Going wireless – National Consumers League

More and more people are relying entirely on wireless phone service to keep in touch with family, friends, and work. Wireless providers’ plans, available phones, and terms of service change frequently. If you’re in the market for a new phone, it’s a good idea to shop around, read each company’s offers carefully, and think about your needs before committing to a new contract.

  • How will I use my cell phone? Only for emergencies or more frequently?
  • When will I make most of my calls? During the day, at night, or on the weekends?
  • Where will I be making and receiving calls? Close to home or far away?
  • How much does my monthly budget allow for telephone service, including wireless?

How will you use your phone?

Wireless plans commonly offer “buckets” of minutes. You pay for a specific number of minutes each month, whether you use them all or not.

  • If you use more than your monthly allotment, you pay a much higher charge for the extra minutes.
  • Unused minutes may not carry over to the next month.
  • Most wireless plans count the minutes for both calls you make and receive.
  • Charges are usually rounded up. For example, a call that takes one minute and three seconds may be charged as a two-minute call.
  • Unlike traditional phone service, most wireless providers start the clock when you press the “talk” or “send” button, not when the person at the other end of the line picks up.
  • You use minutes when you call toll-free numbers.
  • Some services allow you to check by telephone or online to find out how many minutes you have left in your billing cycle. Depending on how often that information is updated, it may not be absolutely current.

Some service providers offer prepaid plans. Instead of getting a monthly bill, you pay in advance for a certain number of minutes. When you use them up, you can add more. Prepaid plans may be more expensive per minute than the monthly calling plans, but they can be very useful for people who don’t use the service much, have limited budgets, or want to control their children’s cell phone use. They may also be a good choice for people who are trying to rebuild their credit.

Another alternative is a plan with a preset spending limit; when you reach the limit, you have to pay your bill before you can continue to use the service.

Where will you use your phone?

Wireless phone service uses radio waves, much like radios and televisions. As with those devices, your cell phone might have static, drop calls, get busy signals, or not work at all depending on where you are, the weather, and other factors. Your location may also determine how much it costs to make calls. Some wireless plans are based on “home areas.” Others offer nationwide service.

  • It’s important to select a service that works in your neighborhood and other places where you plan to use it.
  • If you use your phone outside of your home area, you are connecting to the network through another company. Some wireless plans charge a “roaming” fee, on top of the minutes you use, for those calls.
  • Even within your “home area,” some calls may be long-distance. Some plans include long-distance calls for the same rate, while others charge more (on top of the minutes you use).

You could pay roaming charges, long-distance charges, and have your minutes assessed, all for the same call, depending on your wireless plan and your location. When comparing plans, consider where and how you’ll be using your phone.

Read the fine print

It may be hard to catch all the details in advertisements for wireless service, so be sure you understand the terms before you sign up. Wireless plans often require signing a contract for a year or longer, so be sure you know:

  • Whether your minutes can be used any time, including “peak times” (usually weekdays), or if there is a certain number of minutes that are restricted to “off-peak times” (nights and weekends), and what the cutoff times are;
  • How much it costs if you use more than your allotted number of minutes;
  • The charges, if any, for roaming and/or long-distance;
  • The cancellation policy. Many carriers charge more than $100 to end your contract early;
  • Whether you can increase or decrease the number of minutes or make other changes to your contract after you’ve activated your phone and started using it, and what the terms would be;
  • If features such as voicemail and Caller ID are included, or if they are extra;
  • The cost for 800-number or directory assistance calls; and,
  • What happens when your contract ends — do the terms of service and charges change?

Get all promises in writing. Ask if there is a grace period within which you can cancel for no or a small charge if the service doesn’t meet your expectations. Try it out as soon as possible to see how it works in the places you would normally use it.

Choosing the phone that’s right for you

Wireless providers sell a variety of phones that work with their service; sometimes they offer free or discounted phones as part of their promotions. When choosing a cell phone, consider:

  • The size that you want;
  • Whether you can use the keypad easily; and,
  • Whether it can handle features you might want such as Caller ID and Internet services.

Some cell phones work with older analog networks. Most sold today work with newer digital networks, and some (called dual-band) work with both. If the phone only works with digital networks, you may not be able to “roam” — make or receive calls outside your home area.

