Online Shopping Fraud

Online shopping ranks highest among the types of industry complaints registered with Better Business Bureau ® (BBB®) and fraud reports to BBB Scam Tracker last year.

Online shopping fraud has been growing for several years, but dramatically increased during the pandemic, according to BBB research. A BBB survey found 29% of people shopping online before COVID-19, increasing to 37% by the end of 2020. With many stores closed and people staying at home, online shopping increased. But even with fewer lockdowns in 2021, consumers continue to shop online.

With consumers increasingly worried about supply chain disruptions and forecasts for record-breaking online spending for the 2021 holiday season, it is especially important for online shoppers to know how to protect themselves from deceptive advertising and online scams that may trick them into purchasing non-existent merchandise.

Consumers report online fraud ranging from sales of non-existent vehicles, pets and products, to counterfeit goods and costly free trial offers.

The largest group of BBB Scam Tracker reports -- 40% of the total -- involve victims of online ads found on Facebook and Instagram. Consumers tell BBB that Facebook and Instagram are often not helpful in addressing violations of their own policies when consumers receive nothing at all, counterfeit goods, or items that were inferior to what was advertised and purchased. These encounters often take place after seeing enticing social media ads placed by operations in China.

"The vast majority of this scam activity is being carried out by gangs operating from China," Jorij Abraham, General Manager at scamadviser.com.

Concerned consumers filed a class action lawsuit against Facebook in August that "...seeks to put an end to Facebook's policy of actively soliciting, encouraging, and assisting scammers it knows, or should know, are using its platform to defraud Facebook users with deceptive ads, and compel Facebook to either compensate Facebook users for their losses or disgorge the billions of dollars in profits it has unjustly earned from such misconduct.”

Some fraudsters hinder the ability of people to get their money back by using payment methods with little or no safeguards. If consumers use credit cards or PayPal to buy items online, they may receive a refund if they challenge fraudulent purchases. Many people, however, are not aware of this protection.

While many legitimate companies based in China sell goods to the U.S. and Canada, this study focuses on goods sold online where victims receive nothing at all, counterfeit items or something quite different from advertised.

How common is online shopping fraud?

For the past five years, online purchases of goods have comprised the largest number of reports to BBB Scam Tracker and been deemed by BBB Institute to be the riskiest scam in 2020. Over the last two years, reports from victims have skyrocketed.

In 2015, online shopping fraud accounted for 13% of all Scam Tracker reports with a monetary loss. By 2021, 64% of all Scam Tracker reports with a monetary loss involved online shopping issues. Complaints directed to the Federal Trade Commission (FTC) and reported losses more than doubled over the last two years and are on pace to quadruple to $394 million. This is not just a U.S. phenomenon. Losses reported the Canadian Anti-Fraud Centre (CAFC) tripled in 2020.

FTC and BBB Scam Tracker data reflect trends rather than the total amount of this fraud. The FTC previously has found fewer than 10% of fraud victims report it to BBB or law enforcement, suggesting the problem is much larger than these numbers reflect.

What kind of fraud are involved in online shopping?

Most online fraud reports examined involve a response to online ads on Facebook and Instagram. After placing an order, victims either receive nothing or get items that are either counterfeit or dramatically different from those promised. For example, the CAFC’s Barry Elliott reports he has seen accounts of people buying a cordless drill online but only receiving a screwdriver from China.

A victim told BBB she ordered a rattan sofa for her patio but received a burlap bag from China months later.

Scammers often take photos or other elements from legitimate businesses, post them on Facebook and Instagram and take online orders at websites they create. These tactics can result in lost sales and a flood of complaints to honest businesses from angry victims who locate them after being scammed. The victims do not realize that their money went to the scammers who posted the advertisement. In addition, many businesses report trying to get fake ads taken down by Facebook and Instagram takes many hours of extra work and is a large burden.

