Making Holiday Shopping on the Internet a Safe Venture, PART ONE

Authored by Andrew J. Zulieve, a commercial law attorney at Bernstein, Shur, Sawyer & Nelson

INTRODUCTION.

Consumers have embraced the Internet as a convenient and efficient way to do their holiday shopping. However, most of them do so harboring more than a little trepidation and fear of hidden criminal predators that lurk along the electronic highway. Although these concerns are not without a legitimate historical basis, by using common sense and taking some of the basic precautions outlined below, consumers can significantly minimize their risk of exposure to fraud and other unscrupulous scams
awaiting the unwary Internet shopper.

PRIMARY INTERNET CRIMES.

The Internet Fraud Compliant Center (IFCC), a partnership between the FBI and the National White Collar Crime Center (NW3C) compiled the following statistics of Internet crime reported to it by consumers from the U.S. and 89 different countries between May and September, 2000. Of the 12,812 complaints received by the IFCC, 48.8% of them were for auction fraud, 4.8% alleged credit card fraud, and 22.9% claimed theft of personal identity information. Interestingly, 71% of the reporting victims were male and over 76% of all reporting males and females were between 20 and 50 years old.

The IFCC also noted that most of these complaints were of the following types: (1) sellers did not deliver the products as advertised, (2) sellers did not deliver the products in a timely manner, and (3) sellers did not disclose relevant information about the products or terms of the sale. According to the IFCC and other consumer groups, these people may have become easy targets of Internet fraud because they approached Internet transactions with a naivety not generally accorded to sellers in fact-to-face dealings.

1. Theft of Personal Information:

Of primary concern to the holiday shopper is the security of personal information such as credit card numbers transmitted over the Internet to pay for purchase orders.
With this information a thief can do a number of insidious and damaging things, including:

A. Call up the shopper's credit card company and, pretending to be the shopper, ask to change the mailing address on that credit card account. Once changed, the thief can then run up charges on that account number for which the shopper will be billed.


B. Open a new credit card account using the shopper's name, date of birth and social security number. When the thief uses the credit card and doesn't pay the bills, the delinquent account is then reflected on the shopper's credit report.

C. Establish a phone or wireless service in the shopper's name.

D. Open a bank account in the shopper's name and write bad checks against it.

E. File for bankruptcy under the shopper's name and avoid paying debts they've incurred under your name.

F. Counterfeit checks or debit cards, and empty the shopper's bank account.

G. Purchase cars by taking out auto loans in your name.

These examples of actual incidents should provide ample motivation for consumer awareness and vigilance.

The prudent shopper can, however, significantly limit opportunities for theft of credit card and other similar personal information by taking the following steps: (1) Memorize your security code or PIN number of credit cards programmed to access ATM's, (2) Report lost or stolen cards immediately, since most fraudulent use takes place within days after the theft, (3) Make a list of credit cards and numbers, which will assist investigators of the theft, (4) Always check monthly statements to confirm that the charges listed are the consumers, and (5) Never give a credit card number over the telephone unless you are dealing with a reputable company. Such information should only be provided when the consumer has called seller to place an order.

2. Auctions:

Online auctions have become popular avenues by which unique gifts can be purchased often at substantial savings. However, as noted above, they are also fertile operating grounds for the unscrupulous predator so consumers are strongly urged to exercise caution when participating in these activities.

Consumers may receive goods far different from what they successfully bid on. The goods are usually of inferior quality or defective. Sometimes the consumer never receives the goods after payment has been made and the auction company has long since disappeared with the purchaser's money. In other cases, an auction company may use affiliate crooks known as "shills" who inflate the bidding price so that legitimate participants bid more, and ultimately pay more, for the desired merchandise.

The Internet bidder can minimize much of the risk by following a few important rules:

First, investigate the auction company by contacting the appropriate state or local consumer protection agency or better business bureau, and also obtain the physical address, phone number and so forth. Be particularly careful with private auctioneers since most consumer protection laws are not applicable to private sales.