To accommodate people with special needs, some phones can operate with voice-activated commands. Many have raised numbers on the keypads. All providers must offer at least one phone that works with TTY devices. People who use hearing aids should ask if the phones are compatible with them.

It’s also important to know that if you switch your wireless provider, you may have to get another phone, but you will be able to keep the same number.

Going completely wireless

More and more people are using wireless phones for all of their calls and abandoning “landlines” entirely. For some consumers, just going wireless could be a better deal than keeping their landline phone service, too. Be aware that:

  • You might not get good (or any) reception inside your house or apartment building.
  • Weak or dead batteries can also prevent your cell phone from working when you need to make a call. If that happens in an emergency situation, you would be unable able to dial 911.

Families with children, people who work at home, people who are homebound, and other people who depend on phone service may want the security of having a landline as well as a wireless phone.

Wireless Internet service and messaging

Many wireless companies provide Internet access, including email and Web browsing. As wireless technology advances, Internet services are becoming faster and more varied.

  • Some plans charge by the minute. Ask whether Internet use counts against the number of minutes in your plan or if you have a separate “bucket” of minutes for it.
  • If the charges are by the kilobyte, consider how many you are likely to use. The average 100-word email without attachments or graphics is one kilobyte, but things like graphics and music files are much larger and take up many more kilobytes (1,024 kilobytes equal one megabyte).

Some plans provide unlimited Internet service. Another popular service is text-messaging, which enables you to send small notes to other wireless users. Ask the provider what the per-message charge is and whether you can send messages to people who use other companies’ services.

 

Cell phone safety and etiquette

Use your wireless phone in a responsible and considerate manner. You should know that:

  • It’s safest to drive with both hands on the wheel. Taking your hand off the wheel to dial or talk on your wireless phone can be dangerous; in some places it’s illegal.
  • Many wireless providers offer hands-free kits and voice-dialing features to improve safety. However, talking on the phone while driving can still be distracting. If you need to make or receive a call, the best thing to do is to pull over safely.
  • You may be unable to use your phone in an emergency if coverage is poor in your location. As long as the service works, you can make 911 calls at no charge even if your phone has been disconnected or you haven’t activated the service yet.
  • When you’re in a meeting, a concert, a movie, a restaurant, or any place where a ringing phone might disturb others, turn your phone off.
  • If you’re talking on your cell phone in a public place, speak softly to avoid bothering other people and keep your conversation private.

Avoid wireless fraud

If your phone is stolen or someone uses the electronic serial number to “clone” your phone, calls could be made against your account. To prevent unauthorized charges and protect sensitive information such as your account number:

  • Keep your bills and service agreements locked away.
  • Store your phone out of sight in a secure place.

“Cramming,” unauthorized charges for services you never agreed to, can occur on wireless as well as landline telephone bills. You should also be aware that downloading games, custom ring-tones, or other products or services may result in charges. Read your bills carefully as soon as you receive them and contact your wireless provider promptly about any questionable charges.

Think twice about credit repair offers – National Consumers League

Good credit is important; a bad credit history can impact your ability to get loans, housing, or even a job. But while promises to “fix” bad credit may be tempting, they’re not true – and they may leave you in worse financial shape than when you started.

  • No one can erase negative information if it’s accurate. Only incorrect information can be removed. Accurate information stays on your record for 7 years from the time it’s reported (10 years for bankruptcy). Even information about bills you fell behind on but now are paid will remain on your report for these time periods.
  • Credit repair services can’t ask for payment until they’ve kept their promises. Federal law also requires credit repair services to give you a explanation of your legal rights, a detailed written contract, and three days to cancel (this applies to for-profit services, not to nonprofit organizations, banks and credit unions, or the creditors themselves).
  • You can correct mistakes on your credit report yourself. If you were recently denied credit because of information in your credit report, you have the right to request a free copy. Otherwise there is a small fee, unless your state law provides for one free report a year. It doesn’t cost anything to question or dispute items in your report. Follow the instructions provided by the credit bureau. The major credit bureaus are: Equifax, 800- 685-1111,www.equifax.com; Experian, 800-682-7654, www.experian.com; and TransUnion, 800-916-8800, www.transunion.com. Contact all three, as the information each has may vary.
  • You can add an explanation to your report. If there is a good reason why you weren’t able to pay bills on time (job loss, sudden illness, etc.) or you refused to pay for something because of a legitimate dispute, give the credit bureau a short statement to include in your file.
  • Know that you can’t create a second credit file. Fraudulent companies sometimes offer to provide consumers with different tax identification or social security numbers in order to create a new credit file. This practice, called “file segregation,” is illegal, and it doesn’t work.
  • If you have credit problems, get counseling. Your local Consumer Credit Counseling Service (CCCS) can provide advice about how to build a good credit record. The CCCS may also be able to make payment plans with your creditors if you’ve fallen behind. These services are offered for free or at a very low cost. To find the nearest CCCS office, call toll-free, 800-388-2227, or go to www.nfcc.org.

