to be realistic.Brick-and-mortar stores and pricecomparison sites may be good forreality checks.

N Find out all you can about the seller.Avoid doing business with sellers youcant identify, especially those who tryto lure you off the auction site withpromises of a better deal. Be awarethat some fraudulent sellers may use aforged email header that makes follow-up difficult, if not impossible. Get thesellers telephone number so that youhave another way to get in touch. Dialthe number to confirmthat it is correct.Some auctionsites post feed-back ratings ofsellers based oncomments byother buyers.Check themout. Althoughthese commentsand ratings maygive you someidea of howyoull be treated,know that sometimes,comments may be submitted by theseller or shills paid by the seller.

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N Consider whether the item comes witha warranty and whether follow-upservice is available if you need it.Many sellers dont have the expertiseor facilities to provide services for thegoods they sell. If this is the case withyour seller, be sure youre willing toforfeit that protection before placing abid.

N Find out who pays for shipping anddelivery. Generally, sellers specify thecost of shipping and give buyers theoption for express delivery at an addi-tional cost. If youre uncertain aboutshipping costs, check with the sellerbefore you bid.

N Check on the sellers return policy.Can you return the item for a fullrefund if youre not satisfied with it? Ifyou return it, are you required to payshipping costs or a restocking fee?

N Email or call theseller if you have anyquestions. Dontplace any bidsuntil you getstraight andsatisfactory answers.

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WHEN BIDDINGN Establish a top price and stick to it.

This can help ensure that you get a fairprice and protect you from shillbidding. Dont bid on an item youdont intend to buy. If youre thehighest bidder, youre obligated tofollow through with the transaction.Some auction sites bar non-payingbidders, also known as deadbeats,from future bidding.

N Save all transaction information. Printthe sellers identification; the itemdescription; and the time, date andprice you bid on the item. Print andsave every email you send and receivefrom the auction company or the seller.

BEFORE PAYINGN Know and understand what form of

payment the seller accepts. If the selleraccepts only cashiers checks or moneyorders, decide whether youre willingto risk sending your payment beforeyou receive the product.

N Protect your privacy. Never provideyour Social Security number, driverslicense number, credit card number, orbank account information until you

have checked out the seller and theonline payment or escrow service, ifyoure using one, to ensure legitimacy.

N If the seller insists on using a particularescrow or online payment serviceyouve never heard of, check it out.Visit its Web site. A site that is gener-ally of poor quality with, say, mis-spelled words or claims that the serviceis affiliated with the government, issuspect. Call the customer service line.If there isnt one or if you call andcant reach someone, dont use theservice.

N Before you agree to use any onlinepayment or escrow service, read theservices terms of agreement:

N If its an online payment service,find out whether it offers buyers anyrecourse if sellers dont keep theirend of the bargain, whether it pre-vents sellers from accessing theirfunds if buyers are not satisfied withthe product, and who is responsiblefor paying for credit card chargebacks or transaction reversal re-quests. If the online payment servicecannot recover the loss from theseller, it might try to recover its lossfrom you, using the credit card orbank account information in its file.

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To limit yourexposure,considerreserving aseparatecreditcard,stored-value card orbank account touse just for online transactions.

N Examine the online payment andescrow services privacy policy andsecurity measures. Never disclosefinancial or personal informationunless you know why its beingcollected, how it will be used, andhow it will be safeguarded.

N Be suspicious of an online escrowservice that cannot process its owntransactions and requires you to set upaccounts with online payment services.Legitimate escrow services never dothis.

N Check with the Better Business Bureau,state attorney general or consumerprotection agency where you liveand where the online payment orescrow service is based to seewhether there are any unresolved

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complaints against the service. Keep inmind that a lack of complaints doesntnecessarily mean that a service has noproblems.

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Tips forSellers...

KNOW YOUR LEGALOBLIGATIONSN Under federal

law, yourerequired toadvertise yourproduct orservice and theterms of the sale honestlyand accurately. You cant place shillbids on your item to boost the price oroffer false testimonials about yourselfin the comment section of Internetauction sites.

