FTC Warns Consumers on Penny Auction Sites


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You’ve seen the ads on dozens of sites: “Get an iPad for just $ 10!” It’s too good to be true? You bet it does.

These ads for so-called “penny auction” sites promise incredible deals on popular electronics, sometimes for as little as a dime. But you will probably end up spending a lot, a lot more, even more than the actual retail price, and you might not earn the product at all.

Penny auctions are such a bad deal for most consumers that we have removed Techlicious’s ads when Google tries to run them on our site. And recently, the Federal Trade Commission (FTC) warned consumers about the pitfalls of auctions. With information from the FTC, we’ve put together a guide on what to watch out for:

How does a penny auction work?

In a penny auction, the items are posted by the site owner and you pay to bid for them. The price of auctioned items usually starts at zero, and each auction increases the price of the item by one cent. Each auction also adds time – from 10 seconds to 2 minutes – to a countdown. The objective is to be the highest bidder at the end of the allotted time. But since the clock resets with each bid, the auction process can be unpredictable and time consuming.

Unlike a traditional auction, where only the winning bidder pays for anything, penny auctions require you to pay for each auction whether or not you win. And each of those penny offers actually costs you a lot more, up to a dollar per offer.

According to the FTC, some unscrupulous auction sites use auction bots, which are computer programs that automatically bid on behalf of the website. And some scam sites get the same effect by using human shills. You may be seconds away from winning a bid when another user places a bid. It spins time and forces you into a bidding war to stay in the top spot. Although the bidder appears to be another user, it could be a shill or a bot programmed by the website to extend the auction and keep people bidding (and spending money) while ‘they chase the “winner”.

What does “win” mean?

Winning the auction doesn’t mean you’ve won the auctioned item: it means you’ve earned the right to buy the item at the final price. For example, suppose you win an auction for a laptop that has a retail price of $ 500. You have placed 200 bids that cost $ 1 each. The final price on the laptop is $ 50. The laptop will actually set you back $ 250, plus shipping and handling, and possibly transaction fees.

If you lose an auction, there’s a good chance you’ve lost your money. If you placed 199 bids on the laptop, for example, you would lose $ 199. Some penny auction sites have a “Buy Now” feature that allows players to purchase the item and apply the amount of the bids placed as a discount to the retail price of the product. So if you applied your $ 199 auction to the laptop’s $ 500 retail price, you wouldn’t lose your investment in the auctions you bought, but you wouldn’t save money on the retail price.

Penny auction traps

Penny auctions can have bids, but they can also have problems. Examples cited by the FTC include:

  • Time lags. How long will it take to receive the item you are bidding on? Can you tolerate it being delivered late or not delivered at all? Many complaints about penny auctions involve late shipments, no shipping, or shipments of products that are not of the same quality as advertised.
  • Misleading terms. Terms such as “bonus auctions” may suggest that the auction is free. In a penny auction, you pay for each auction.
  • Hidden costs. Read the terms of use for each auction site before logging in or registering. Sites may charge a fee (for membership, current subscriptions, or shipping), follow different rules, or have a variety of refund policies or other terms and conditions. The terms and conditions may not be well disclosed elsewhere on the website.
  • Insecure payment options. Consider how you are going to pay. Do you have recourse in the event of a problem? Do not send cash or use a money transfer service. Consider using a credit card instead. That way if something goes wrong like you don’t receive your merchandise or it’s not what you expected, you can dispute the debit with your credit card issuer.
  • Reputation rules. Avoid dealing with sellers who you cannot identify. Check out any penny auction site by entering its name into an online search engine. Read about the experiences of others.
  • Hello? Is there anyone here? Find a phone number and call to confirm that you can contact the seller with any questions or issues.
  • You are about to spend some money. Know exactly what you are bidding on. Print a copy of the seller’s product description and read it carefully, especially the fine print. Also save copies of all emails you send and receive from the auction site.

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