A GUIDE FOR

BUYERS AND

SELLERS

AUCTIONS UCTIONS

INTERNET NTERNET

F TC EDERAL RADE OMMISSION FTC OR HE ONSUMER

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

Auction 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
1

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
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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.
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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.
4

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:

N fail to send the merchandise

N send something of lesser value than

advertised

N fail to deliver in a timely manner

N fail to disclose all relevant information

about a product or terms of the sale.

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But some buyers experience other

problems, including:

N “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.

N “shill bidding,” when fraudulent

sellers or their “shills” bid on sellers’

items to drive up the price.

N “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

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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.

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Tips for

Buyers...
10

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

N 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.

N 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.

N 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.

N Try to determine the relative value of

an item before you bid. Be skeptical if
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the price sounds too low to be realistic.

“Brick-and-mortar” stores and price

comparison sites may be good for

reality checks.

N 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.
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N 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.

N 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.

N 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?

N 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

N 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.

N 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

N 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.

N 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.

N 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.

N Before you agree to use any online

payment or escrow service, read the

service’s terms of agreement:

N 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.

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To limit your

exposure,

consider

reserving a

separate

credit

card,

storedvalue card or

bank account to

use just for online transactions.

N 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.

N 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.

N 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
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complaints against the service. Keep in

mind that a lack of complaints doesn’t

necessarily mean that a service has no

problems.
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Tips for

Sellers...
KNOW YOUR LEGAL

OBLIGATIONS

N 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.

N 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.

N 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

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learn more about your responsibilities

when shipping products, see A Business

Guide to the Federal Trade

Commission’s Mail or Telephone Order

Merchandise Rule, www.ftc.gov/bcp/

conline/pubs/buspubs/mailorder.htm.

ADVERTISING YOUR PRODUCT

N When describing your item and its

condition, state whether it’s new, used

or reconditioned.

N Anticipate questions buyers might have

and address them in the description of

your item or service.

N When possible, include a photograph

of the item. The saying that a

picture is worth

a thousand

words is

especially

relevant in

Internet auctions.

N Specify the minimum bid at the lowest fair

price you’re willing to accept.

N Specify who will pay for shipping, and

note whether you’ll ship internationally.
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N State your return policy, including

who’s responsible for paying for

shipping costs or restocking fees if the

item is returned.

N Let prospective bidders know whether

you provide follow-up service; if you

don’t, tell them where they can get it.

DEALING WITH BIDDERS

N Respond as quickly as possible to

bidders’ questions about the item

you’re auctioning or the sales terms.

N 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.

N 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.
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ARRANGING FOR PAYMENT

N If you accept credit card payments

from the buyer directly, bill the credit

card account only once you’ve shipped

the product.

N 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.

N Before agreeing to use an online

payment or escrow service, read the

terms of agreement:

N 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.

N 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.

N 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.

N 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.

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FOR BUYERS

AND

SELLERS...

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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:

N the attorney general’s office in your

state.

N your county or state consumer protection agency. Check the blue pages of

the phone book under county and state

government.

N the Better Business Bureau.

N the FTC. File a complaint online at

www.ftc.gov or call toll-free 1-877-

FTC-HELP (1-877-382-4357).

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.

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June 2004