Costume & Prop Makers Beware: Buyer Fraud

An ongoing issue facing the #costuming & #cosplay communities is #BuyerFraud. Buyer fraud is a widespread problem occurring with online purchases, so while it isn’t limited to the costuming & cosplay communities, it can have highly detrimental financial effects on #costume & prop makers, as well as their desire to continue selling their items at all.

So what exactly is “buyer fraud”?  Buyer fraud is a term used to describe the unethical actions of buyers upon or after making a purchase from a seller that are usually costly to sellers and are often of no consequence to the buyer. Usually these types of unethical actions that the fraudulent buyer uses are directed towards sellers who conduct business via the Internet.

Common Types of Buyer Fraud

Three common types of buyer fraud are listed below, including preemptive strategies that sellers can use to reduce the likelihood of being scammed:

1. The “Product Was Not Delivered” Scam

Sure, sometimes packages do get lost, but it’s also a scam and it’s probably the most common type of buyer fraud that costume & prop makers (and other online sellers) face.

In this scam, the fraudulent buyer will make a claim that the product that they purchased was never delivered after it was received, even though the seller may have tracking information to the contrary that the item was indeed delivered to the buyer’s address. The fraudulent buyer will then make a “no delivery” claim to their financial institution that they used to make the transaction, which (in all likelihood) will refund the money for the sale to the fraudulent buyer. And where does that refunded money come from? Directly from the financial institution account owned by the seller.

A financial institution that has become well known with permitting widespread buyer fraud is PayPal. Many costume & prop makers (as well as other sellers) have stopped taking payments via PayPal because of its very pro-buyer policies that have permitted buyer fraud to thrive. When a fraudulent buyer makes a claim against a seller via PayPal, PayPal will immediately freeze the seller’s PayPal account (often for several weeks to a month), which makes other sales impossible if that’s the seller’s only means of taking payments. Also, even if the seller has ample proof of delivery via tracking to the buyer’s address, PayPal will typically award the fraudulent buyer with a refund and take the funds away from the seller, as well as any bank account linked to the seller’s PayPal account.

An effective (but not foolproof) method that sellers can use to avoid becoming a victim of buyer fraud is to require a signature from the buyer upon delivery. When a buyer has to physically sign his/her name for a received package, not only does it show undeniable proof of delivery, it also removes the online anonymity that many fraudulent buyers try to maintain. While the signature doesn’t mean that the fraudulent buyer can still not make a fraudulent claim against the seller, it’s a deterrent. It also isn’t a foolproof guarantee to a seller that the financial institution(s) that handled the transaction won’t issue a refund to the fraudulent buyer against the seller if the fraudulent buyer files a complaint anyway.

2. The “Damaged Item” Scam

Sure, packages and their contents might be damaged during shipment, but in this scam, the fraudulent buyer will return an item to a seller & making the false claim that the item received was damaged when it never was. When this happens, the financial institution will refund money to the buyer while the buyer sends something else back to the seller. So the seller not only loses the item and money, the seller gets something of little or no value in return.

Some costume & prop makers have been subjected to this type false damage claim in order to get a refund at the costume & prop makers’ expense. In this particular case, any costume or prop maker needs to be completely familiar with the buyer & seller agreements that marketplace & financial institutions have in place for these types of problems. While that won’t guarantee that a fraudulent buyer won’t win a claim in this situation, it can greatly increase the ability of the seller to fight the claim and prevent being defrauded.

3. The “Item Not As Described” Scam

Occasionally this can happen, but it’s also a popular & similar scam to the “damaged item” scam.

In this scam the fraudulent buyer will make the claim that the item received from the seller was not as the seller described. This can be an extremely difficult type of buyer fraud for a seller to defend against because what it will boil down to is the buyer’s word against the seller’s word. Often, the greater burden of proof lays with the seller, not the buyer. Thus, if the seller doesn’t have an adequate way to describe the product sold to the buyer, the financial institutions will rule in favor of the fraudulent buyer and reward a refund at the seller’s expense.

Here, the seller’s best defense is to have a very accurate way to show proof of what was sent to the buyer. Taking pictures of the product(s) and shipment labels is a good step to add as proof. Also, invoices describing what was sold and what the package(s) contained is effective in winning these types of disputes, especially if there are product and serial numbers recorded on the invoices. That way, if any items received back from the buyer don’t match the invoiced items sent, the seller has the option of filing criminal charges against the fraudulent buyer, which may or may not assist in getting the money back or the originally sent product(s) from the buyer.

