Penny Auction Sites: The House Always Wins
If you were looking for a ring that would normally cost $ 1,000, but only had to pay $ 50, you might consider this a good deal. Some website owners bet you would and have made millions doing it.
Brands such as DealDash, Qbids, and Beezid are called “penny auctions” and are part of a fast growing online industry. They work quite differently from traditional auction sites like ebay. With traditional sites, a seller places an item up for auction and potential buyers place their bids. Over time, whoever offers the highest amount is the winner and must then purchase the item.
But on penny auction sites, bidders pay whether they win or not. Participants pay for each offer and often buy offers in “packs,” sometimes costing hundreds of dollars. With each offer, the cost increases by a penny or more. With many auction sites, you don’t necessarily buy the item; you buy the right to buy it at the final price. If you win, you must claim the item within a specified time frame or lose not only the item but your auction money as well.
Consumer watchdogs and government regulators have warned the public for years against penny auctions. Last week in a Minnesota district court, a man filed a class action against DealDash, one of the largest online auction sites, complaining that the company advertises top brands, but in fact sells generic items sold by companies linked to the founder of DealDash. Further (among a host of other allegations), the Complainant alleges that the advertised offers do not truly reflect the actual cost paid by winners – or losers.
The plaintiff called the DealDash auction “a perverse lottery in which American consumers have lost tens of millions of dollars in their fraudulent pursuit of fake goods.” One concern, argues the lawsuit, is that participants must register in advance and enter a credit or debit card number. The customer is then required to purchase a certain number of auctions in an auction package (between 60 and 2,400), with variable costs. (The lawsuit argues that the offers cost between 12 and 15 cents per offer). As a result, the consumer ends up paying dearly, sometimes exceeding the amount it would have taken to purchase the item at full price.
There is much more to the trial; Consumerist (a blog run by Consumer Reports) posted it on https://consumermediallc.files.wordpress.com/2017/04/dealdash.pdfF.
If you are thinking of participating in a penny auction, there are a few things you should be aware of. In a penny auction blog post, the Federal Trade Commission notes that there are several potential issues with penny auction sites, including:
- Time lags. Many auction sites are slow to deliver the goods, and sometimes the quality of the goods is not as advertised.
- Misleading terms. Terms like “bonus auctions” can make you think the auction is free when it is not.
- Hidden fees. Some sites charge you a membership or subscription fee, or have other costs hidden in the fine print.
- Complaint issues. Many dissatisfied customers have tried to complain to the company hosting the auction, only to find that they either get no response or are told they have no recourse.
And finally, you bet against the house. These sites wouldn’t be in business if they weren’t making money. To make sure, some traders use automated software to push the bids higher, and the sites are designed to generate excitement around a bidding process with flashy graphics and account clocks at countdown. If you participate, don’t forget the old adage of the game: the house always wins.
Contact Bill Moak at [email protected]