Air Force

December 13, 2013

Online Penny Auctions, beware!

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Penny auctions might be a fun way to try to get big ticket items at reduced prices. The discounts offered on penny auction sites are tempting but the Better Business Bureau warns bargain hunters that they should stop and do their research before making their first bid. In many ways, a penny auction is more like a lottery than a traditional online auction. In a penny auction, you have to pay to bid. Before you know it, you could spend far more than you intended, with no guarantee that you’ll get anything in return. In a penny auction, the site owner posts items and you pay to bid for them. Unlike a traditional auction, where only the winner pays, penny auctions require you to pay before – and as – you bid, win or lose.

With respect to the penny auctions, you may have to pay a fee just to register for the site, and sometimes, it’s substantial. Then, you have to buy a “bid package.” For example, you may “buy” 100 bids for $50. Additional bids cost more money, often between 50 cents and a dollar per bid. The price of auction items usually starts at zero, and each bid bumps the price of the item up a penny. Each bid also adds time – from 10 seconds to two minutes – to a countdown clock. The goal is to be the high bidder when the clock runs out. But because the clock resets with each bid, the auction process can be unpredictable and take time to complete.

Winning the auction doesn’t mean you’ve won the auction item: It means you’ve won the right to buy the item at the final price. For example, your $50 winning bid for a camera might seem like a bargain but if you placed 200 bids that cost $1 each, your cost will actually be $250 – plus shipping and handling and possibly a transaction fee.

If you lose an auction, chances are you’ve lost your money. If you placed 199 bids on that camera, for example, you’d be out $199. Some penny auction sites have a “Buy-It-Now” feature that lets losing bidders buy the item at retail price and apply the amount they spent on bids as a discount. So, you might not lose your investment in the bids you purchased, but you wouldn’t save any money off the retail price, either. Some dishonest auction sites use bid bots which are computer programs that automatically bid on behalf of the website. And some fraudulent sites achieve the same effect using human shills. You may be seconds away from winning an auction when another user places a bid. That keeps the clock ticking and forces you into a bidding war to stay in first place. Though the bidder appears to be another user, it may be a shill, or a bot programmed by the website to extend the auction and keep people bidding (and spending money) as they chase the “win.”

“BBB has received hundreds of complaints from consumers about penny auctions so far this year and we’re encouraging online bargain hunters to do their research,” said Alison Southwick, BBB spokesperson. “Unlike typical auctions, unsuccessfully bidding on an item through a penny auction will still cost you and BBB has heard from people who lost thousands of dollars bidding on items and have nothing to show for it.”

Many people have complained to BBB about being automatically charged $150 just for signing up for what was supposed to be a free trial. Others complainants have voiced their concerns that some sites use phony bidders and “bots” to drive up the prices on items. Customer support is also a major concern as many complainants explain they had a very difficult time receiving refunds or resolving other issues with the company.

Before making your first bid on a penny auction:

Research the penny auction with BBB first. Not all penny auctions are created equal and BBB ratings on various sites range from A- to F. Always research the penny auction site with your BBB at http://www.bbb.org/us/Find-Business-Reviews/ before signing up.

Read the fine print carefully. Before providing any personal information or signing up for any “free” trial with a penny auction, read all of the fine print carefully on the website. Pay close attention to details on signup and annual fees, minimum bidding requirements, maximum prize amounts and how to get a refund.

Know what you’re buying. Before bidding on an item, research how much it costs elsewhere and keep track of how much you’re spending on bids overall to see if you really are getting a good deal.

Keep a close eye on your credit card statement. Many have complained to BBB about being unexpectedly charged more than $150 just for signing up. Some complaints were also automatically charged for more bids when they ran out or for a yearly registration fee, not realizing this would be the case.

Complain to BBB if you feel you’ve been ripped off.  If you feel you’ve been misled by a penny auction site, file a complaint with your BBB. BBB has assisted customers in resolving their issues, including getting refunds. If the business does not cooperate, your complaint will still go down on the company’s BBB Reliability Report and serve as a warning to others. For more advice on finding deals and avoiding rip-offs online, visit the BBB’s website at http://www.bbb.org/us/consumer-tips-technology/

Penny Auction Pitfalls:

Time lags. How soon do you need the item you’re bidding on? Can you tolerate it being delivered late, or not being delivered at all? Many complaints about penny auctions involve late shipments, no shipments, or shipments of products that aren’t the same quality as advertised.

Misleading terms. Terms like “bonus bids” might suggest that bids are free. In a penny auction, you pay for every bid.

Hidden costs. Read each penny auction site’s Terms of Use before you sign in or register. Sites may charge fees (for membership, ongoing subscriptions, or shipping), follow different rules, or have a variety of refund policies or other terms and conditions. If the terms and condition aren’t clearly disclosed on the website, take your business someplace else.

Insecure payment options. Consider how you’ll pay. Do you have any recourse if something goes wrong? Don’t send cash or use a money transfer service. Instead, consider using a credit card. That way, if something goes awry – say, you don’t get your merchandise or it’s not what you expected – you can dispute the charge with your credit card issuer.

Phishing trips. If you get a message that looks like it comes from an auction website or payment service and it asks for your password or financial information, hit delete. They’re “phishing” for your information so they could use it to commit fraud.

Reputation rules. Avoid doing business with sellers you can’t identify. Check out any penny auction site by entering its name in a search engine online. Read about other people’s experiences before you commit any money.

Hello? Anyone there? Look for a phone number and call it to confirm that you can contact the seller in case you have questions or problems. You’re about to spend some money so you need to know exactly what you’re bidding on. You need to read the seller’s description of the product closely, especially the fine print and keep a copy. Save copies of all emails between you and the auction site, too.

Report Problems with Online Auctions. If you have problems during an online auction transaction, try to work them out directly with the website operator. If that doesn’t work, file a complaint with the Federal Trade Commission at ftc.gov/complaint and your state Attorney General.




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