E‐BUYER BEWARE: WHY ONLINE AUCTION FRAUD SHOULD BE REGULATED

Abstract

Well-settled principles of law, such as those encompassing fraud in its various forms, have long maintained their vitality, adapting to changes in the legal and business environments through judicial and legislative interpretation and intervention. Many of these changes have manifested themselves in the world of commerce. The creation and development of the Internet has resulted in significant changes in the way people engage in commerce. The increasing popularity of the Internet as a medium of commerce has generated an increase in Internet fraud, raising new and challenging legal issues in areas including online auctions. Under current law, a defrauded participant in an online auction transaction has no recourse against the online auction site that facilitated and controlled the auction transaction and claimed a percentage of the transaction price as its fee. Online auction sites can and do legally disclaim any responsibility for fraud occurring on their sites. Because of the lack of meaningful consumer protection with respect to online auctions in the form of consumer education efforts and appropriate regulation and effective enforcement thereof, the rising numbers of online auction fraud victims are left with no meaningful avenues of relief.The increased popularity of the Internet and the huge volume of e-commerce transactions have generated opportunities for cyber crimes and torts, including various forms of Internet fraud. The Internet offers low-cost communication, the capacity to reach a global audience, and a presumptive veneer of credibility stemming from the anonymity of cyberspace. Thus, Internet users may find it hard to distinguish genuine sources of information from fraudulent sources, creating a fertile environment for all kinds of Internet fraud. This article examines the most commonly reported form of Internet fraud, online auction fraud. Part I discusses fraud in the context of online auctions, highlighting the increasing numbers of reported cases and the most common forms of online auction fraud. Part II examines two prominent online auction fraud cases, and illustrates the critical need both to protect consumers from being victimized by online auction fraud and to provide opportunities for meaningful relief in the event that consumers are so victimized. Part III offers suggested areas for regulation to protect consumers from online auction fraud, and further provides an examination and evaluation of the responses to online auction fraud by various consumer and law enforcement groups. Part IV examines the response of online auction sites to online auction fraud. Part V is an examination of some forms of online alternative dispute resolution. Because of the lack of meaningful consumer protection stemming from the lack of appropriate regulation and effective enforcement thereof, and the dearth of consumer education with respect to online auction fraud, online alternative dispute resolution remains one of the only available avenues of relief for victims of online auction fraud.