Many counterfeit items are sold over the internet. Scammers claim to be selling trademarked or copyrighted goods, but if they send anything, it is a fake replica. The items often are produced in China by the same scam gangs that sell other goods deceptively. This is a huge issue for those selling legitimate brand name goods. For more on the massive worldwide problem of counterfeit goods and medicines, see the BBB study on counterfeit goods scams.

The Department of Homeland Security recently observed: “American consumers shopping on e-commerce platforms and online third-party marketplaces now face a significant risk of purchasing counterfeit or pirated goods.” It also states that actors such as payment processors, social media websites and online marketplaces “aid, abet or assist” these transactions.

Sponsored links

A BBB study found that victims first encountered the ads on Google 32% of the time. One of the features of seach engines is that paid advertisers’ sponsored links will appear at the top of the search results page.

Images can be advertisements as well, again appearing at the top of search results and leading shoppers to scam websites. Scammers often pay for these sponsored links.

Feeling safe on sites like Amazon

Counterfeit goods are common even on sites like Amazon.com (a BBB Accredited Business). Because Amazon allows third-party sellers to advertise on its site and ship themselves, you still need to be careful. Over half the goods sold by Amazon are by third parties. Amazon collects payments and then reimburses the third parties. There are reports that Amazon gets 15% of sales by these third-party sellers. In a CBS interview announcing these efforts, Amazon conceded that counterfeiting is a problem on its site. According to CBS, “the company caught 3 billion suspicious listings last year before buyers even saw them but can’t say how many counterfeits actually made it onto the site.”

The role of Facebook and Instagram in online shopping fraud

A large number of BBB online shopping reports can be traced back to Facebook and its subsidiary, Instagram. BBB found that victims who were not actively looking for a product, but lost money in the transaction, began with Facebook or Instagram 70% of the time.

This is consistent with a study of complaints to the FTC. The FTC data spotlight from October 2020 found about one of every four online shopping complaints mentioned issues beginning on social media, and Facebook and Instagram account for 94% of complaints where victims got nothing and a social media platform was involved. In looking at data from the first half of 2020, 43,391 people (23%) reported to the FTC that the problem started on social media. For the 9,832 who ordered goods that never arrived, victims said the transactions started on social media, with 7,502 of those specifically noting the use of Facebook or Instagram (94% of those that identified a specific platform).

The International Trademark Association (INTA) has warned about social media. Many counterfeit online goods are sold through ads on Facebook and Instagram, which share the same ad network.

Facebook and Instagram are attractive locations for scammers' advertisments

Facebook is the biggest social network worldwide. It has roughly 2.91 billion active users. For many, Facebook is a comfortable place to stay connected with family and friends. Therefore, the ads that appear in Facebook feeds also may feel safe.

In reality, the ads that appear are targeted to users. After making an online purchase at one site, ads for similar goods often appear on other sites visited. Crooks understand how Facebook targets shoppers and have developed strategies to reach those likely to be interested in buy- ing their bogus products.

Fraudsters steal photos and copy websites of honest retailers, offer goods for sale, take payment and either ship nothing or send inferior knockoffs. They can quickly form corporations, put up a page on Facebook, buy advertising space, and then advertise on Facebook feeds. Victims who click on an ad are taken to a website developed by the scammer, where they can place an order. If an ad or website is taken down, scammers can immediately replace it with a new one. These ads have long been the bane of brand-name companies selling trade- marked goods such as sunglasses, designer handbags and running shoes. For example, it has been reported that 25% of luxury goods sold through Facebook advertising are fakes.

But the problem today goes far beyond the risk that someone will get counterfeit sunglasses. Now almost anything can be sold online. This is especially threatening for small businesses trying to market their products online. Sales can rapidly disappear to crooked sites, not only depriving honest businesses of sales but also resulting in a flood of complaints directed to the real company when victims are ripped off.

Much of online fraud originates in China. Though general user access to Facebook is blocked in China, companies there spend billions on advertising. While many shoppers knowingly buy goods from businesses in China, some shoppers who believed they were buying from a U.S. or Canadian company felt deceived when goods arrive in the mail from China - and especially when they received poor imitations of what was ordered. Laws against deceptive practices offer protection if a U.S. company is involved, but there may be little recourse against advertisers located in China.

