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Auction sites: Wire transfers a bad bid

Wire transfers are being used in many fake auctions--so many that several online auction sites are warning visitors of the dangers.

Earlier this year, Shahir El-Shaieb lost $1,645 in an online auction, and he has little hope of getting the money back.

That's because El-Shaieb paid for the Apple Computer Macintosh G4 he found on eBay with a wire transfer. Unlike credit cards and checks, wire transfers can't be canceled after they've been sent. And that means they've been used in many fake auctions--so many that several online auction sites are warning visitors of the dangers.

"A significant portion of Internet fraud is committed through wire transfer payments. We urge you to arrange alternative payment with the seller," auction site uBid said in a note posted on its site and e-mailed to all winning bidders. "Money wired to any location (within the United States or overseas) is virtually impossible to reclaim. We highly recommend against wiring money to fulfill payment at auction close."

uBid posted that note after seeing an upswing in bidders being defrauded by sellers who required them to pay with a wire transfer, company officials said Wednesday.

"We just believe that (using wire transfers) is not the way to do business," said Christian Feuer, uBid's chief executive officer. Feuer acknowledged that there are legitimate uses for wire transfers in online auctions, but he said that "because it is problematic to control (using wire transfers) we discourage it."

Yahoo stopped covering wire transfers with its fraud insurance last November and sends e-mail notices to bidders warning about the use of them.

"We understand that a lot of times they are a legitimate way to settle a transaction," said company spokeswoman Nancy Evars.

eBay and Amazon.com representatives did not return calls seeking comment about their policies on the use of wire transfers.

Fraud has been a persistent problem for online auction sites. Although most sites claim low rates of fraud, that still translates into hundreds of potentially fraudulent auctions each day.

Most fraud still involves sellers offering items they have no intention of shipping, but the techniques they use to scam bidders have become increasingly sophisticated. This year, scam artists have broken into dozens of eBay accounts by using automated programs to guess the passwords. Once they have control of the accounts, the scam artists use the reputable seller's good reputation to draw bids on goods they have no intention of shipping.

Wire transfers, made through a bank or via a service provided by Western Union, are like electronic cash, and unlike credit cards or services such as PayPal, customers are not refunded in cases of fraud.

Scam artists have been using several different variations on the wire transfer scam. Some have used it with accounts they've hijacked. Others have set up fake escrow services to make bidders feel more comfortable about sending a wire transfer.

Auction sites need to do a better job to educate and protect bidders about the dangers of using wire transfers, said Rosalinda Baldwin, editor of The Auction Guild, an online newsletter. Other sites should follow uBid's lead and warn bidders about sellers who require they pay via transfers, she said. Sites should also make people click through a warning about wire transfers when they first register, she said.

"It legitimizes what they are doing when they make an effort to protect you," Baldwin said. "But (many sites) are not even making the effort."

El-Shaieb, a technical writer in Santa Clara, Calif., says he's learned his lesson. He said he wouldn't use a wire transfer service again to pay for another large online auction purchase.

"It's a convenient way to transfer money, but it's also completely unprotected," El-Shaieb said.