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How to bid safely in online auctions

With no mall, no traffic, no crowds and low prices, online auctions are a simple solution to shopping. But, just as you need to guard your wallet in the mall, bidding and buying online requires vigilance as well.

Online auction fraud was the No. 1 reported consumer fraud complaint in 2003, says the Federal Trade Commission. The FTC's database logged more than half a million complaints last year and 55 percent of those were Internet-related complaints.

The FTC says it's cracking down.

"We're working with partners virtually coast to coast to stop scammers in the virtual world," says Howard Beales, director of the FTC's Bureau of Consumer Protection.

Operation Bidder Beware, coordinated by the FTC with the National Association of Attorneys General, is targeting Internet auction scams that bilked thousands of consumers out of their money and merchandise.

"Law enforcement will do what it can, and responsible auction sites are trying to police their own market," says Washington State Attorney General Christine Gregoire. "But the single most powerful tool to protect consumers is education."

So as online auction fraud continues to grow, savvy shoppers must learn to protect themselves.

Know the product
The best way to avoid getting taken is to do your homework. Research the item -- compare costs at other auctions and at brick-and-mortar stores. Auction sites aren't necessarily offering the best price or information. A little shopping around may prove the item auctioned as "rare" is available at the Kmart down the block -- and for a lower price.

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Consider the risks
Check out the auction site. Some sites, like Amazon's auction site, offer full fraud coverage for items not delivered or fraudulently represented -- but only up to $2,500 and only when using their Amazon Payments feature. Other payment methods, excluding cash and third-party wire, are insured up to $250.

Ebay offers similar fraud protection but at a cost and with a much lower maximum. For items never received or misrepresented, eBay provides protection up to $200, minus a processing fee of $25. Buyers using eBay's electronic check option don't have to pay the processing fee. All methods of payment, excluding third-party wire transfers and cash, are covered.

Paying by credit card is the best insurance, regardless of site. Most credit card issuers provide 100 percent online protection. Debit cards may or may not offer similar protection.

Know the seller
One of the worst mistakes an online shopper can make is not researching the seller. Most sites provide a seller's rating and feedback history for each sale. Read it.

A seller with several negatives in his feedback should be avoided, as should a seller with no feedback. The Internet Fraud Watch warns that while a lack of complaints doesn't guarantee a smooth transaction, a history of complaints is a good indication not to bid.

Unfortunately, shifty sellers have figured out a way around negative feedback by creating fake testimonials. The seller either sends them himself, using an alternate e-mail account, or conspires with other bidders to give higher ratings. Some shill testimonials are easy to spot -- numerous positive responses all posting from the same e-mail address.

It's still 'Buyer beware'
Before trusting any seller, ask lots of questions about the product -- regardless of the item's description or photos. Be wary of any discrepancies, any items sold "as is," high shipping charges or significantly delayed shipping dates.

Ask for the seller's phone number and physical address. Verify by calling. An e-mail address is a flimsy means of contact that may be untraceable. If a seller is located outside the United States, differing laws may complicate resolving disputes.

Be especially cautious of sellers offering a large number of popular collectibles and other expensive items. The IFC warns that because the items can't be examined or appraised until after the sale, claims about the condition or value of an item may be faked. Photographs aren't necessarily accurate. They may not show the item's flaws or could be taken from a catalog or another auction.

How to pay
Because credit cards offer protection, they are always the best way to pay. But many sellers are individuals (rather than businesses) and don't have access to credit card verification equipment.

Do not deal with sellers who demand payment in cash or third-party wire transfers. These means of payment are not traceable and offer no protection. Most legitimate sites have secure payment options that do not require sellers to purchase any equipment. Ebay offers Paypal and Amazon offers Amazon Payments.

Even if an auction site offers insurance, bidders are not guaranteed a refund if the deal goes sour -- only the chance to appeal for a refund. If cashier's checks and money orders are the only means of payment, you'll need to decide if you're willing to risk losing your investment if you're unhappy with the item and the seller won't reimburse you.

Any seller who asks for a bidder's Social Security number, driver's license number or bank account information should be reported to the site's fraud program and to the Internet Fraud Complaint Center. This information is not necessary for a sale and exposes the bidder to identity theft and fraudulent account charges.

Making the bid
Once you've done all your homework and are ready to place a bid, decide how high you're willing to bid for the item and stick to it. This prevents heat-of-the-moment decisions especially in highly competitive bidding. You will also protect yourself from falling prey to shill bidding.

If you win the bid, print out the photos, descriptions and e-mails exchanged with the seller. Insure the item and pay promptly. Keep all records until the item is received and verified. If there are problems, first try to work it out with the seller. If a dispute can't be resolved, contact the credit card company and the auction site. If that doesn't work, a report should be made to the Federal Trade Commission.

-- Updated: July 12, 2004

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