According to a Buzzfeed news article:

A previous internal study of thousands of ads placed by Chinese clients found that nearly 30% violated at least one Facebook policy. This was uncovered as part of the regular ad measurement work performed by Facebook’s policy team. The violations included selling products that were never delivered, financial scams, shoddy health products and categories such as weapons, tobacco and sexual sales, according to an internal report seen by BuzzFeed News.

The same article suggests that Facebook intentionally ignores these issues. Problems with China-based advertisers are well known among the social network’s employees and contractors, said a person with knowledge of Facebook ads enforcement. “We’re not told in the exact words, but [the idea is to] look the other way. It is ‘Oh, that’s just China being China.’ It is what it is. We want China revenue,” they said. Similar conclusions have been reached elsewhere. This is not just a U.S. phenomenon. Similar problems have been reported in both the U.K. and Germany.

Many victims and small businesses believe that Facebook and Instagram can do more to prevent this widespread fraud. A class action was recently filed in a U.S. federal court against Facebook, contending that it is complicit in fraudulent sales and fails to abide by its own policies in addressing them.

These problems occur even though Facebook has announced a variety of policies in its terms of service and community standards that ban advertising which “contain deceptive, false, or misleading claims like those relating to the effectiveness or characteristics of a product or service.” In addition, Facebook policies prohibit advertisers from using “tactics intended to circumvent our ad review process or other enforcement systems.”

According to Marissa Hadland, who assists with a Facebook group called Facebook Ad Scambusters, victims or small businesses state that they have a grim time getting Facebook to process complaints about ads and Facebook pages that use photos or other information stolen from legitimate businesses and are slow to remove such ads. New ads pop up with the same content and have obvious ties to the one removed, such as the same phone number. It is a frustrating process, she says. She told BBB she believes there are huge internal economic incentives to bring in advertising revenue and that this results in a culture at Facebook that is very reluctant to take effective action against fraudulent advertising. She reports that those who can show they have a copyright on their goods have more success in challenging ads that use their brands.

How do online scammers exploit payment systems?

The BBB Institute's study of online purchases in 2020 found that of those who lost money, 35% paid with a credit card; 23% paid with PayPal; debit cards were used by 20%; Zelle payment apps were reported 7% of the time, and prepaid cards 3% of the time.

A review of BBB complaints involving payment through Zelle showed that almost all of those were related to pet scams. People should never pay for an online purchase using Zelle. There is no protection when a scammer is involved and no way to recover funds.

It is unusual for scammers to seek payment through credit cards. That is because credit card companies keep a reserve of funds to cover chargeback requests from victims. A 1% chargeback rate is high for those holding merchant accounts, and the companies can assess fines or terminate the accounts. The banks that support the system have strong incentives to avoid losing money to scammers. 

Researchers at NYU closely examined sales of counterfeit goods, however, and found that they are almost always paid for with a credit card. Therefore, the bogus websites selling these goods must have access to the credit card and banking system. The research shows almost all of these transactions are handled by a small number of banks in China. The NYU study looks at how credit card payments are processed for counterfeit goods. Over two years, they purchased 424 branded products.

All of the goods were drop-shipped from China and were of poor quality. They concluded that the criminal gangs that produce counterfeit goods outsource fulfillment and payment processing. 

Online scammers are increasingly requesting payment through PayPal. PayPal has a buyer protection program designed to safeguard transactions so it seems secure.

Users do not receive a monthly bill from PayPal. The system instead links to victims’ bank accounts and credit or debit cards. Nonetheless, victims reporting to BBB often cite difficulties getting a refund through PayPal when they receive goods that are very different from those that they ordered, and news stories report similar experiences. Several sources report that it is more difficult to get refunds through PayPal and suggest that its customer service personnel may simply not be trained adequately on these issues. They also state that it is more effective to talk to an actual customer service person at PayPal than it is to use its online complaint system. Use caution if doing an internet search for PayPal’s customer service number as that has been a source of scams; instead, go to PayPal’s website directly and connect that way.

