Be Vigilant Against eBay Buyer Fraud

Consumers aren't the only ones who need to protect themselves when purchasing goods online. Here's how eBay business owners can protect themselves from common crimes and illicit practices.

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Most eBay buyers know to watch out for sellers who don'tdeliver the goods. After all, no one wants to pay for an item andthen never have it arrive. But fraud isn't limited to sellers.There are plenty of fraudulent buyers, too, and you can protectyourself against them by knowing how to prevent the most commoncrimes and illicit practices.


Many eBay members treat eBay as a game and don't understandor don't care that it's a legal marketplace where lawsapply. Undoubtedly, most of these are neo-postadolescents, but evensome adults aren't above acting with this kind of disdain forthe system, too. This is a real problem for sellers, perhaps theNo. 1 problem. If the winning bidder doesn't pay, a simpleauction turns into an unpleasant task of bill collecting.

To avoid this scenario, set up a system that notifies winningbidders about shipping and handling charges and how you preferpayment. If they don't pay after successive requests, notifyeBay and relist the auction. EBay will not charge you in this case.Always give negative feedback to the nonpayers, but don't getemotional. Just state the facts.

Payment Fraud

By not shipping a product until payment has cleared, you'redoing as much as you can to protect yourself. Although counterfeitchecks, cashier's checks and money orders are easy to make,it's unlikely that someone would use them for Internetpurchases. The culprit could be traced both through theInternet-access account and the delivery address. Nonetheless, itpays to be cautious, particularly when handling large orders.

Realistically, you'll probably ship before cashier'schecks and money orders clear. But you're taking a chance indoing so. Don't ever ship before a personal check clears. Toomany eBay sellers have been burned by buyers with insufficientfunds. This is common knowledge on eBay.

Nevertheless, it's good customer service to ship as soon asyou receive payment. You might receive bounced checks on which youcan't collect, but you can factor these into your expenses.Physical stores often have to do this. You'll build yourcustomer-service reputation by shipping immediately.

When to Ship

Deciding when to ship isn't easy, considering that waitingfor a payment to clear is not good customer service. If you sellfive-dozen $25 items each week and experience only one or twobounced checks, you might opt to ship as soon as the checks arereceived. Your loss is small and you need a lot of customers.Still, if you sell three $1,700 items a week, you might want towait for a payment to clear before you ship your product.

If a check bounces, try cashing it again as long as your bankdoesn't apply charges. In the end, when you've lost yourpatience and haven't been paid, report your loss to eBay andgive negative feedback to the winning bidder. If the loss is largeenough, pursue a remedy, such as filing a criminal complaint orfiling a lawsuit.

Credit-Card Fraud

Credit-card fraud is widespread. Stolen credit-card numbersabound. The most quickly growing crime is identity theft. Theobject of the identity thief is to get cash and merchandise usingsomeone else's credit card.

It's not a good idea to ship to a different address from theone for the credit card used to purchase the item.

The future for the safe use of credit cards looks brighter. Somecards have a CVV2 number (printed in the back of the card). Somerequire a PIN (personal identification number). The use of enhancedsafety features will be much more widespread in the future. If youcan use these safety features, do so. Until then, be careful.

Credit-Card Chargebacks

Many eBay sellers won't accept credit cards. They'vebeen burned by unjustified chargebacks. That happens when a buyercontacts his credit-card issuer and claims that the seller did himwrong. The issuer charges the purchase amount back to the sellerand credits the buyer's credit-card account. The issuer isinvariably a financial institution such as a bank. Some banks dochargebacks automatically or perform only a cursory investigation.Others investigate, as they should. When the bank does investigate,the bank will naturally have a tendency to favor its customer, thebuyer. Nonetheless, some banks favor the seller, oddly enough.It's a crapshoot. But don't let someone get away with anunjustified chargeback too easily. Contest it.

Customer Service

Plainly, credit cards are not risk-free. Walking out your doorin the morning isn't risk-free, either. You'll need toassume some risks to do business. Accepting credit cards is one ofthem. Accepting credit cards is good customer service and is wellworth the risk of chargebacks.

Fraud With a Valid Credit Card

Here's an example of how credit-card fraud can cause a loss.The names have been changed to protect the used-to-be innocent. Thebuyer, Mr. Slick in New York, sees Mr. Sellwell's new computerin an eBay auction ad. He contacts Mr. Sellwell in Los Angeles bye-mail to order 12 new computers to be shipped to an address inPakistan. He gives a credit-card number. Mr. Sellwell, being nodummy, gets a phone number and calls Mr. Slick to verify the order.Mr. Slick verifies the order on the phone. Mr. Sellwell ships thecomputers. A month later the bank notifies Mr. Sellwell that Mr.Slick has charged back the purchase, claiming he never ordered anycomputers.

Mr. Sellwell calls Mr. Slick to find out what's going on.Mr. Slick denies ever making the order. (Yes, it's the sameperson on the phone.) Mr. Slick's e-mail address is nowdefunct. Mr. Sellwell reports this to the bank, which refuses to doanything about it. Mr. Sellwell then reports it to the attorneygeneral in New York state and is told the case can't be won incriminal court. It's just Mr. Sellwell's word against Mr.Slick's word. So, the attorney general won't eveninvestigate the case. Mr. Sellwell has no recourse through eBay,because the transaction took place outside of eBay. Mr. Sellwellhas just taken a loss equal to the cost of 12 computers.

This true story illustrates two points. First, sellers can bethe victims of eBay fraud. Second, don't ship to an addressdifferent from the one given for the credit card.

International Fraud

International fraud is so prevalent that few sellers will sellto those outside the U.S., at least in regard to the use of creditcards for payment. Although you might have some workable remedyinside the U.S., as a practical matter, you have none outside. Ifyou don't receive a payment before you ship, you're takinga substantial risk of loss.

Transactions using, an eBay company that lets anyonewith an e-mail address send and receive payments online, are anexception. The site verifies its credit-card holders and alsoallows members to use bank accounts.

Follow this advice and you'll avoid selling to fraudulentbuyers. While it's possible some transactions will still goafoul, sales to honest buyers will likely far outweigh anylosses.

Copyright © 2005 Dow Jones & Company, Inc. All RightsReserved

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