Seller Beware: Protecting Yourself Against Auction Fraud
"Buyer beware," warns the old saying, but in today's online auctions, sellers also need caution. Deadbeat bidders, escrow scams, stolen credit cards -- sellers on eBay have been victimized by frauds of every type.
While even eBay's harshest critics concede that the fraud perpetrated on its sellers is small -- less than one percet of all transactions -- it remains a constant concern. Complicating the problem: many of today's Net auction sellers have no formal business experience, and thus might not foresee problems before they occur.

Worse yet, in the opinion of some auction experts, the online auction business is focused exclusively on protecting buyers, and does little to protect sellers.

"It seems as if the sympathy is with the buyers, even from organizations that watch fraud," said Rosalinda Baldwin, chief executive of Auction Guild, an advocacy group for auction merchants. If a consumer's Visa purchase goes sour, a consumer can challenge it. If sellers are victimized in the same way, they have less recourse, she said. However, "sellers are actually much more vulnerable."

Ina Steiner, an editor of AuctionBytes, a resource for online auction users, warns sellers: "Be aware that you don't have the same protections you're used to having as a consumer." Many sellers graduate from selling a few things to becoming power sellers without knowing the risks, she said.
Baldwin puts it more bluntly: eBay "does absolutely nothing" to protect sellers from fraud. "They have no mechanism in place to protect sellers."
But eBay spokesperson Hani Durzy disputes that claim.

"We have a combination of educational efforts combined with certain policies, mainly the seller protection policy through PayPal [which eBay owns] that we feel offers a very good level of protection for sellers," he said.

Furthermore, "Our marketplace would not work as well as it does if one side of the transaction felt a lot safer and more comfortable than the other side," Durzy said.

Knowing the Scams: Ones to Watch For
Given that "seller beware" is a necessary mantra for Internet auctions sellers, here's a run-down of the scams they might face:

Fake Escrow
The seller is wary of parting with her jewelry item until the buyer pays the agreed price of $1200; but the buyer doesn't want to pay the $1200 until he gets the jewelry set. To solve the impasse, the buyer says he'll put the money in an escrow account administered by a third party -- a move typical in high-priced auctions.

The buyer deposits the money as planned, and the seller sends off the jewelry set once they receive a confirmation. But -- whoops! The escrow company was a fake, set up by the buyer -- in reality, an unscrupulous scam artist.

"What [the thief] will do is go to a legitimate escrow site, copy the HTML and put up their own site," Baldwin said, noting that great sophistication goes into creating fake escrow companies.
Sellers need to verify that the company exists in the white pages. "If it's a U.S. company they should be bonded, which means they have a license you should be able to check," she says.

The Drop-Ship Downer
Auctionbyte's Steiner notes that some highly experienced eBay sellers have been burnt by problems with drop shippers. In this scenario, a seller takes a buyer's money, then sends most of it to a third-party wholesale drop shipper. That drop shipper should then send the goods directly to the buyer. But the drop ship company fails to deliver.

Some companies pose as drop shippers until they get your money, while some legitimate drop shippers run into unforeseen problems. Either way, the situation poses problems for sellers: Steiner said she knows at least one who was suspended from eBay for this, and faced fraud charges.
"She was not able to refund buyer's money, but she was responsible to refund that money," she said.

To protect yourself from this -- or from many of the scams that target sellers -- Steiner stresses that it is important to ask questions.
"When you get into a relationship with a company, get credit references -- ask them just as many questions as they're asking you," she said.

The Fake Overpayment
A con artist buys an $800 ring from a seller, but indicates that he "accidentally" paid $1800. The scammer points out his "oversight" and asks the seller to wire him the $1,000 via Western Union. A common part of this ploy are statements like, "I misunderstood you, my English is not very good," Baldwin said.

The payment turns out to be some form of fraud, so when the seller sends the $1,000, he's out both the ring and the money. Western Union payments are completely untraceable and unrecoverable, she said. "Never return overpayment via Western Union."

Funny Money
"Even money orders can be counterfeit," Steiner said. "What sellers don't understand is that just because three days later it's cleared, that doesn't guarantee that six weeks later the bank isn't going to take the money out of your account because they found it's a counterfeit check."

This counterfeit scam often goes hand-in-hand with the overpayment scam, she said. "The overpay is a red flag [but] people really fall for this stuff."

Hijacked Feedback
It sounds simple but it's still essential: Always check a seller's eBay feedback rating. But this is still no guarantee: a bidder's positive feedback might be "hijacked," that is, false.

It's not always easy to tell if a seller has falsely positive feedback ratings, Baldwin said, but be cautious around one scenario in particular: "The account says it's registered in the U.S. but you're mailing your diamond ring off to Romania."

The buyer's account should be registered on eBay "in at least the same country" as the mailing address they request the item be shipped to, she said.

As an added precaution, a seller should check to see if the buyer's stated name and address matches the listing in the white pages. "You can check the online white pages and make sure it's a real address with a real phone number," Baldwin said.

Sometimes, the address turns out to be something like a waste processing plant in Ohio, Steiner notes. Not a good sign.

Fraudulent Credit Card
If a seller sends off goods after accepting a fraudulent or stolen credit card, that seller may be out of luck. Sellers whose business is established enough to have their own merchant credit card account can verify card numbers. But sellers using PayPal -- like many eBay sellers -- are more vulnerable to this.

eBay, through its PayPal seller protection program, offers a critical safeguard for these sellers: It helps protect sellers from credit card chargebacks due to fraud.

eBay's Durzy notes that if sellers follow the guidelines, they will not be liable for purchases made with fraudulent credit cards.

Steiner, however, said that sellers have to "make sure you're doing everything, down to crossing your T's and dotting your I's when you send something." Sellers must read the agreement in its entirety. If a seller can't prove they followed the agreement down to the letter, "the consumer can get their money, and PayPal charges the seller a processing fee," Steiner said.