Summary of Preemptive Seller Strategies

  1. A deterrent: don’t just rely on tracking information that a package was delivered, require a signature from the buyer.
  2. Be prepared to defend yourself: be completely familiar with the buyer & seller policies of the marketplace, financial institutions & shippers before you use them. The more familiar you are with their policies, the easier it will be to defend yourself against any false claims brought by a fraudulent buyer.
  3. Keep accurate records: use detailed invoices of what was sent, especially if there are product and serial number that can be recorded on the invoices. Take pictures of the items sent and shipping labels. Record all contact information about the buyers.

Some Additional Potential Preemptive Seller Strategies

  1. Protect your assets: open a separate bank account for product sales. In this way, your personal bank account(s) won’t be directly affected if a fraudulent buyer files a claim against you.
  2. Another method of protecting personal assets: consider only taking payments via money orders or cashier’s checks from first time buyers. Since the bulk of the buyer fraud occurs with online transactions, taking money orders or cashier’s checks avoids that situation completely. Once you feel comfortable with a buyer, you could permit online transactions once trust is established.
  3. Avoid financial institutions with known buyer-biased policies: don’t use PayPal for any transactions.
  4. Limit your liability: consider establishing an actual LLC (a Limited Liability Company) to more fully protect yourself and your personal assets. If you create an LLC, while you will have to file corporate tax returns, collect sales tax and file other financial reports as required by law, any business done by the LLC (such as selling to buyers) becomes a transaction between the buyer and the LLC, not the buyer and you personally. Also, you can open bank accounts in the LLC’s name.
  5. Share information: share information about fraudulent buyers with other costume & prop makers. Everyone sharing information can avoid problems in the future.

Potential Criminal Charges for Caught Fraudulent Buyers

While it doesn’t happen often, buyers who have committed fraud can face potential criminal charges. Often this is in the form of a misdemeanor theft charges, but if the amount of money involved in the transaction was higher maximum amount for a misdemeanor charge, the criminal charges can become felony grand theft or other felony charges. While many states place a limit of $500 on misdemeanor theft, some states go as low as $300. In other words, if a buyer can prove that a fraudulent buyer stole from them and the dollar amount exceeds $300 in the buyer’s state, that fraudulent buyer would then face felony theft charges.

While it may be difficult for a defrauded seller to get their stolen money back, if they have sufficient proof that a theft occurred, then contacting the police can lead to potential criminal charges being filed against the buyer. What the seller needs in order to do this successfully is very good documentation of the transaction (as we discussed above), and any other evidence that can undeniably show that a crime was committed.

A prime example is if delivery of a package was recorded on video. If video exists of the buyer accepting delivery of a package from a seller and signing for that package, that would be highly undeniable proof of a crime committed should that buyer attempt to defraud the seller over delivery of the package. We actually know of one such case (not costume related) in which a fraudulent buyer was recently arrested and is now facing felony grand theft charges for claiming that a package worth well over the maximum amount for a misdemeanor theft was never delivered. The reason: the delivery of the package was caught on video by a neighbor’s security camera and provided as evidence.

If you are a costume or prop maker that has been defrauded by a fraudulent buyer, chances are that fraudulent buyer has done it before to other sellers. If you have proof (hopefully undeniable proof) that a crime was committed, then contacting police will not only potentially result in a conviction of the fraudulent buyer, it will prevent other sellers from falling victim to that fraudulent buyer in the future.

Defrauded Seller Testimonies on YouTube

While these testimonials involved eBay and Amazon, the same things can happen when the sale did not involve either.

1. Harvested Parts, Item Returned Very Damaged

Commodore 64 computer in visually good condition when sold by seller was harvested for parts by the fraudulent buyer, who later claimed that the computer was in very poor condition and won the eBay complaint against the seller:

2. Seller Won Fraud Case

Person who sold $350 doll won case against a fraudulent buyer who filed a fraudulent claim.

3. Seller Defrauded over $50 Gift Card

Seller defrauded over $50 gift card sale to fraudulent buyer:

4. Fraudulent Buyer Returned Empty Box

Seller defrauded by Amazon buyer who returned an empty box. Total loss: $600 after Amazon refunded the fraudulent buyer.

References:

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