Second, contact the auction company directly or via its website. Ask for specifics regarding delivery, returns, warranties and service. Insist on a pre-payment purchase statement describing the various items up for bid and the respective value of each.

Third, as shall be discussed in more detail below, pay by credit card whenever possible. Requesting cash is a clear sign of a fraudulent operation. If the consumer uses a check, make it payable to the auction company, not the post office, so that a stop payment order can be made if necessary. Payment by C.O.D. is also a viable option to consider.

And finally, establish a bidding level and stick to it. Use common sense and beware of promises or representations about merchandise that seem unrealistic or unreasonable.


3. Bulk E-Mail or "Spam":

"Spam" are those unsolicited, and mostly unwanted, advertisements that clog one's e-mailbox in vast quantities particularly during the holidays. Although most of it is harmless, albeit annoying, criminals use bulk e-mailings for a variety of scams.

A. Free Goods. E-mail messages sometimes offer free valuable goods such as computers and other electronic items, or long-distance phone calls. The consumer is asked to join a club for a fee. To qualify for the fee merchandise, however, the consumer must then solicit and procure a number of new participants. In other words, the consumer is now paying for the right to earn "free" gifts by recruiting others to join the club.

The Scam. Most of these e-messages are covers for traditional pyramid
schemes, which are invariably doomed to failure at the cost and expense of the innocent consumer. The promoters reap the most, if not all of profits, while the consumers often realize nothing for their efforts.

B. Vacation Price Promotions: Here, the criminal sends e-mails to a large number of consumers congratulating them on winning a fabulous, usually "specially selected" vacation.

The Scam. Most unsolicited commercial e-mails go to thousands or millions of recipients at a time. Unfortunately for the "winning" party, the cruise ship on which the "winning" consumer is booked turns out to be weathered old vessel, the hotel accommodations are shabby, and the winner may have to pay additional fees for an upgrade. If the consumer wants to select the vacation schedule, it will probably be very difficult and require additional money.

These are but a few examples of scams perpetrated through bulk e-mailings.
The consumer can reduce the amount of spam received by 55% or more, and thus the risk of fraudulent contests and offers too good to be true, by taking the following simple steps. First, use separate e-mail addresses, one for personal mail and one for online shopping transactions. The personal e-mailbox will be relatively free from spam and review of the shopping box contents will be relatively simple. Second, Don't make purchases from companies that transmit spam, visit their sites or ask for more information. Any such communications by the consumer will only encourage these companies to send more spam.

Sending spam may violate online service agreements. The identity of the Internet Service Provider (ISP) to which complaints should be lodged can be obtained from the domain name. Also, a consumer should look on websites visited to see if the sites enable the consumer to control receipt of e-mail from that site or others with access to consumer information.


4. Bogus Invoices. Internet criminals also transmit bogus billing invoices hoping to take advantage of consumers during the chaos of the holiday shopping fervor.
Invoices that do not include the telephone number of the vendor, even if the company listed on the invoice is a familiar one are particularly suspicious. For obvious reasons, criminals would prefer not to leave any contact information. Fraudulent companies also use threats of legal collection action to intimidate consumers into paying for goods or services they never actually ordered. Don't be pressured into submission. Immediately report any suspected billing fraud to the proper legal authorities.

Consumers should also be aware and look for e-mailings that look like bills but are actually only solicitations to order are required under U.S. Postal regulations require to bear the following statement: THIS IS NOT A BILL. THIS IS A SOLICITATION. YOU ARE UNDER NO OBLIGATION TO PAY THE AMOUNT STATED ABOVE UNLESS YOU ACCEPT THIS OFFER. Solicitations that do not have this language violate federal law and may part of an Internet scam operation.


SAFETY GUIDELINES FOR INTERNET SHOPPERS.

Although the potential risks of Internet shopping during the holidays (and at all other times) should not be treated cavalierly, the experience can be a safe, enjoyable and rewarding one by understanding and following these basic guidelines.

