Penny auctions promote great deals on hot merchandise: brand new iPhones for $15, digital cameras for $3, Prada sunglasses for $46 and more.
But shoppers aren’t the only ones checking out the deals these days. While the number of websites is growing – so are the number of consumer investigations, lawsuits and complaints. The Federal Trade Commission says consumers have filed hundreds of complaints with the agency and the Better Business Bureau has gotten more than $1500 complaints in the last year.
"We urge extreme caution with consumers,” Becky Maier of the Better Business Bureau said. “We urge that consumers understand that it's very hard to actually win the products."
Penny auction investigation websites are now popping up, warning shoppers about sites it says are not playing fairly.
At least two class action lawsuits have been filed in federal court. One alleges consumer fraud while another filed against Quibids and other penny auction sites claims companies are illegally gambling and operating a lottery.
Quibids strongly denies all allegations and says it offers shoppers fun chances to win cool stuff at an amazing price.
"I know for a fact this is not gambling or any illegal lottery,” Jill Farrand, Director of Public Relations at Quibids said. “What I would call it is entertainment shopping."
Quibids points to satisfied customer who got an iPad for $150, an iMac computer for $1.60, a flat screen TV, more iPads, iPods and three digital cameras for cheap all by bidding on its site.
"I got an incredible deal," Brown said.
How did Brown pull it off? The starting price of an auction is zero. Bidders up the ante a penny at a time. Each time they bid, they’re charged about 60 to 75 cents.
So though Brown won the actual items for cheap, he shelled out thousands of dollars for bids. Still, he says he’s ahead of the game.
"I probably spent 4000 dollars in bids in the past five months but on the other hand I've probably won double that in merchandise value," Brown said.
Quibids admits it profits from bids, but says it offers losing shoppers the chance to apply the amount they spent towards buying the item.
"The worst case scenario should be a customer walking away at retail price," Farrand said.
The Better Business Bureau says its penny auction complaints include getting charged more than $150 for a “free trial offer,” not being able to get a hold of anyone at a company to dispute charges, and being lured into spending a lot of money.
That’s what Bill Larson says happened to him.
"They're just sucking dollars out of your wallet,” Larson said.
Larson spent $150 to buy into a website, and another $50 on bids to win two $50 gift cards which he says he never got because he didn’t claim them in 30 days – something he says he wasn’t warned about.
Larson claims the sites are addictive and lure you in like gambling.
"You don't realize it until that money is gone how much you've lost and not saved," Larson said.
The Better Business Bureau says some penny auction sites operate well, and recommends that before you pay – do your research and play frugally.
"You can get it at a cheaper price but you could also be paying more in the end if you're not careful," Maier said.
If you do participate in penny auctions, make sure there’s someone you can call if you receive unauthorized charges, read all the fine print about “free trial offers” – how long do you have to cancel and how much are you charged? – be sure the amount you spend on bids is not more than the cost of the product, and use a credit card, not a debit card, for online purchases you’re unsure about.
You have greater protections to dispute the charges you paid for but did not get.