N Youre prohibited from auctioningillegal goods. While many auction sitesmonitor their sites to ensure that illegalitems are not being offered, the respon-sibility for ensuring that a sale is legalrests with the seller and buyer. Someauction sites post a list of prohibiteditems as a guide.

N You are required to ship merchandisewithin the time frame specified duringthe auction, or, if a time frame is notspecified, within 30 days. If you cantmeet the shipping commitment, youmust give the buyer an opportunity tocancel the order for a full refund oragree to the new shipping date. To

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learn more about your responsibilitieswhen shipping products, see A BusinessGuide to the Federal TradeCommissions Mail or Telephone OrderMerchandise Rule, www.ftc.gov/bcp/conline/pubs/buspubs/mailorder.htm.

ADVERTISING YOUR PRODUCTN When describing your item and its

condition, state whether its new, usedor reconditioned.

N Anticipate questions buyers might haveand address them in the description ofyour item or service.

N When possible, include a photographof the item. The saying that apicture is wortha thousandwords isespeciallyrelevant inInternet auctions.

N Specify the mini-mum bid at the lowest fairprice youre willing to accept.

N Specify who will pay for shipping, andnote whether youll ship internation-ally.

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N State your return policy, includingwhos responsible for paying forshipping costs or restocking fees if theitem is returned.

N Let prospective bidders know whetheryou provide follow-up service; if youdont, tell them where they can get it.

DEALING WITH BIDDERSN Respond as quickly as possible to

bidders questions about the itemyoure auctioning or the sales terms.

N When the auction closes, print allinformation about the transaction,including the buyers identification; adescription of the item; and the date,time and price of the bid. Save a copyof every email you send and receivefrom the auction site or the successfulbidder.

N Contact the winning bidder as soonafter the auction closes as possible;confirm the final cost, including ship-ping charges, and tell the buyer whereto send payment.

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ARRANGING FOR PAYMENTN If you accept credit card payments

from the buyer directly, bill the creditcard account only once youve shippedthe product.

N If a buyer insists on using a particularescrow or online payment service thatyouve never heard of, check it out.Visit its Web site. Be suspicious ofclaims about being affiliated with agovernment agency. Call the customerservice line. If there isnt one, or ifyou call and cant reach someone,dont use the service.

N Before agreeing to use an onlinepayment or escrow service, read theterms of agreement:

N If its an online payment service,find out who pays for credit cardcharge backs or transaction reversalrequests if the buyer seeks them.

N Examine the services privacy policyand security measures. Never dis-close financial or personal informa-tion unless you know why its beingcollected, how it will be used, andhow it will be safeguarded.

N Be suspicious of an online escrowservice that cannot process its own

transactions and requires you to set upaccounts with online payment services.Legitimate escrow services never dothis.

N Check with the Better Business Bureau,state attorney general or consumerprotection agency where you liveand where the online payment orescrow service is based to seewhether there are any unresolvedcomplaints against the service. Bemindful that a lack of complaintsdoesnt necessarily mean that theservice has no problems.

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FOR BUYERSAND

SELLERS...

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WHERE TO TURN FOR HELPIf you have problems during a transac-tion, try to work them out directly withthe seller, buyer or site operator. If thatdoesnt work, file a complaint with:N the attorney generals office in your

state.

N your county or state consumer protec-tion agency. Check the blue pages ofthe phone book under county and stategovernment.

N the Better Business Bureau.

N the FTC. File a complaint online atwww.ftc.gov or call toll-free 1-877-FTC-HELP (1-877-382-4357).

The Federal Trade Commission works forthe consumer to prevent fraudulent,deceptive, and unfair business practices inthe marketplace and to provide informa-tion to help consumers spot, stop, andavoid them. To file a complaint or to getfree information on consumer issues, visitwww.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY:1-866-653-4261. The FTC entersInternet, telemarketing, identity theft, andother fraud-related complaints intoConsumer Sentinel, a secure, onlinedatabase available to hundreds of civiland criminal law enforcement agencies inthe U.S. and abroad.

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June 2004