NCL announces DOJ stipend winners to educate seniors – National Consumers League

Under a grant from the Bureau of Justice Assistance in the U.S. Department of Justice, the National Consumers League was able to award stipends totaling $20,000 to 11 agencies and organizations for a wide variety of projects aimed at educating senior citizens about telemarketing fraud. The stipends were distributed in the spring of 2006. Some programs concluded in the spring 2007, some in the fall, and some are ongoing using other sources of funding.

The experiences of the stipend recipients provide useful guidance for other agencies and organizations that may want to undertake projects to educate people in their communities about telemarketing fraud and other subjects.

Meet the stipend recipients and the programs that earned them such an honor in this report.

Understanding your phone bill – National Consumers League

Life’s a lot more complicated than it used to be – and so is your phone bill!

With more competition for telephone service and new services being developed every day, you have more choices for your communications needs than ever before. But understanding your options – and your phone bill – has become much harder.

Many phone companies are redesigning their bills to make them easier to understand. However, the charges may still be confusing unless you know some basics about how telephone billing works.

Looking at your phone bill carefully – and understanding what it says – will help you use phone services wisely and avoid fraud.

Basic services

  • Your local phone bill includes a basic monthly charge for the dial tone that enables you to make and receive calls, maintain the connection between your home and the telephone company’s central office, be listed in the telephone book, get a copy of the directory, and make a limited number of calls for directory assistance.

Local calling charges

  • You may have a “flat rate” local telephone plan in which your monthly service charge includes the ability to make an unlimited number of calls to other phones located near you. The size of the local calling area varies from company to company.
  • If you have “measured service,” you are limited to the number of calls that your monthly package allows; if you make more calls, you pay an additional charge for each one.
  • You may only have one choice for local services now, but as time goes on there will be more competition. The pricing plans and service options offered by each company may vary.

Local toll

  • Sometimes called “short distance calls,” local toll calls are made to places that are not close enough to be in your local calling area but not far enough away to be handled as long distance calls.
  • As competition for phone services increases, more consumers can choose whether to have local toll calls completed by their local telephone companies or other companies.
  • The area that each company serves for local toll calling and the prices they charge may vary.

Long distance

  • There are many ways that you can make long distance calls. Most consumers have a regular, or “presubscribed” long distance carrier. When you dial “1” plus the area code and the phone number, the access code for the presubscribed carrier is automatically entered and the call is billed at the rates that company charges.
  • In most parts of the country there is competition for long distance service. Calling plans can vary widely, not only in rates but in the geographic areas they cover, and companies may offer more than one plan to choose from. There may be a monthly fee in addition to the charge for each long distance call and there may be a minimum monthly charge.
  • You can also make long distance calls using a “dial-around service.” You manually enter another company’s access code (such as 10-10-XXX), then “1”, the area code, and the phone number. That company will then bill for the call based on its own rates. Look at ads for dial-around services carefully – the prices they quote may only apply if you talk for a certain number of minutes, or the rates may vary depending on time of day or where you are calling, and there may also be a monthly fee added.
  • Calling cards, which are like charge cards for telephone calls, are available from many companies. You can use them from your home phone, a pay phone, a phone in a hotel room, or somewhere else. The charges might be billed through your local phone company or directly by the calling card company. Depending on your calling card company, the cost of some calls could include a surcharge in addition to the per-minute rate. There may also be a monthly fee. Be aware that some phone companies may not accept calls made with cards issued by other companies.
  • Collect calls are charged to the bill of the person whose number is being called. They can be made through a local or long distance operator or through services offered by other companies. The rates vary according to which company provides the service. For instance, if you call collect through an operator at a pay phone, the cost is set by the company that provides service to the phone you’re using. If you make a collect call from the same phone through another company’s 800 number collect call service, the call is billed at that company’s rates.

