Secondhand blues for eBay consignment sellers

States contemplate new laws targeting online resellers. But are they thoughtlessly applying offline rules to the Net?

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
6 min read
When Debbie Gordon founded Snappy Auctions, she thought her time would be focused on entrepreneurial tasks like selling franchises and linking the online store's computers to those of shipping companies.

But last year she received an unexpected letter from the Tennessee Auctioneer Commission. It ordered Gordon, an eBay consignment seller in Nashville, to submit to mandatory training and licensing. In addition, Snappy Auctions would be required to hire a government-approved auctioneer who had completed a two-year apprenticeship and possessed a "qualifying education certificate."

"We discussed the laws with the commissioner and understood that it does indeed apply to us, so we obviously complied and I got my license," Gordon said. "There were only 13 schools in the country. Luckily there happens to be one in Tennessee."


What's new:
As the popularity of online consignment sellers grows, a number of state legislatures are contemplating new laws that would target this popular auction technique.

Bottom line:
The heightened regulatory scrutiny has online auction sellers worried that states are taking offline regulations and without thought applying them to online marketplaces.

More stories on this topic

Gordon may have been one of the first online consignment sellers to run afoul of auction commissions, but she won't be the last. A growing number of state legislatures are contemplating new laws that would target this popular auction technique, while regulators are weighing whether to invoke licensing laws already on the books.

Online consignment sellers, which go by names like I-SoldIt.com, QuickSellIt.com and BidWayUSA.com, typically sell their clients' items on auction Web sites in exchange for a fee of around 35 percent. eBay has embraced the concept, which it refers to as trading assistants and trading posts, and even features some of those sellers as "eBay University" instructors.

That increased popularity has invited heightened regulatory scrutiny. Twenty-seven states require auctioneers to be licensed, according to the National Auctioneers Association, and other states like California view consignment sellers as the equivalent of pawn shops.

In San Diego County, deputies from the sheriff's office have been visiting Internet consignment sellers to verify that they have the "secondhand good" licenses that pawn shops are required to obtain.

"There have been complaints by secondhand dealers," said Sgt. Mark Stevens of the San Diego Sheriff's Office. "They feel that the stores should be licensed."

Under California law, secondhand dealers are defined as anyone who accepts items "for sale on consignment" or "for auctioning." Dealers must file daily reports with the police that include names, fingerprints and home addresses of each person trying to sell an item, along with that person's driver's license or passport number.

"In California, the law says if your business accepts property on consignment or accepts property for auction, you'll have to get a license," Stevens said. "The way we will most likely handle it is

for our folks to go in with necessary paperwork to get (the consignment sellers) properly licensed."

The San Diego Sheriff's Office has asked California Attorney General Bill Lockyer for an opinion of the law's requirements relating to offering "secondhand tangible personal property for sale on Internet auction sites." A spokesman for Lockyer said the request had been received and no formal opinion had been prepared yet.

Targeting "trading assistants"
Tod Cohen, eBay's deputy general counsel and vice president of government relations, criticized the idea of trying to squeeze consignment sellers into decades-old regulatory categories. Existing laws against fraud provide ample legal recourse against dishonest sellers, he said.

"States are taking offline regulations and without thought applying them to online marketplaces," Cohen said. "They're not equivalents. Trading assistants, which on the face sounds similar to consignment sellers or traditional auctioneers...should not be subject to the same levels of regulation."

eBay addiction

One reason for the increased interest in regulation is simple protectionism, Cohen believes, in which auctioneers, pawn shops and other middlemen attempt to hamstring a competitive threat. "Things are heating up. The business is growing. When business grows, there are more people who want to take a shot at restricting the ability to sell in new ways. Certain people have very strong interests in maintaining inefficiencies."

Consignment sellers who operate a physical storefront seem to view such a license as one more cost of doing business. Cohen is especially worried, however, about the tens of thousands of part-time eBay "trading assistants" who work from home and may have to comply with the same licensing rules as full-time pawnbrokers or auctioneers.

"If they're running a consignment business out of their home, they're still acting as a secondhand good dealer," said Stevens of the San Diego Sheriff's Office.

State rules vary widely. Massachusetts requires even part-time auctioneers to obtain a government license, pass a written exam, pay annual fees and post a $10,000 bond.

Auctioneers in Texas must complete 80 hours of classroom instruction at one of eight approved schools, have no recent felony convictions and be at least 18 years old. In Texas, as in many states, auctioning items without a license is a criminal offense.

Rhessa Orr, executive director of the Nashville Auction School, defends the idea of expanding licensing requirements to eBay trading assistants and trading posts.

"The purpose of this licensing provision is to establish accountability to make sure the seller gets their money," Orr said. "It's all about looking

out for the consumer, the general public, to make sure that nobody gets ripped off. This allows the state to regulate and monitor and register who's holding someone else's money for them."

Orr's school, which is approved by the Tennessee government, already reports higher enrollment because of the state's crackdown on online consignment sellers. "Other states are following suit," Orr said. "I think we're going to see more of it."

In addition, many states require licensed auctioneers to undergo continuing education at government-approved schools. Alabama mandates six hours of classes every two years.

Studying the "Auctioneer's Chant"
Some eBay sellers who have gone through auction training programs complain the curricula have no relation to the process of selling items on the Internet.

The Mendenhall School of Auctioneering in North Carolina spends 40 hours tutoring students in the fast-speaking patois of auctioneers, described as "Drill--Chant, rhythm, speed, clarity." Thirteen hours are allocated to tobacco and livestock auctions. The Texas Auction Academy has a similar curriculum that devotes 18 hours to the "Auctioneer's Chant."

Auctioneer schools tend to drill their students for hours on breathing techniques. The Western College of Auctioneering in Billings, Mont., spends four hours on "voice control and breathing," and the Walton School of Auctioneering in Medina, Ohio, has a similar curriculum. Most schools, like Walton, include instruction on firearm sales--a category flatly prohibited on eBay.

"The test wasn't designed for online auctions," said one licensed eBay seller who asked not to be identified. "It showed us how to identify long-barrel versus short-barrel handguns, how to identify Grade A cattle, and what to do when drunk people show up at your auctions. It wasn't really relevant."

Ohio recently worried some eBay sellers when it enacted a law expanding the definition of auction to encompass the Internet and "electronic transmissions." Anyone who "offers for the purchase of real or personal property" is considered to be an auctioneer who must be licensed or run the risk of criminal prosecution. The legislation takes effect in May.

Public outcry led state Sen. Larry Mumper, the Republican sponsor of the original bill, to introduce a follow-up measure that would exempt people selling through online auctions. It explicitly exempts "a person who sells real or personal property by means of the Internet" but is awaiting a vote in the legislature.

Efforts to expand the definition of auctioneer or pawnbroker are pending in Texas, Florida, Wisconsin and Maine, eBay said.