Be cautious of online penny auction sites, warns BBB

Online ads, often designed to look like news reports, are cropping up on popular websites claiming that you can get great deals on iPads and other electronics with online penny auctions.

  • Sep. 15, 2011 9:00 a.m.

Online ads, often designed to look like news reports, are cropping up on popular websites claiming that you can get great deals on iPads and other electronics with online penny auctions.

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.

“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,” says Lynda Pasacreta, BBB president and CEO.

“Unlike typical auctions, unsuccessfully bidding on an item through a penny auction will still cost you. BBB has heard from people who have lost hundreds of dollars bidding on items yet have nothing to show for it.”

Most commonly with a penny auction, users must set up an account and purchase bids with a credit or debit card; each individual bid may cost less than a dollar and are often sold in bundles of 100 or more.

Every item has a countdown clock and as people bid, the cost of the item goes up incrementally and more time is added to the clock.

Even if one doesn’t win the item, he or she will still have to pay for the bids placed, which can add up over time.

Since May, BBB has received more than 800 complaints against a company called BidRack, many from Canadians who have signed up for their services.

Consumers have reported to BBB that when they sign up for the BidRack service they are under the understanding that it is free.

However, upon registration their credit card is then charged a fee, often around $99. The BBB strongly encourages people to read carefully the terms and conditions of any offer.

Other complaints filed against penny auction websites claim 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 a 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 BBB at www.mbc.bbb.org 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 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 Business Review and serve as a warning to others.

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