Bidding on penny auction sites is risky

Florida is latest state to settle with a former penny auction website

Published: June 30, 2014 01:30 PM

Florida has become the latest state to reach a settlement with the defunct penny auction website ArrowOutlet, which it accused of rigging auctions to get more money from customers.

Florida residents have until Aug. 16 to make a claim (PDF) for a piece of the $425,000 in consumer restitution Attorney General Pam Bondi obtained from the online auction site, which shut down in 2012. The state accused the site of using an “auto bid” script that artificially inflated the number of bids required to win a given auction.

To obtain restitution, Florida residents or those who were residents when they did business with the site must submit a receipt, credit-card statement, canceled check, or other documentation showing the amount they spent purchasing bids on the website. The maximum amount each person will receive depends on the numbers of claims made and the amounts requested.

Penny auction sites advertise what seem like amazing deals. To bid, you click a bid button and when the clock runs out, the last and highest bidder wins the item at the final price, which can be very low. That’s because bidding starts at or near $0, and each bid raises the price by usually just a penny or two. So an item that gets 1,000 bids in one-penny increments sells for $10, even if it otherwise would cost you hundreds. Participants can bid many times during a single auction and even set the site to bid for them automatically within set limits. But unlike with traditional auctions, bidding isn’t free. You must buy bids up front—usually for 60 cents or so each. And any bid money you spend is gone, whether or not you win.

Florida officials said the auto bid script that the Massachusetts-based ArrowOutlet was using was designed to place bids at certain intervals, thereby prolonging the auction, increasing the number of bids purchased and used, and preventing actual users from winning the items.

In January 2013, Attorney General Rob McKenna of Washington announced that his office had reached a $120,000 settlement with ArrowOutlet, including $50,000 in consumer restitution.

Penny auctions are risky

Even without software designed to cheat participants, penny auctions are risky because relatively few people end up paying the extremely low prices the websites advertise. The terms of use at the penny auction site DealDash says it best: “By registering and using DealDash you understand that you are likely to spend more money than you may receive in merchandise value. Most customers using the site gain less in merchandise value measured in monetary value compared to the amount of money spent bidding to win auctions. Do not buy bids or spend money on the site if you cannot afford to lose the money.”

On DealDash and other sites, you can at least partially offset the value of losing bids by buying the item at full price, using the “buy now” feature. Do that at the penny auction site DealDash and your losing bids will be returned to you so you can use them again. At Quibids, you can apply the value of the losing bids to the item’s full purchase price.

But even then, you may not be getting a great deal. For instance, we found a patio heater with a “buy now” price of $167 on DealDash for $96 on Amazon. A Nikon digital camera with a buy now price of $650 on Quibids was on Amazon for $597.

What to do

Don’t be taken in by ads promising electronics, jewelry, home and garden items, and more at amazingly low prices. Instead, think of penny auction sites as gambling, not shopping. If you want to try a penny auction site, do so for entertainment only, and be prepared to lose money. Don’t bid on anything you don’t want, and even then, make sure the full “buy now” price is competitive with prices you can find elsewhere for the same product. Read the site's terms and conditions, lists of frequently asked questions, and tips and advice. Before doing business with a penny auction website or any company you don’t know, check for a report at the Better Business Bureau. And find out what others are saying by using a web search with the business name and such terms as “reviews” and “complaints.”

Anthony Giorgianni

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