A GUIDE FOR

BUYERS AND

SELLERS

INTERNET

AUCTIONS

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION ftc.gov
Inside

How Internet Auctions Work · ....................................

Rules of the Marketplace ............................................2

Phishing .....................................................................4

Payment Options ........................................................5

Types of Fraud ..........................................................10

Fake Check Scams Target Sellers ................................12

Tips for Buyers .. .........................................................13

 Before Bidding .....................................................14

 When Bidding .......................................................17

 Before Paying ......................................................17

Tips for Sellers... ..........................................................20

 Know Your Legal Obligations .................................21

 Advertising Your Product .......................................22

 Dealing with Bidders .............................................23

 Arranging for Payment .........................................23

 Look Out for Fraudulent Checks or Money Orders ...25

For Buyers and Sellers... ..............................................26

 Where to Turn for Help .........................................27

1

I

nternet 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. 

The Federal 

Trade Commission (FTC) wants to help 

buyers and sellers stay safe on Internet 

auction websites. Among the thousands 

of consumer fraud complaints the 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-toperson 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.

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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.

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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 

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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 
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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. The FTC 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 

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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.
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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 
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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.
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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.
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Tips for 

Buyers...
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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.
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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.
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Consider whether the item comes 

with a warranty, and whether followup 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.
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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.
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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 
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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.
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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.

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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.

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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 
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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.

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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.

The FTC 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 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.

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March 2006