Better Business Bureau Warning on Penny Auctions

You probably have seen Penny Auctions on TV commercials. The Better Business Bureau (BBB) is sending a warning.

Online “Penny Auctions” are quickly gaining popularity, and though they claim to offer consumers the opportunity to win quality merchandise at low prices, the Better Business Bureaus of Minnesota and North Dakota and Central Florida (BBB) are reminding people that purchasing bids only provides consumers the right to bid on an item; they do not guarantee any product in return. The BBB has also noted an uptick in consumer complaints regarding penny auction websites recently.

“Penny auctions” typically work like this: consumers visit websites where they’re told they can win auctions and receive products at exceptionally cheap prices, like a new iPad for $80. They then buy “packets” of bids at a particular rate, such as $1 per bid. If a consumer buys 100 bids, then that person is giving the website $100 straight away, which gives him/her an opportunity to bid 100 times, but does not guarantee any product in return. According to Moneywatch.com, consumers must pay a fee of 50 cents to $1 each time they bid, depending on the site, and each new bid extends the auction time by fifteen seconds. So while an eBay auction with two minutes left will end in exactly 120 seconds, a penny auction with 15 seconds left could go on for several hours – as bidders watch their account balances shrink.

One penny auction website – Grabswag.com – advertises frequently through Facebook pop-up ads and falsely claims BBB Accreditation. Complaints indicate Grabswag’s website claims to offer ten “absolutely free” bids for new customers who sign up with them. However, while conducting a secret shopping investigation recently, Dana Badgerow, president and CEO of the BBB of Minnesota and North Dakota, discovered the site required a credit card number and other personal information in order to receive the “absolutely free” bids. Shortly thereafter, Grabswag billed her account for $99, which is the price for a “Starter Pack.” When she tried to cancel after noticing the charge, the company’s call center (which is located in the Philippines and operated by a third party) refused to provide a refund in full but instead proposed successively better “resolutions,” going from offering a 50% refund to a 75% refund. Though Grabswag maintained they do not grant full refunds, they eventually agreed to issue a full credit.

“The company’s terms and conditions did not disclose any charge upfront, which is a huge concern,” said Badgerow. “What’s also concerning is that in some Internet browsers the terms and privacy policy do not open or allow the reader to scroll past the first paragraph. People have no way of knowing what they’re getting into.”

The BBB of Central Florida currently maintains the report on Grabswag’s parent company, Nextown Technologies, LLC. There is an alert on Nextown Technologies’ profile regarding the non-disclosure of the $99 charge, as well as pending complaints with that Better Business Bureau, all having to do with that concern.

The Better Business Bureau and the Federal Trade Commission advise customers to use caution when dealing with pay-to-bid online auction sites and offer the following tips:

* Always refer directly to www.bbb.org for legitimate business ratings. Click on any website’s BBB Accreditation logo to view their BBB profile; if you are not directed to a BBB profile, the business is claiming false Accreditation. Also, verify the seller’s identity and check on their reputation. Some sellers may use a forged e-mail header, making it impossible to contact them if you need to.

· When you find a site that you feel comfortable doing business with, watch several auctions without bidding as a way to give yourself a frame of reference as to how the site works. It’s important to pay close attention to what you’re bidding on and how much time is left – every time a bid comes in, several seconds gets added onto the end of the auction, so save your bids until it’s close to the end.

· Remember that bids ONLY provide the consumer the right to bid on an item, and do not guarantee any product in return.

· Do not accept any offers to “free” trials that require a credit card number or personal information.

· Be cautious if the seller asks you to pay by check or money order. Some online sellers have put items up for auction, taken the highest bidder’s money and never delivered the merchandise. What’s more, consumers who have paid by certified check or money order have had little recourse when it came to getting their money back.

* Try to pay by credit card. If you don’t get the merchandise, you can challenge the charges with your credit card issuer.
* Ask about using an escrow agent, or paying by COD. Most escrow services charge a fee, so you may want to consider this option only for larger purchases.
* Ask how you’ll get follow-up service, if you need it. Many sellers don’t have the expertise or facilities to provide service for the goods they sell. Is this important to you?
* Avoid impulse bids and purchases. Online auctions may be enticing, but always research the product before bidding to understand a fair price.
* Ask about return policies. Returning merchandise to an online seller may be difficult.

For more information about online auctions, visit the FTC’s web site on the Internet at www.ftc.gov.