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Feds hesitate to regulate

Regulators are loathe to enact laws aimed specifically at Internet commerce. But government officials and consumer advocates alike watch the auction sites to make sure they regulate themselves.

Despite mounting problems with fraud and illegal activity on Internet auction sites, regulators and even consumer advocates are taking a wait-and-see approach to regulating Internet commerce.

Fear of stifling the growth of e-commerce has caused many regulators to look askance at regulations specifically aimed at the e-commerce. The Clinton Administration, for example, has called for a moratorium, on special taxes for e-commerce transactions.

In most cases, "existing laws work fine," for Internet commerce, said Lisa Hone, a staff attorney with the Federal Trade Commission. "The law is adequate to charge people who commit crimes whether they are on the Internet or not."

As proof, Hone pointed to last week's conviction of a Florida man who took orders for computer gear on auction sites eBay and Up4sale but never delivered The high price of auctions the goods. The U.S. District Court of Southern Florida sentenced Craig Lee Hare to six months of home detention and three months of probation. "This shows that enforcement in these cases can be done fairly easily," Hone said.

Still, person-to-person Net auctions pose a number of special problems for law enforcement officials. Chief among them: the ability of private parties to do business anonymously. That was the conclusion of the Senate Permanent Subcommittee on Investigations, which held hearings on Internet fraud last year.

The subcommittee, headed by Sen. Susan Collins, (R-Maine), concluded that anonymity is a major problem for auction sites. The panel doesn't recommend specific legislation but forwards its findings to Congress.

"It's an issue of credibility," said a Senate aide who works for the committee. "For some users, seeing a Web page makes them think they are dealing with a legitimate [business concern]. Sometimes, it's pretty darned difficult to tell."

Fraud isn't the only legal complication to have accompanied the auction boom: Sites have been criticized for allowing the sale of items such as illegal pornography and firearms. Last week, the company said it will ban the sale of all firearms because of the difficulty in verifying whether bidders were authorized to buy them.

The move was likely aimed more at soothing a worried public than at protecting the company legally. The company may not be liable at all for illegal guns sold on its site: Several courts have ruled that magazines such as Soldier of Fortune may not be held responsible for illegal weapons advertised in the classified section.

eBay warns users that trading in other illegal or questionable items will not be tolerated, and wayward participants may be banned from Susan Grant, vice president of public policy, National Consumers League the site. Among the prohibited items cited in its user agreement are "live animals, human beings, or body parts [relics, skulls, human remains, or other parts], soiled undergarments, bulk email lists, [and] switchblades."

For the most part, however, fraud remains the largest concern. In fact, online auctions were the leading source of Internet fraud cases last year, beating out classic fraud types like illegal pyramid schemes, illicit credit-card offers and work-at-home "opportunities," according to a newly released report from the NCL.

In total, Internet fraud increased sixfold in 1998, from 1,280 cases the year before to 7,752, the report concluded. The average victim lost $293. The NCL has said it gets about 400 complaints per month about Internet auction fraud.

"The problem," Grant said, "is that a lot of these auction sites don't do any screening."

That may be changing. eBay, the best-known of the person-to-person auction sites, has been beset with complaints about fraud and sales of illegal items such as firearms. The company recently announced new measures to combat these problems.

eBay has implemented several safeguards, including using Equifax to verify sellers' identities, a ban on sellers--or people working in league with sellers--bidding on their own items to jack up prices, and the creation of a live feedback forum.

eBay is careful to distance itself from liability in cases of fraud, but the company sees the measures as necessary for its continued -- Lisa Hone, FTC staff attorney success. "eBay has zero tolerance for fraud," CEO Meg Whitman said last month when the measures were announced. "We have committed and will continue to commit resources to have the most comprehensive programs in order to keep eBay a safe harbor for online person-to-person trading."

Other sites are implementing similar measures. Auction UniverseBidsafe, which, for a fee, protects buyers and sellers from being victimized. The program provides credit-card protection and other safeguards.

Regulation and enforcement of laws governing fraud and illegal sales are best handled by local and state authorities, the FTC's Hone said. Several states, including Pennsylvania and Illinois, have recently brought charges against alleged perpetrators, and others are looking into possible responses to the problem. The FTC, she said, is facilitating discussions among state and local governments through such organizations as the National Association of Attorneys General.

"We're in discussions with all the various agencies," she said. "This is something that I think will increasingly be handled at the local level."

Local officials, she said, are becoming more tech-savvy and knowledgeable about the Internet, but all players have a lot to learn. "It's a new industry and I use the term 'industry' guardedly because this is all just now starting to happen."

Even groups that might be expected to lobby for more government action are hesitant to call for special legal treatment for Internet commerce. "We don't have a laundry list of things we want the government to do," said Susan Grant, vice president of public policy for the National Consumers League, who testified before the committee. On the other hand, she said, "We think there need to be rules of the road for Internet commerce, as there are for telemarketing" and other types of commerce.

"I don't know whether that means we should have special laws or regulations, but if [auction sites] won't shoulder the responsibility, then something needs to be done," she said.  

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