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How to Protect Yourself from Internet Scams & Fraud

The internet has made many of our lives much more convenient. However, there are dangers that come with this new luxury. With one click of the mouse, you can buy your new sofa and have it delivered. Or you could be giving a theif money or access to your credit card number. Theives abound on the internet, so be wary when you shop!

According to the National Consumers League (NCL) Fraud Center, the top ten internet scams in 2006 included:

• Online Auctions: Misrepresented or undelivered goods.
• General Merchandise: Misrepresented or undelivered goods not purchased through auctions.
• Fake Check Scams: Consumers used fake checks to pay for sold items, and asked to have the money wired back.
• Nigerian Money Offers: Deceptive promises of large sums of money, if consumers agreed to pay the transfer fee.
• Lotteries: Asking winners to pay before claiming their non-existent prize.
• Advance Fee Loans: Request a fee from consumers in exchange of promised personal loans.
• Phishing: Emails pretending to represent a credible source, ask consumers for their personal information (e.g. credit card number).
• Prizes/Sweepstakes: Request a payment from consumers in order for them to claim their non-existent prize.
• Internet Access Services: Misrepresentation of the cost of Internet access and other services, which are often not provided.
• Investments: False promises of gains on investments

The Internet Crime Complaint Center (IC3), a joint venture of the FBI and the National White Collar Crime Center, in 2007 found:

• Online auction fraud was the most reported type of fraud and accounted for 44.9% of consumers’ complaints.
• Non-delivered merchandise and/or payment made up 19.0% of complaints.
• Check fraud represented 4.9% of complaints.
• About 70% of the fraud victims were scammed through online auctions.
• About 30% of the victims were scammed by emails.

Auction scams are the most common fraud on the Internet. And there is fairly little that auction sites can do to recover your money once the transaction has been completed. This is especially true if the seller/dealer is outside the United States.

How to Protect Yourself on Auction Sites

Know Your Auction Site. Understand how the auction works. Many online auctions simply list items that people want to sell. They don’t verify that the merchandise actually exists or that it is described accurately, and they can’t guarantee that the sellers will keep their promises.

Check Out the Seller. Read their reviews, but be aware that some of the positive reports may have been “planted” by the seller, or negative reports from a competitor. You can also check them out at the Better Business Bureau. A clean complaint record is no guarantee, but negative information is a good warning indicator. Just emailing and calling their phone number will often save you money - if the number is disconnected, you’re about to be scammed. Don’t send money to a seller who you can’t reach.

Seller’s Contact Information. Get the name and contact information of the seller. It’s helpful to have at least the minimum for following up later if there is a problem. Don’t do business with anyone who refuses to provide at least:

• Name
• Physical street address
• Email address
• Phone number

Location of Seller. Be especially cautious when dealing with sellers in other countries. If you have a problem, the physical distance, difference in legal systems, and other factors could make resolving it very difficult. Don’t send money to addresses that aren’t listed in the original ad.

Dealer or Private Seller? Many consumer protection laws don’t apply to private sales, though government agencies may take action if there are many complaints the same individual or criminal fraud is involved.

Shipping, Handling, Returns & Refunds. Make sure you know whether the shipping cost is included in the price of the item, or if not, how much it will cost. If you don’t ask, it can be a very expensive surprise.

• Ask the seller about delivery, returns, warranties and service before you pay.
• Get a definite delivery time and insist that the shipment is insured.
• Ask about the return policy.
• If you’re buying electronic goods or appliances, find out if there is a warranty and how to get service.

Your Information. Never give out more information than necessary for shipping. They have no reason to need your social security number or your drivers license number - do not give these out! Protect your personal information - if the seller sends you an email requesting login details or credit card details, do not respond with them.

Beware of “Shills.” Some sellers raise the price artificially by making bids under fake names or getting other people to bid. Buyers find themselves getting competitive and keep bidding, often paying more for the final price than had they just gone and bought the item outright from a store. Using “shills” is illegal, and a violation of online auction policies. But then, so is stealing. So buyer, beware.