Pay-per-call services

  • These are information and entertainment services provided through 900 numbers, some 800 numbers, and certain international phone numbers.
  • The rates can vary from as little as a few cents to several dollars per minute. Some pay-per-call services are billed at a flat rate for each call.
  • Charges for pay-per-call services provided through 900 and 800 numbers are set by the service providers, not the telephone companies. They will appear on a separate page in your phone bill.

Miscellaneous services

  • Miscellaneous services can include caller ID, call waiting, voice mail, paging, and even Internet and other non-telephone services. They may be provided by your local phone company or other companies.
  • Depending on what company provides them, charges for miscellaneous services may appear on the phone bill under your local company’s services or on a separate page.
  • Before you pay your bill, read it carefully and make sure that you are only being charged for services you have authorized.

Fees, surcharges, and taxes

  • In addition to the charges you pay for the services you use, you’ll find various fees, surcharges, and taxes on your bill. Taxes go straight to the government. Some fees and surcharges billed by telephone companies cover the costs of carrying out government-mandated programs, others are intended to recover portions of their operating expenses. Companies may use different terms to describe these charges.

Directory assistance

  • Your monthly local service charge may include a certain number of “free” calls for directory assistance. If you make more local directory assistance calls than are included in your monthly package, there is an additional charge for each call.
  • You may also be charged by your long distance company for any long distance directory assistance calls you have made using their operators.
  • Many local and long distance companies have begun to provide nationwide directory assistance services, with rates that vary from company to company. You may be allowed to request more than one listing in each call to directory assistance. Know what each company charges for directory assistance before placing the call. And if the directory assistance operator offers to complete the call for you, be aware that there may be an additional charge for this service.

Lifeline surcharge

  • Some states collect a lifeline surcharge to assist low-income consumers. As of July 1, 2000, low-income consumers who subscribe to Lifeline service will not be billed for the subscriber line charge or the universal service fee.

Local number portability charge

  • Local telephone companies have created a system that allows consumers to keep the same phone number when they change local service providers. This fee, charged to all customers, covers the cost of this technology. The amount of this fee may vary based on where you live.

State subscriber line charge

  • Some states allow local phone companies to assess this fee to recover the cost of providing lines for services within the state, like intrastate long distance and local service.

Subscriber line charge, or end-user common line charge

  • This is a fee that the Federal Communications Commission allows local phone companies to charge to recover a portion of the costs of completing long distance calls on their local networks.

Taxes

  • There is a federal excise tax assessed on telephone service.
  • You may also be charged state and municipal taxes depending on where you live.

Telecommunications relay service

  • Some people who have hearing or speech disabilities use a special type of text telephone, called a TTY, to place calls.
  • This fee, which is charged to all customers, covers the cost of providing a “translation” service for calls between TTYs users and people using traditional voice telephone. It also helps to subsidize the cost of specialized telecommunications equipment for people with specific disabilities.

Universal service fees, universal connectivity charge, telephone assistance plan, or universal service fund

  • Long distance companies, and most local providers, charge this fee as part of a federal program to subsidize local telephone service for low-income consumers or those who live in areas where the cost of providing telecommunications services is exceptionally high.
  • It also covers discounted communications services for schools, libraries, and rural health care facilities.

911 surcharge

  • This is collected on behalf of state or local governments to cover the cost of providing 911 access to emergency services.

