Going, Going, Gone
Consumers Need to Take Precautions When Using Online Auctions
Special to Consumer Reports WebWatch
More than a dozen eBay customers filed complaints with the leading online auction house in October, claiming they lost money to identity thieves posing as vendors with terrific ratings. EBay later sent a mass warning e-mail to customers, saying it had closed listings apparently posted by account hijackers.
EBay spokeswoman Jennifer Caukin told Consumer Reports WebWatch the company believes the takeover artists obtained the stellar sellers’ passwords outside the eBay system, by tricking them into signing into imposter Web pages or responding to e-mails faked to resemble eBay’s. (See related article on "spoofing.")
These complaints hint at the true scope of online auction fraud. In November, an FBI cybercrime sweep found more than a hundred suspects had used eBay and other online auction sites to unload stolen goods or bilk thousands of victims who unwittingly wired funds to phony online escrow accounts. And online auction fraud has been the single largest category of Internet-related complaints to the U.S. Federal Trade Commission’s (FTC) Consumer Sentinel international database — 51,000 complaints in 2002, and officials expect even more in this year’s final tally.
Mark Sanders is one of many self-appointed watchdogs who routinely sends eBay tips upon suspicion that fraudsters are abusing the system. "In recent months, I noticed a disturbing trend of more and more 'mystery auctions,'" he says, referring to listings with suspiciously low prices on popular high-end items such as cars, all-terrain vehicles and electronics, often from sellers based overseas.
"EBay can take up to three days to investigate such cases, by which time the scammers have already bilked dozens of victims and/or the listing has been ended by the seller," says Sanders, a Dover, N.H., resident who’s used eBay to buy everything from concert tickets to a dozen classic cars. “And the bogus seller? They aren't even who they appear [to be], since they ran the auction in the first place with a stolen or fabricated user ID!"
EBay has long maintained that less than .01 percent of its transactions result in confirmed fraud, a number that still puts the crime at about 70,000 incidents a year. The company recently posted fraud education material on its site (http://pages.ebay.com/securitycenter/), though the link is not easy to find on the home page. EBay also developed an internal system called FADE (Fraud Automated Detection Engine) to thwart scams, but offered no specific information on how effective it is or how it works.
High Rollers Face Higher Risk
The popularity of online auction sites — eBay alone had $5.8 billion in sales in the summer quarter — and sheer volume of transactions mean consumers will face risk, says Linda Foley, director of the Identity Theft Resource Center (http://www.idtheftcenter.org), a nonprofit group based in San Diego.
Among the fraud cases, it’s the purchases of $1,000 or more that consumers have the most trouble recovering — and that’s precisely the niche that attracts the big-time scammers, law enforcement officials agree. In some cases, the haul may be huge: In June, authorities charged an Arizona couple with accepting $110,000 via eBay for nonexistent stereo components, while a Utah man was charged in October with bilking eBay customers for $1 million in phantom laptops.
Auction veterans and watchdogs like Sanders are particularly suspicious of "restricted" auctions that require bidders to contact the seller privately via e-mail — and thus outside the auction site’s purview. In fraudulent instances, as Sanders puts it, "no one is ever actually added to the bidder's list — they are merely pitched a super low 'Buy It Now' price to be paid via Western Union in order to 'win' the auction."
Both eBay and its major rival in auctions, Yahoo, offer two levels of coverage of smaller transactions, and both largely require online buyers to use the companies' own payment services to reap benefits. On both, if the buyer and seller have accounts in good standing and meet certain other qualifications, buyers can recover up to $175 per transaction if their goods never arrive. If they made payment through eBay’s PayPal subsidiary, they can recover as much as $500; Yahoo’s PayDirect users get up to $975. For insurance on online auctions for greater amounts, buyers are nearly on their own.
Major auction services recommend buyers avoid wiring money through services like Western Union, because there’s no guarantee the seller will ship the goods once the money is received and Western Union offers no protection. Instead, eBay and Yahoo recommend using online escrow businesses — which receive and then hold the amount until the goods are delivered, and which have dispute resolution procedures in place. But neither auctioneer offers a list of approved escrow businesses, and usually, it’s the seller who will suggest one. Which leads to another problem: The FBI says fake online escrow services themselves are one of the biggest online cons of the last year — often, they’re official-looking sites ginned up by unscrupulous sellers themselves.
So what’s a consumer to do?
- Make sure you’re on the real auction site, and not an imposter’s, before signing in. Open a fresh browser and type in the auction site’s url; never sign in through e-mail or a Web page link.
- Protect your privacy — especially when you’re the winning bidder. The FTC warns consumers never to provide Social Security, driver's license or credit card numbers, or any bank account information, directly to a seller, no matter how trustworthy they seem.
- Consider using an online payment service owned by the auction house, such as eBay’s PayPal, but only after reading and being comfortable with the terms of coverage in case the seller doesn’t live up to his or her end of the bargain.
- If the seller is a legitimate merchant or small store whose physical location can be confirmed by phone, use credit cards to purchase online auction items, says Foley of the Identity Theft Resource Center. Although few individual sellers accept them, many legitimate businesses do, and cardholders can always challenge a credit transaction if things go wrong.
- If a seller insists on using an online escrow service, don’t use it unless it’s listed with the Better Business Bureau (http://bbbonline.org). Even then, the FTC warns, a lack of complaints doesn’t mean a service has no problems. Try the customer service line and check its Web site for a verifiable physical location.
- Try an old-fashioned tactic: see the goods for yourself. "If a person is going to spend several thousand dollars and buy a collectible or big-ticket item, then spend a couple hundred dollars and fly out there and see what you’re buying," Foley says.
For more online auction safety tips, consult the FTC’s Web site at http://www.ftc.gov/bcp/conline/pubs/online/auctions.htm.
If you think you’ve been defrauded, file a complaint at the FBI’s Internet Fraud Complaint Center, at http://www.ifccfbi.gov.
Robertson Barrett, a media consultant and writer, was a founder and managing editor of TIME.com and ABCNEWS.com. He was also vice president and general manager of The FeedRoom, a nationwide broadband news network in partnership with NBC and Tribune, and of Channel One Interactive, the educational television network's new media division.
He writes a biweekly column on scams and schemes online ans has written about spyware and Internet "washers" for Consumer Reports WebWatch.