Victims who realize they have been scammed first try to contact the operation from which they made the purchase. This can be a difficult and frustrating effort. A BBB survey found that 62% of victims reported that they tried to contact the seller more than three times. Even scam websites that claim to have a return and refund program rarely honor them. It can be difficult to reach a customer service person. Instead of a refund, victims are often offered discounts on future purchases. Sometimes the company asks people to be patient and claims that the goods will arrive.

Credit card companies and PayPal have policies that offer refunds if goods are counterfeit or sold fraudulently. Those who don’t receive what they ordered — nothing, counterfeit goods or inferior items — should call the customer service number on the back of their card to ask for a refund, a process known as a chargeback. Credit card companies have anti-fraud policies. Consumers can find the policies online for Visa, MasterCard, Discover or PayPal.

Many people are not aware that they can dispute charges, and do not ask for a refund. In one study of free trial offer scams, BBB found that 42% did not request a charge back on their credit card. If shoppers don’t receive their orders, they often have success in getting money back if payment was made by credit card, debit card or through PayPal.

Victims should act quickly to dispute charges with credit card companies. They typically have 120 days (four months) from the date they receive the goods OR from when they learn that they were counterfeit. Those with Visa cards have a maximum of 540 days (18 months) from the original transaction. PayPal gives victims 180 days (six months).

Victims in Canada have help with refunds

Canadian victims have an easy method of getting a chargeback. When victims contact a Canadian bank that issued the credit or debit card (or PayPal in Canada) and want to dispute a charge because the goods are counterfeit, never delivered, or are different from those ordered, the bank will refer victims to the Canadian Antifraud Centere (CAFC), which operates Operation Chargeback.

For counterfeit goods, the CAFC identifies the website where the victim purchased the counterfeit in question and contacts the brand — that is, the trademark holder — to see if the site is by an authorized seller. If it is not, the brand notifies the CAFC. The CAFC then provides this information to the victim in an email, and the victim can then provide that email as proof to their bank and get a chargeback. The CAFC also informs victims that they do not need to return the counterfeit goods; rather, they ask people to destroy them. Ebay and PayPal similarly say that they do not require that victims return counterfeit goods.

The CAFC also deals regularly with bank referrals in which the victim receives something different from what they ordered. They ask for photos of the item received, and the webpage of the product they ordered, and respond to the bank that a chargeback is in order. The CAFC recommends that if the seller wants the goods returned, the seller should pay for that by sending a prepaid mailing label.

Last year, the CAFC was able to help more than 6,000 victims. Over the last five years, the CAFC has used this quick and easy process to get chargebacks for tens of thousands of people and more than $14.7 million in refunds. They have identified more than 36,000 websites selling counterfeit goods. There is no program like this in the United States.

Through this work, the CAFC also has been able to gather data on 18,000 merchant accounts used to accept payment for counterfeit goods. Those selling these goods must have a merchant account from a bank that allows them to accept credit card payment. The CAFC says almost all of the counterfeit merchant accounts are linked to four state-run banks in China. In addition, the information on websites and merchant accounts that the CAFC obtained is useful to law enforcers and credit card processors.

Who is behind online shopping fraud?

As noted in earlier BBB studies, pet scams are primarily operated by scam gangs from Cameroon. Vehicle scams have been traced to gangs from Romania. Free Trial offer scams seem to be operated by people in the U.S. and Canada. Counterfeit goods operations, as well as those who sell goods online that are not delivered or that are significantly different from those described, have been tracked to China.

What is being done to fight online shipping fraud?

Role of the Better Business Bureau

BBB fights fraud by accrediting trustworthy businesses, identifying fraudsters and their activities, collecting reports from victims and sharing them with law enforcement, and issuing news warnings about scams to help educate the public.