Groups unite to issue call for action against phishing scams – National Consumers League

Consumer confidence in conducting business and protecting personal data online is threatened every day by phishing scams. In an initiative led by NCL, law enforcement, financial services, and technical industries have joined forces to combat this threat. The group have issued a “call to action” with the release of a paper outlining key recommendations that form a comprehensive plan for combating phishing more effectively.Phishing is a large and growing problem, in which identity thieves pose as legitimate companies, government agencies, or other trusted entities in order to trick consumers into providing their bank account numbers, Social Security numbers, and other personal information. In 2005, phishing scams ranked 6th in Internet complaints to NCL’s Internet Fraud Watch program and the scams continue to dupe consumers. A May 2005 consumer survey by First Data found that 43 percent of respondents had received a phishing contact, and of those, 5 percent (approximately 4.5 million people) provided the requested personal information. Nearly half of the phishing victims, 45 percent, reported that their information was used to make an unauthorized transaction, open an account, or commit another type of identity theft.

NCL’s new report, the result of a comprehensive three-day brainstorming retreat organized by the Washington-based consumer advocacy organization last September, makes multiple recommendations on how to combat it.

“There is no silver bullet to solve the phishing problem, but there are known responses that need more support and promising new approaches that could help deter it,” said Susan Grant, director of NCL’s National Fraud Information Center. The key recommendations in the report are:

  • Create systems that are “secure by design” to make consumers safer online without having to be computer experts;
  • Implement better ways to authenticate email users and Web sites to make it easier to tell the difference between legitimate individuals and organizations and phishers posing as them;
  • Provide better tools for investigation and enforcement to prevent phishers from taking advantage of technology, physical location, and information-sharing barriers to avoid detection and prosecution;
  • Learn from the “lifecycle of the phisher” and use that knowledge about how these criminals operate to exploit points of vulnerability and stop them;
  • Explore the use of “white lists” to identify Web sites that are spoofing legitimate organizations and use “black lists” to create a phishing recall system that would prevent phishing messages from reaching consumers;
  • Provide greater support for consumer education, using clear, consistent messages and innovative methods to convey them.

Sponsorship for the initiative was provided by the American Express Company, First Data Corporation, and Microsoft Corporation. The recommendations were developed by retreat participants representing financial services firms, Internet service providers, online retailers, computer security firms, software companies, consumer protection agencies, law enforcement agencies, consumer and ID theft victims organizations, academia, and coalitions such as the Anti-Phishing Working Group and the National Cyber Security Alliance. Peter Swire, C. William O’Neill Professor of Law at the Moritz College of Law of the Ohio State University, wrote the report for NCL.

In the next phase of this project, NCL is forming working groups and inviting organizations and experts who are concerned about phishing to examine how the anti-phishing strategies in the report can be adopted on a widespread basis. “We all need to work together in a systematic approach if we want to have a significant impact on the tidal wave of phishing that is hitting consumers and hurting legitimate organizations,” said Grant.

Teens spend big, but don’t always spend smart – National Consumers League

Over half of teens (52 percent) wrongly believe that a credit card is an informal agreement to pay money owed. And where are they learning this? Sixty-three percent say they get most of their information about money, credit, and other financial matters from their parents.

The National Consumers League commissioned a survey by Opinion Research Corporation International that tested teens’ knowledge of financial issues and examined their attitudes toward money, work, and savings. It also questioned how they plan to deal with credit cards and other loans. Findings showed that, while teens are thinking about saving, paying for college, and obtaining credit cards, they may not have a grasp of exactly what a credit card is, how much of college expenses their parents can pay, or what they’ll make when they get their first job.

Work, money, and savings

It’s not news to anyone who has visited a fast food restaurant in the past decade that many teens are working; 62 percent say they get most of their money from part-time employment, summer jobs, or neighborhood jobs such as babysitting or raking leaves. Over half (55 percent) say they work mainly for spending money. Another 35 percent mainly save the money they make.

Saving money is important to American teens; about nine out of ten save money, though 36 percent admit that they’re saving for specific items they want to purchase. Almost one quarter (22 percent) are saving for college and 27 percent save for no particular reason. Four out of ten say they save half or more of their money, and three out of four have a savings account. Only about one in five teens report having a checking account, and small percentages say they have ATM (12 percent) and debit cards
(8 percent).