1. Get to Know the Online Merchants. As mentioned above, it is very important for consumers to become familiar with their prospective Internet vendors. As with auction companies, this should include obtaining the vendor's actual name, physical address, phone number and reputation. Be particularly aware of overseas companies, companies that claim to have "secret" connections in foreign countries, and any business that refuses to accept e-mail communications from buyers. Do business only with vendors that are trustworthy.

2. Use Credit Cards, Not Checks or Money Orders. Although caution is always necessary when providing credit card information over the Internet, the basic rule of online purchasing is to use credit cards rather than checks or money order.
The reasoning is logical. Once a check or money order has been mailed, it is no better protected than a cash payment. Consumers rarely perceive that they have been victims of fraud until after the check or money order has been cashed. Even more disconcerting to consumers is the realization that the crook now has their bank account and routing number, which is all that is needed to make bank debits at will. With cash payments, there is not even a record that the consumer has paid the bill.

Credit cards are the safest means of making online payments for several reasons. First and foremost, federal law limits a consumer's personal liability for unauthorized credit card charges to $50. In fact, most credit card companies will not charge the consumer at all if the theft is reported to them promptly. Some credit card issuers offer extended warranties or other advantages for a credit card purchase. Also, if the product doesn't arrive on time, or if the consumer is dissatisfied with and choose to return the product, the consumer has the right to dispute the vendor's charges.
Consumers can also challenge unauthorized use of debit cards or withdrawals from their bank accounts, although the legal rights are not the same as those accorded to credit card charges. Some banks and debit card companies voluntarily offer additional protections in these cases.

3. Be Selective About Information Provided Online. Information provided to one party may be shared with others for various purposes which may or may not be legitimate.

4. Website Privacy Policies. The website of a vendor should contain the vendor's private privacy policies. These policies disclose how a consumer's financial account numbers and other personal information are protected during the purchasing process, whether that information is protected after it is stored, and how the consumer can correct any inaccuracies in that information. Many of these policies also give consumer the option to permit, or not to permit, the vendor to collect their personal information.

There are software programs available that enable consumers to determine if a website's privacy policies are adequate. Usually consumer information is encrypted or scrambled so that no one else can access that information online without the consumer's permission. For example, the privacy policy of the IFCC states that data is collected at a website to validate consumer complaint information. It further states that when a person visits that website, the IFCC may also collect information regarding the consumer's (1) domain name, (2) type of browser and operating system used to access the website, (3) the date and time of consumer access, (4) the user's internet address, and (5) the website pages visited by consumer. If the website has no privacy statement, it is impossible to tell if the website operator will collect information about the consumer and how that information will be used..

5. Shop Only at a Secure Website. Holiday Internet shoppers should only patronize vendors that protect their financial information when an order is placed online. Shoppers can verify if a website is secure in a couple of different ways. At the point when the consumer is ready to consummate the purchase and is asked to provide a credit card number, social security number and so forth, the letters at the beginning of the website address located at the top of the computer screen change to either "HTTPS" or "SHTTP," depending on the type of security system used on a particular site. The browser software that enables the shopper to travel Internet may also indicate if a website is secure. Shoppers should look at the bottom of their computer screen for a symbol such as a broken key that becomes a whole lock that closes. Common Browsers are Internet Explorer & Netscape Navigator.

In most cases, the only information a vendor needs to confirm a purchase is the consumer's credit card number and shipping information are all that the vendor needs to complete an order. Avoid shopping at vendors that request more information than the consumer is comfortable providing.

6. E-Mail is Never Completely Private. This Internet maxim cannot be stressed enough. Consumers should never send anything by e-mail that they do not want to risk others from receiving. Always close out e-mail when not in use to prevent its unauthorized access by others.

7. Keep Passwords Secret. Consumers should put passwords on their credit cards, bank and phone accounts. These passwords should be changed from time to time or whenever the consumer registers with a new website. If consumers receive an e-mail request for their passwords from anyone claiming to represent a company or ISP that already has that information, be very suspicious. Contact the company or ISP immediately to verify that request.

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To read Part Two of this article, click on the Bernstien, Shur logo and then click "Making Holiday Shopping on the Internet a Safe Venture, PART TWO."