Does Congress Need to Regulate Online Auctions?

Lauren Dunn, Medill News Service

WASHINGTON, D.C.-- Congress wants to know how Internet auction sites are protecting your interests--and is considering whether lawmakers need to step in.

Two members of the House Energy and Commerce Committee are asking e-commerce companies how they protect consumers from fraud, specifically "shilling," the practice of driving up a bidding price on behalf of the seller. They're examining the rules and policies of popular online auction sites, including eBay, Yahoo, and Amazon.com.

Louisiana Republican W.J. "Billy" Tauzin, the committee chair, and Rep. Heather Wilson, R-New Mexico, say 64.1 percent of all Internet fraud complaints involve auctions. This makes such scams rank higher than all other online fraud combined, they say.

Despite the statistics, officials from popular online auction sites say their consumers have the best protection.

"Trust and safety are at the core of eBay," says Meg Whitman, chief executive and president of eBay, which claims 30 million registered users around the globe. "The fact that our users traded nearly $2 billion in merchandise in the first quarter underscores the tremendous amount of activity on the site."

Whitman says all eBay users must give a credit card number to register and are rated by other buyers and sellers. The company also tracks and investigates suspicious transactions, including instances of shilling.

A software program called Shill Hunter actually looks for cases of shilling, which was allowed on eBay until three years ago.

Are Complaints Relative?

Similar to eBay, Yahoo offers customers a $200 guarantee on every transaction, says Brian Fitzgerald, senior producer for Yahoo auctions. Yahoo also lists seller and buyer ratings and requires a credit card number for all users to register, he says.

Less than 1 percent of all eBay listings result in fraud, says eBay's Whitman, adding that a 250-member staff works alongside the software to investigate and prevent fraud.

"Most of the time, things that look like shill bids are legitimate," Whitman said.

Though most online auction sites take protection measures comparable to eBay, the Federal Trade Commission says the number of complaints has grown from 106 in 1997 to 13,901 in 1999. But then it dropped to 10,872 cases in 2000, Whitman says.

"[These numbers] actually make me feel pretty good," Whitman says. "Between 1999 and 2000, eBay listings amounted to 125 million listings for sale, and then in 2000 it listed 265 million for sale. Our listings doubled, while complaints went down 20 percent."

Auction-related complaints made up 48.8 percent of reports in the first six months of operation by The Internet Fraud Complaint Center, a joint venture of the FBI and the National White Collar Crime Center. It opened in May 2000.