Collectibles & Expensive Items. Be wary. You can’t examine the merchandise or have it appraised until after the sale.

• Don’t assume that claims about its condition or value are true.
• Don’t assume that photographs are accurate.
• Print out and save the description and any photos to document the claims that were made.

That Price is Amazing! Sometimes a good deal is just that – a good deal. But more often than not, it really is too good to be true. Do your research on other auction sites as well as at retail stores online to price-check items before you purchase. If it seems like the deal is too good to be true, you’re probably right.

Buying Outside the Auction Site. If the seller tells you that the highest bidder has withdrawn and you are entitled to the product, do not purchase the item outside the auction website. If you do, you lose the protection the site gives you. Additionally, if their listing tells you to go to another website to purchase the product, be wary. Although the offer may sound lucrative, you are at a very high risk of being cheated.

The Law. Check that you are purchasing a product that you are allowed to possess lawfully where you live.

Amazing Results! Don’t fall into the trap of purchasing products that offer revolutionary results. In most cases, they are fraudulent claims.

Auction Insurance. Some auction sites provide insurance that covers buyers up to a certain amount if something goes wrong. Others may have links to third-party programs that offer insurance for a fee.

• Read the terms of the insurance carefully.
• There is often a deductible.
• There may be other limitations or requirements that apply.
• Often, you will not be covered if the seller had a negative feedback rating on the auction site at the time of the transaction.

Use Reputed Escrow Services. An escrow service accepts money from buyers and release them to a seller only when the buyer confirms that the product was received to their satisfaction. But be wary of sellers or buyers who themselves pose as an escrow service to cheat the other.

Charge It! Under federal law, you can dispute the charges if you paid the seller with a credit card and the goods were never delivered or if they were misrepresented. Most credit card companies have protections for online purchases.

• Debit cards are not the same as credit cards. Use only credit cards.
• Get a card with a lower limit ($1000 or $2000) so that should fraud occur, it limits the damages possible.
• If a seller says they accept credit cards, but then says that you need to use your card to do a wire transfer, don’t do it. Wire transfers offer no protection.
• If you are paying through an intermediary service, ask what happens in the case of disputes.

Keep Records. Print and save everything. If something goes wrong with the transaction, this is your documentation to prove your case if you become a victim of fraud. Some of the things to include are:

• The listing and details about the product.
• Photographs of the item.
• Emails between you and the seller.
• Details about the seller, such as identification number and auction site handle.
• How much you paid for the item, what you paid for shipping (if anything), and how you paid for it.

Be Aware of Phishing. Verify that you are receiving emails from the correct source and that you are logging in at the correct website.

Resolving Disputes. Try mediation to resolve disputes. Not all problems are due to fraud. Sometimes people simply fail to hold up their side of the bargain in a timely manner or there may be a misunderstanding about something. Some auction sites provide links to third-party mediation services that help people resolve disputes. There may be a small fee to use these services. This is usually paid by the party who requests the mediation.

Suspected Fraud. Are you suspicious of the transaction? Does something seem amiss? Then avoid making a transaction - listen to your instinct. You will often find that it is correct. If you truly suspect fraud, inform auction sites about it. They may have policies to remove sellers from their sites if they use “shills” or don’t live up to their obligations.

Feel Cheated? If you are cheated on any product purchase, be sure to post a note on the online auction website and let the site know personally.

I hope you’re never a victim of online auction house crime, but if you are you should to report it to the Internet Fraud Complaint Center. Your complaint will be forwarded to the appropriate law enforcement authorities.

If you want additional information on this topic you can get more tips from the Federal Trade Commission.

(877) 783 – 0335

© 2008, Mark S. Balcos.  The reader assumes all responsibilities for his/her own actions in regards to any items discussed in this report.  Adherence to all applicable laws and regulations, federal, state and local, governing the use of any product or service described in this report in the US or any other jurisdiction is the sole responsibility of the reader.  The publisher and author assume no responsibility or liability whatsoever on the behalf of the reader of these materials. The reader is encouraged to consult directly with his/her insurance professional.

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