Paying for college

Teens are falsely optimistic about their ability to obtain scholarships and grants to pay for college; 38 percent say that’s the main way they’ll cover the costs. One in four say their parents will carry the burden, 12 percent plan to work through school to pay the costs, and only ten percent believe they’ll mainly use student loans to cover the cost. According to a report by The College Board, loans comprise 58 percent of college aid packages, while scholarships and grants make up only 25 percent. Most of NCL’s survey respondents (56 percent) believe their parents will pay for 20-50 percent of their college bill, while 12 percent don’t expect their parents to make any contribution.

Life after college and credit cards

Over one-third (38 percent) of teens believe they will make under $25,000 in their first job out of college. The reality, according to the Collegiate Employment Research Institute, is that the average college graduate with a bachelor’s degree makes between $29,300 and $34,600. One in five survey respondents think they’ll make more than $36,000 in the first year. Teens are planning to get credit cards; 58 percent plan say they’ll get their first card before they graduate from college.

When teens plan to get their first credit card

This interest in credit cards is noteworthy since over half (52 percent) wrongly believe that a credit card is an informal agreement to pay money owed. And where are they learning this? Sixty-three percent say they get most of their information about money, credit, and other financial matters from their parents. But parents might not be the best resource. The average American family carries almost $9,000 in credit card debt. And even if their parents are providing sound advice, over half of the teens admitted that, when they do talk to their parents about money, it’s to ask for some to spend.

Financial privacy, shopping online

Though thought to be more Internet savvy than their parents, teens have some disturbing misconceptions about shopping online. Sixty-eight percent mistakenly believe it’s safer to pay for goods bought online with a check or money order than by giving a credit card number and 55 percent wrongly think that businesses must go through a screening process to make sure they are legitimate before they can put up a Web site. When asked the same two questions in 2001, adults knew a bit more than the teens, with 41 percent correctly answering the safest way to pay question, and 73 percent knowing that companies are not screened before they put up site. Teen respondents also showed a lack of understanding of important financial privacy issues. A majority (70 percent) wrongly believe that it’s illegal for banks to share a person’s financial information with other affiliated companies.

NCL’s consumer education campaign

NCL has launched a new consumer education campaign with an unrestricted educational grant provided by Bank of America. The goal is to help change misconceptions and provide teens with a financial education foundation they can carry with them as they make important financial decisions later in life. The campaign includes new lessons on banking and credit for teachers and LifeSmarts coaches as well as media outreach to promote LifeSmarts, the League’s program to bring consumer education to high school students. The lessons are available online at www.lifesmarts.org. Survey results are available at NCL Survey: Teens and Financial Education.

Just how private is your personal information? – National Consumers League

The Financial Modernization Act (also called Gramm-Leach-Bliley, or GLB, after the chief sponsors), was supposed to help consumers understand how their banks, insurance companies, and other financial institutions handle personal information and give them some control over its use. Each institution was required to notify its customers about its privacy policy and consumers’ rights by July 1, 2001.

But many of those notices were more confusing than enlightening, and an incorrect email being circulated is making things worse. Now NCL and several other organizations are asking for changes in government regulations to standardize annual GLB privacy notices to clarify them. They also want it to be easier for consumers to exercise their rights under the law.

The most important thing for consumers to know is that financial institutions can share their “nonpublic personal information” (such as credit limits, account balances, or what types of products or services they purchase) with others. If financial institutions want to sell that information to “unaffiliated third parties” (other companies that aren’t legally related to them) they must give customers the right to say no. Advocates argue this right to “opt-out” should be explained in simple language and that consumers need a toll-free number, email, or pre-addressed postcard to respond.

Another point that may be unclear from the notices is that they can “opt-out” any time; GLB set no cut-off date. However, if the financial institution gives a deadline and the customer hasn’t said no by then, the information may be shared. And once someone else has it, it’s impossible to get it back.

Unfortunately, the anonymous email by an unknown author being circulated implies that people must act by July 1, 2001 or their credit information will be released to anyone who requests it. It also incorrectly refers to credit bureaus. Under a different law, the Fair Credit Reporting Act (FCRA), bureaus can only release information to those who have a legitimate need, such as companies from whom consumers are applying for credit, insurance, employment, or rental housing.

