Auction fraud was the number one Internet-related complaint recorded by the Federal Trade Commission (FTC) last year. The FBI reported more than 48,000 complaints in 2002, which was TRIPLE the number of complaints received in 2001. Still, there are ways to play without being skinned.
In late April, the FTC announced "Operation Bidder Beware." In this Operation, the FTC joined with 33 state and local police agencies in an attempt to begin to deal with this rampant and worsening problem.
To give you an idea of how bad this problem is, consider that it is textbook advice to use an escrow service with online auctions. These escrow services act as neutral third parties that are supposed to make auctions safer by getting in between buyer and seller and thereby insuring a smoother and honest transaction. It sounds almost like a panacea - until you hear the "Premier Escrow" story.
In the "Premier Escrow" scam, the bad guys owned the escrow service. Undoubtedly, the old cliché about the fox guarding the henhouse applies here. Alas, you know where this story goes. The escrow service masqueraded as both buyer and seller. They would persuade people to send their "escrow service" money. The result was no merchandise delivered and stolen consumer payments for things including computers and a car.
If you have a problem with an auction and think that your answer is to complain to eBay or other auction service, I suggest that you think again. While EBay insures up to $200, and others auction sites a bit more, that's about the level of protection they offer. So, if you spend more, don't expect the auction site to make good on your loss. (As an aside, eBay says it provides up to $200 in protection. The fine print says "minus $25 for processing costs." In the new math I learned in a New York City public school in the 1960s, that's $175 in coverage, if you are awarded the full $200. Let's just say that I think the marketing folks found a somewhat dubious way to say what they had to say.)
However, eBay's disclaimer isn't stated in a dubious way at all. In fact, it's crystal clear.
In eBay's online contract with its users, it says, "We are not involved in the actual transaction between buyers and sellers. As a result, we have no control over the quality, safety or legality of the items advertised, the truth or accuracy of the listings, the ability of sellers to sell items or the ability of buyers to pay for items. We cannot ensure that a buyer or seller will actually complete a transaction."
They go on to say, "We use many techniques to verify the accuracy of the information our users provide us when they register on the Site. However, because user verification on the Internet is difficult, eBay cannot and does not confirm each user's purported identity."
My commentary is that they provide fair warning assuming that people actually read the online contract. Keep dreaming.
I could end it here and leave it at, "Buyer beware," but there are some things you can do to minimize - but never completely eliminate - the risks in online auctions.
You start by becoming familiar with your auction site's protections for buyers. You should not assume that all auction sites have the same rules. They don't.
Then, when you "win" an auction, please save all your transaction information. It's hard for anybody to help you if you don't know where you sent your money.
Now, if you send your check to a post office box, I could make a strong argument that you deserve to lose your money. At the least, maybe the government should impose a guardianship on you so that you don't become destitute and a societal burden. If you've ever actually done this, please tell me what you were thinking. And, if you received your merchandise anyway, it only proves that you were lucky, not right.
At all costs, avoid doing business with sellers who will "give you a better deal" if you move the transaction off the site. If you do this and send your money to a P.O. box, you truly make a most compelling case for social Darwinism.
If you choose to use an escrow service, please make sure that they are reputable. Anybody can open a corporation with the word "escrow" in it. Ask the escrow service if they are licensed in any state. They should offer their license number so that you can check with the licensing state.
Watch out for licensing scams. For example, in Florida, a company could "honestly" tell you that they have a license to do business when all they have is an "Occupational License." Essentially, any business can get this license by paying a tax. It doesn't mean anybody is regulating them.
My last piece of advice is use your instincts. If it doesn't feel right, it probably isn't. If it's too good to be true, it probably isn't. With that said, good luck and happy bidding!