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Online Auction Fraud: What You Need to Know About the #2 Most Common Fraud in the U.S., Online Auction Fraud

Online auction Web sites have become an incredibly popular tool for Web-savvy Americans looking to buy everything from model trains to designer handbags. The largest of the sites, eBay, has now become a household name with 212 million registered users and 2006 third-quarter profits of nearly $1.5 billion.

Online auction sites

Online auction sites can be a safe and exciting way to buy and sell unique items, but they're also the source of the second-most-common complaint received by the FTC.

While many honest people use online auction sites legitimately, their popularity has attracted a large number of criminals -- and online auction fraud is now a major concern to watch out for.

"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," according to the Federal Trade Commission (FTC).

In fact, online auction fraud is second only to identity theft when it comes to consumer complaints, with the FTC receiving 80,450 such complaints in 2005, according to Time Almanac 2007.

These frauds also made up the majority (almost two-thirds) of the 97,000 complaints referred to law enforcement agencies in 2005 by the federal Internet Crime Complaint Center.

What Exactly is Online Auction Fraud?

Online auction frauds run the gamut from small-time thievery to sophisticated schemes, but according to the FTC most complaints about Internet auction fraud involve sellers who:

  • Do not send the merchandise purchased.

  • Send a product that's of less value than the item advertised online.

  • Don't deliver the product in a timely manner.

  • Don't disclose all the relevant information about a product or terms of the sale.

In a worst-case scenario, an auction buyer may send money for an item, then never receive it. Or, they may receive an item that's damaged, not worth the amount they paid or is different from the item they thought they would be receiving. Other frauds that auction buyers have experienced include:

  • Bid siphoning: A criminal may lure a bidder from an auction site by offering them the same item at a lower price. The bidder is then tricked into sending money and no merchandise is sent. Meanwhile, because the item was purchased outside of the auction site, the buyer loses any protection (insurance, feedback forms, guarantees) the site may have provided.

  • Second-chance offers: Similar to bid siphoning, except the criminal offers an item to a losing bidder.

  • Shill bidding: Fraudulent sellers may bid on their partners' items to intentionally drive up the price.

  • Bid shielding: Fraudulent buyers may bid a very high price for an item, thereby discouraging other people from bidding. They then retract their bid so a partner can purchase the item at a lower price.

  • Fake check scams: Fraudulent buyers may send fake checks or money orders as payment for online auction site merchandise. Even worse, a con-buyer may overwrite the amount on the check, then ask the seller to wire the overpaid money back to them. Meanwhile, after the bank determines the check is fraudulent, the seller is left responsible for the entire amount.

  • Fraudulent escrow services: This fraud occurs when a criminal seller insists a buyer use a particular escrow service, which is also in on the scam. The fraudulent escrow service then sends the money directly to the seller, instead of holding onto it, and the merchandise is never shipped. Because the escrow service is also fraudulent, the buyer can't get the money back after the merchandise never arrives.

How to Protect Yourself When Shopping or Selling on eBay and Other Online Auction Sites

Internet auction sites can be a safe and fun way to find merchandise that, in the past, you may not have had access to, or to sell items you no longer want. But to be sure your experience is a positive one, check out the FTC's tips below (and remember, both buyers and sellers need to be careful).

virtual credit card purchase online

To protect yourself when buying something online, consider using a virtual credit card -- a one-time use card that protects your identity and funds.

If you're a buyer:

  • Learn the rules of the auction site. Find out what protections are offered, what guarantees you get and how the bidding process works.

  • Find out the value of the item you're buying. This will help you gauge whether the price is appropriate.

  • Check out the seller. While online feedback ratings can help, don't rely on them as your only reference for the seller (the ratings may have been "padded" by friends or gathered by selling a number of small items before a fraud occurs). You should get the seller's phone number and call it to be sure it checks out, and don't do business with anyone you can't identify. Also, find out the seller's return policy and shipping charges.

  • Don't give out personal information. You should never share your social security number or driver's license number, and don't give out your credit card number or banking information until you have checked out the online payment system or escrow service.

  • Consider using a virtual credit card. These have a unique number for one-time use.

  • Protect your money. If the seller only accepts cash or checks, you'll have to decide if the risk is worth it. You should never wire money to someone you don't know, however, and should check out any escrow service for legitimacy thoroughly before sending your money (if an escrow service claims to be affiliated with the government, for instance, it's a scam).

If you're a seller:

  • Know the legalities. There are certain laws that govern how soon an item must be shipped, how an item may be advertised and more, so become familiar with them to protect yourself.

  • Respond to bidders' questions honestly and in a timely manner.

  • Check out any escrow service the buyer insists you use before sending out the merchandise.

  • Watch out for fraudulent checks. Also, never wire money back to a buyer who has overwritten the check amount. Instead, send the check back to the buyer and don't ship the merchandise.

Finally, if you have a problem, either as a seller or a buyer, that can't be worked out between yourselves or through the auction site, you can file a complaint in a number of places:

Recommended Reading

Don't Get Caught by Phishing Scams on the Internet!

The World's #1 Internet Threat May Be Robbing Your Identity Right Now


The Federal Trade Commission

EurekAlert December 5, 2006

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