3 Hidden Auction Scams
Along with the benefits accompanying every new advance in technology and convenience comes the risk of fraud and other abuse.
This is true of the increasingly popular trend of online auctions.
While auctions offer a great deal of appeal, both to professional auction-goers and recreational users, they represent accompanying risk and fraud potential. Merchants must decide whether the advantages outweigh the risks.
The most familiar and obvious forms of auction fraud are bidders paying for an item that never arrives or receiving merchandise that doesn't match its description. Other common but less familiar instances of auction fraud include shill bidding, fake seller ratings and fraud against sellers.
Shill Bidding
Shill bidding is a form of fraud that has crossed from traditional live auctions into the online auction world. It occurs when the seller, or a person associated with the seller, submits phony bids to drive up prices. Other bidders are usually unaware of the deception and they continue to increase their bids, not knowing that the person they are bidding against is a phantom rather than a real shopper.
One way to avoid becoming a victim of shill bidding in online auctions is to compare the auction site's account information for the seller and the suspicious bidder to see if there are similarities, such as duplicate e-mail addresses. Another technique is to check out the seller's other auctions and see if the same bidder is highly active in those as well.
Fake Seller Ratings
Many online auction sites have instituted a seller rating system in which participants have the opportunity to post reviews and comments regarding individual sellers.
Before reading postings, however, it is important to first determine the site's guidelines and requirements for its rating system. Sites allowing unrestricted postings are susceptible to fake ratings in which the seller uses an alias and submits glorified ratings and reviews.
Fortunately, sites such as eBay have become aware of such practices and have instituted guidelines by which only the winning bidders are allowed to post ratings.
Fraud Against Sellers
An often-overlooked aspect of auction fraud is offenses against the seller. For example, some bidders fail to follow through with the purchase after winning the bid. At times this is simply due to purchasers changing their minds, but there are those who have no intention of following through with the purchase.
This activity might not do a great deal of harm if the seller is able to sell the merchandise to the runner-up bidder. Often this approach is unsuccessful because the runner-up has already purchased merchandise elsewhere after losing the initial bid. In this case, the seller either loses the sale completely or is forced to conduct another auction to sell the merchandise.
Other fraudulent activity against merchants includes bad checks and bidders claiming to have paid for merchandise when they did not.
On the Defense
Unfortunately, as a seller you don't have much protection. Here are the best techniques you can use: Use a reputable and supportive online auction site, and only accept secure forms of payment such as credit cards, cashier's checks or money orders. Accepting credit card payment usually requires that you have a merchant account, but some auction sites will process credit card payments on your behalf for a fee.
Another option is to use an escrow service, which is a third party that holds the money and ensures that the transaction is completed in a satisfactory manner. The escrow service receives payment from the buyer, holds it until the buyer has received and approved of the merchandise, then distributes the money to the seller.
As a buyer, you can use escrow services to protect yourself as well. Another option is online auction insurance, which is available at many of the major auction sites. Both escrow services and insurance require a fee, but that can be considered a good investment to ensure you don't get swindled.
Inform Yourself
Buyers can determine the seller's identity from the auction site's member information and call the seller prior to sending the money. Speaking to sellers directly can often give you a sense for whether they seem trustworthy, and it lets sellers know you have made that extra effort and are likely to follow through if they attempt to take advantage of you.
A final, and perhaps most important, tip for buyers is to use your credit card for purchases whenever possible. The Fair Credit Billing Act states that the maximum amount a cardholder can be held responsible for in cases of fraud is $50 (U.S.), and Visa International has a policy of zero cardholder liability in cases of Internet fraud.
Above all else, sellers and bidders alike should exercise due caution and common sense when participating in online auctions.
Penalties such as five years in prison and up to $250,000 in fines for each count of online auction fraud, coupled with increased efforts by the Federal Trade Commission and other organizations to crack down on perpetrators, have had some effect in decreasing the occurrence of fraud. However, it continues to be a reality that shouldn't be overlooked or ignored.
About the Author:
Alexander Brown is president and CEO of VerifyFraud.com, a vertical portal that provides information on countering credit card fraud.
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