US lawmakers turn spotlight on Net auctions

Consumer complaints lead US lawmakers to ask eBay, and Yahoo about online auction fraud and about how the e-commerce sites deal with it.

Congress is starting to take a closer look at online auction fraud, and is asking some of the leading e-commerce sites how they cope with the problem.

The chairman and one of the members of the House Energy and Commerce Committee on Monday sent a letter to the chief executives of eBay, Yahoo and, asking them to address questions about the prevalence of fraud and specifically about shill bidding.

Shill bidding, made infamous in the sale of a faked Richard Diebenkorn painting last year, involves sellers bidding on their own auctions anonymously to increase the closing price.

"Although there are copious statistics on Internet auction fraud, there is little analysis of the practices that facilitate that fraud," the lawmakers wrote in their letter.

"We request your assistance in determining the causes of online auction fraud as well as solutions to help protect consumers and boost confidence in e-commerce. We would be interested in specific recommendations."

Committee chairman Rep Billy Tauzin, R-La, and member Rep Heather Wilson, R-NM, sent the letter in response to consumer complaints they have received and articles they have read on auction fraud, committee spokesman Ken Johnson said.

The committee does not have any plans to hold hearings on online auction fraud and Tauzin has no plans to introduce legislation to combat auction fraud, Johnson said. Instead, the letters were to get a better understanding of the issue.

"In the end, the chairman will decide what to do based on responses to the letter," Johnson said. "There's always the possibility of intervening legislative action. Our only goal at the end of the day is to make certain that consumers feel secure in making online transactions."

eBay chief executive Meg Whitman will appear at a news conference with committee members Wednesday to address online auction fraud, Johnson said.

Yahoo welcomes Tauzin and the committee's efforts to raise awareness of online auction fraud, said John Scheibel, Yahoo's director of government relations. Scheibel declined to say whether the government needs to take stronger action to combat online auction fraud.

Pointing to Yahoo's feedback system and a program that insures its buyers against fraud, Scheibel said those efforts have led to a "very low" incidence of fraud on the portal's auction site. He declined to give any statistics.

Scheibel said the company will respond as quickly as possible to the committee's questions.

"Raising consumer awareness, combined with the ways we help consumers to protect themselves, that's a pretty good combination, Scheibel said.

eBay representatives could not immediately be reached for comment. Amazon representatives did not respond to calls seeking comment.

After skyrocketing from 106 complaints in 1997 to nearly 14,000 in 1999, the number of online auction complaints dipped last year to less than 11,000, according to the Federal Trade Commission.

But according to a survey published in April, consumers are doing little to protect themselves from online fraud and auction sites have made it difficult for consumers to know how much protection they offer.

As complaints have risen, the government has taken a more active role in policing fraud. In May, for instance, officials charged about 90 people and companies that were involved in alleged fraud schemes that cost consumers some US$117 billion. Meanwhile, the US Attorney's Office in Sacramento, California, secured guilty pleas from two of the defendants in the Diebenkorn case earlier this year.

But the committee's letter marks one of the first times Congress has addressed the issue of online auction fraud. The committee asked company executives about "feedback padding", where sellers leave themselves positive feedback to improve their rating; the ability of sellers to have multiple user IDs on sites; and whether fraud is more prevalent with particular payment methods.