Consumers can’t “opt-out” of credit bureaus providing information from their credit files for these purposes. However, the FCRA does give consumers the right to block that information from being provided to lenders and insurers who want to send them offers they never requested. To avoid these “pre-screened” offers, consumers can call a toll-free number operated by the major bureaus, 888-567-8688.

Online auctions: An in-depth look – National Consumers League

Online auctions are wildly popular; nearly one third of adults in the United States who go online have participated in them—an estimated 35.6 million people. Most auction-goers are happy with their experiences and confident that they won’t run into trouble. However, at NCL’s Fraud Center, online auctions have consistently ranked as the top complaint since that category was added to the database in 1997.The average loss per victim in 2000 was $326. Auction victims often say that they never thought about the risks or how to protect themselves—until it was too late. As part of an effort to educate auction-goers about how to take advantage of this exciting new marketplace and reduce the potential for problems, NCL commissioned this Harris Interactive survey with support from Tradenable, a major provider of escrow services. The survey was designed to find out how and why people participate in online auctions, how confident they are as buyers and sellers, how they usually conduct the auction transactions, what problems they encounter, and how they deal with those problems.

Why online auctions are so popular

The Internet opens a global marketplace to consumers, one in which they can find anything they’re looking for and compare prices easily, no matter where they live. For sellers, it provides access to a greatly expanded pool of potential customers, and the low cost of access makes it easy for individuals as well as businesses to offer goods and services.

Most of the survey respondents who participated in online auctions did so only as bidders. A smaller group has participated only as sellers. Though most of the people who participate in online auctions have done so between one and ten times (65 percent), 22 percent said they had participated more than 26 times.

Online auctions appeal to bidders mainly because they’re looking for bargains (43 percent), hard to find items (23 percent), or things they collect (21 percent). When survey respondents who don’t participate in online auctions were asked why, most said they simply weren’t interested (52 percent) or didn’t see anything they wanted (12 percent); few expressed concern that they would not get what they paid for as buyers (six percent) or thought that it would be too much of a hassle as sellers (three percent).

Online auction buyers’ experiences

Of those who have participated as bidders in online auctions, 83 percent have actually bought something. The average value of most purchases was $100 or less (75 percent), but 21 percent of buyers said the average value of their auction purchases was between $101 and $500.

The vast majority of those who participate in online auctions are very or somewhat confident that if they are the winning bidder they will get what they pay for from the seller (94 percent). People who are mostly sellers but have also bought on auctions are also confident they’ll get what they pay for (99 percent).

Feedback about sellers’ previous transactions is obviously valuable information for potential purchasers. But only half of those who mainly bid on auctions say that if feedback information is provided on the auction site, they always check it before bidding; 37 percent usually check. Those who mainly sell on online auctions are also cautious when they’re bidders; 68 percent say theyalways check the information about the seller’s track record before bidding; 20 percent usuallycheck.

They are also reluctant to bid on items if there is no information available on the auction site about a seller’s track record. More than three-quarters (77 percent) of those who mostly sell on online auctions say they won’t bid on items in that case. Fifty-three percent of those who are mostly bidders are also reluctant to bid in these cases. People who are mostly bidders are willing to look for information from other sources like government agencies, consumers groups, or the Better Business Bureau before deciding whether to make a bid (17 percent). Overall, 29 percent of auction participants would bid on items even if there were no information on the auction site about the seller.

The most common way that people who buy items in online auctions pay is by sending a check, cashier’s check, or money order directly to the seller (69 percent). Unfortunately, by the time the buyer discovers that there is a problem with the transaction, the check or money order has usually already been cashed. And if the seller encounters a problem with the buyer’s payment, such as a check bouncing, the merchandise may have already been shipped.

Credit cards offer more protection because buyers have the right under federal law to dispute the charges if the goods were misrepresented or never delivered. Payment by credit card can also be safer for the seller than accepting personal checks. However, the frequency with which the auction buyers paid by giving their credit card numbers directly to the sellers is relatively low, only 17 percent. Services offered by or through some auction sites that facilitate payment by credit card are clearly helpful. Nearly half of all those who bought items have made payments through those services (44 percent).