Consumers can conduct a free search to check out a business or website by going to BBB.org. BBB notes customer complaints and how they are resolved, in addition to customer reviews about their experiences with the business.

BBB Accredited Businesses can display the BBB seal on their website, so shoppers may want to look for that as a way of deciding if they are dealing with a reputable business. The BBB seal is trademarked and can only be used by BBB Accredited Businesses that agree to follow BBB’s standards of conduct. Clicking on a legitimate seal will take the viewer to the business’ BBB Business Profile. If the link is not live, the seal may be fake. BBB finds hundreds of cases every month where there is unauthorized use of its seal. If companies do not respond to BBB’s request to remove the seal, BBB notifies website host, and in most cases, the seal is removed.

BBB Scam Tracker collects reports from scam victims or people who have spotted a scam. It has categories specifically for online shopping and counterfeit goods. BBB Scam Tracker sends reports about online shopping and other scams to the FTC’s Consumer Sentinel database.

BBB has issued warnings about a home product company selling online and another selling canvas prints for Mother’s Day. BBB has warned consumers about fake tracking codes being used in online shopping scams.

Applicable law & enforcement

Although there are laws against deceptive practices those are difficult to enforce against scammers operating outside the U.S. and Canada, especially when they are in China. Typically, actions have been limited to those physically present in the U.S. and Canada and those who work with or help scammers.

For decades, remotely ordered goods have been subject to the FTC’s Mail, Internet, or Telephone Order Merchandise Rule, familiarly known as the Mail Order Rule. The Rule applies to goods but not services. Internet sales are covered directly. It was originally adopted in response to problems with catalog companies where goods were often delayed. For example, some businesses would take orders — and customer funds — and then delay shipping them until they had accumulated enough orders and money to pay their own supplier. After paying in full, consumers would end up waiting many months for their products to arrive.

The Rule’s solution is to require that goods be shipped when promised, or if no shipping date is provided, within 30 days. If sellers cannot ship within 30 days, they must get consumer’s consent to a delay. If they cannot get this consent, they must refund the consumer.

The FTC is authorized to seek civil penalties for Rule violations. At times, state attorneys general have treated violation of FTC Rules as per se violations of their own state versions of the FTC Act.

Canada

Canada does not have a national rule. Instead, this is a subject of provincial law. Under Ontario law, goods must be delivered (not shipped) within 30 days of the promised delivery date or you can ask for a refund. However, it appears that if you do not return the product, you lose the right to seek a refund. The same provisions apply in British Columbia.

In addition, the FTC or the Competition Bureau (or States and provinces) could address deceptive claims about products, such as shipping products different from those advertised. Claims that a business is in the U.S. when it in fact is not would likely be a deceptive claim that the FTC could challenge, because it could mislead people about the degree of protection they have available to them. Criminal charges can be brought against sellers that defraud the public.

Intellectual property issues, including copyright, trademark infringement and theft of trade secrets, are priorities for the U.S. government. In Canada, these issues are handled by the Canadian Border Services Agency. 

In 2020, the most recent year for which data is available, U.S. customs agencies seized $1.3 billion in counterfeit goods. They also arrested 203 individuals and secured 98 convictions. More than half of the goods seized came from the People’s Republic of China.

Unfortunately, there are few prosecutions of those in China who are responsible for taking money from consumers through deceptive advertising. Although China exercises great control over its people, there is little to show that the government there is interested in addressing this fraud, apart from some actions against copyright violations.

What more can be done to protect consumers?

• Facebook and other social media platforms should do more to enforce its policies for third-party sellers.

• BBB urges credit card payment processors to put more effort into combating those who provide merchant accounts to sellers who engage in fraud.

• U.S. consumers would benefit from a program to help counterfeit victims with chargebacks like the one operated in Canada by the CAFC. Such a program may help identify crooked credit card merchant accounts, bogus websites, and points of origin for counterfeit goods.

• More regulatory oversight is needed regarding companies that use websites to market products from China but deliver nothing, counterfeit goods or items not as advertised.