Escrow services are another way that auction buyers and sellers can protect themselves. For a small fee, an escrow service holds the buyer’s payment and forwards it to the seller upon the buyer’s receipt and approval of the item within an agreed upon inspection period. But overall, only six percent of those who have bought items have paid through an online escrow service—the same percentage as a much more dangerous method of payment: sending the seller cash. Use of escrow services among those who are mostly sellers when they buy items is 15 percent.

Despite the high confidence rate that people generally have in online auctions, four in ten (41 percent) buyers have had problems, including: receiving items much later than expected (20 percent), receiving items that were different than promised (11 percent), receiving damaged items (ten percent), and never receiving the items (ten percent).

Most people who experienced problems were able to resolve these problems with the sellers by themselves (62 percent). Other actions buyers took included: complaining to the auction site (29 percent), disputing the credit card charges (eight percent successfully, two percent unsuccessfully), making an insurance claim (four percent successfully, one percent unsuccessfully), using an online mediation service (one percent successfully, two percent unsuccessfully), and complaining to a government agency, consumer group, or the Better Business Bureau (two percent). Many said they never took any action to solve their problems (21 percent).

Online auction sellers’ experiences

Nearly a third (32 percent) of those who offered items for sale on online auctions have sold 11 or more items. Smaller numbers have sold fewer items (24 percent sold 1-2 items, 19 percent sold 3-5, 9 percent sold 6-10). Most offered items for sale valued at $100 or less on average (69 percent), but 20 percent of sellers said they offered items with average values of $101-$500.

More than half of the sellers (52 percent) said they had experienced problems with buyers, including: late payments (34 percent), never receiving payments (27 percent), buyers changing their minds (20 percent), checks bouncing (five percent), and buyers using stolen credit cards (one percent).

The majority of sellers who experienced problems resolved their problems with buyers themselves (66 percent). Other actions that sellers took included: complaining about the buyer to the auction site (49 percent), participating in private online mediation (seven percent), contacting the escrow service they used to accept payment (five percent), and using a collection agency (two percent). Only seven percent said they took no action.

Familiarity with escrow services

Unfortunately, 42 percent of the survey respondents who don’t typically use an escrow service aren’t familiar with the services. Another 30 percent don’t think it’s necessary to use them, and 19 percent don’t want to pay the fee. Online escrow services are convenient for both auction buyers and sellers. The fee, usually a small percentage of the final purchase price, can be paid by either party as they mutually agree. For sellers, escrow may be a less expensive option than participating in the credit card payment system, especially if the buyer pays the fee. For buyers, it can help ensure that they will get what they pay for—or they won’t have to pay.

Conclusion: what does this mean for online auction participants?

Online auctions can offer great benefits to both buyers and sellers. But as the survey shows, when a consumer pays before receiving the merchandise, or a seller ships the goods before the buyer’s payment clears, there is some risk involved. Even though most people have good intentions, things occasionally go wrong. And some people are irresponsible, or even downright dishonest, in their dealings with others.

Auction participants need to be aware of the risks and know how to protect themselves. While there aren’t any guarantees in life, it is possible to reduce the potential for trouble in online auction transactions by following some basic safety tips, including

  • Understand how the auction works;
  • Check out the seller before you bid;
  • Get the contact information of the person or company you’re dealing with;
  • Look for information about insurance for buyers;
  • Payment by credit card can protect both buyer and seller;
  • Consider using an escrow service.

It’s easy to get carried away in the excitement of online auctions. Common sense and caution are the keys to happy auction experiences.

Survey methodology

This Harris Interactive QuickQuerySM survey was conducted via the Harris Poll Online, within the United States, from December 19-21, 2000. The poll was conducted among 2,196 respondents, 18+ years of age. Figures for age within gender, race, education, region, employment, and income were weighted where necessary to bring them in line with their actual proportions in the online population. QuickQuery is an omnibus service that provides approximately 2,000 respondents in two days.

In theory, with a sample of this size and after weighting the data, one can say with 95 percent certainty that the results have a statistical precision of plus or minus 3 percentage points of what they would be if the entire adult population of the United States had been polled with complete accuracy. There are several other possible sources of error in all polls or surveys that are probably more serious than theoretical calculations of sampling error. They include question wording and question order, non-response, and screening. It is difficult or impossible to quantify the errors that may result from these factors.