When a Better Business Bureau goes bad

Updated 6:40 p.m. ET

The Better Business Bureau was where your grandmother turned when she had a concern about a business' reputation. But the century-old group is no longer the only watchdog in town, and a recent scandal is threatening to ding its own reputation. 

After a series of troubling allegations, the BBB has kicked out its Los Angeles chapter. Among the claims are that the local group demanded payments from local businesses in exchange for good ratings and that it even accepted fake businesses as long as they paid up, reports The Los Angeles Times. 

The scandal comes at a delicate time for the watchdog, as its influence has waned with the growing popularity of Internet review sites such as Yelp (YELP) and Angie's List (ANGI). 

That's reflected in a steep drop in the number of complaints consumers lodge with the BBB. In the pre-Internet days of 1987, the group received 2.1 million complaints, but by 2012, that number had tumbled to about 950,000, the Times notes. 

The BBB disputed the numbers published by The Times, pointing out that the 2.2 million complaints in 1987 also included informal advice. Excluding advice, the number of complaints actually jumped, from 442,350 instances in 1987 to 984,721 last year, the BBB told MSN moneyNOW.

The watchdog also said it does "not view other review sites as competitors" because the BBB "is a non-profit, and our services and information are free to all consumers."

The BBB opened up about the problems with its Los Angeles chapter, called the BBB of the Southland, on its website. 

The national group said that it had been working to resolve issues with the chapter for more than two years, ever since a "20/20" investigation found that the chapter was accrediting companies without checking their credentials. A blogger working with the ABC news magazine "filled out an application for the terrorist organization Hamas, which briefly appeared on the local website as a BBB Accredited Business with an A+ rating," the watchdog said. 

Carrie Hurt, the parent group's chief executive, said the story was "painful" but that the organization realized it needed to change the troubled chapter or expel it, according to the press release. 

Among those hit by the Los Angeles chapter's behavior was celebrity chef Wolfgang Puck, according to the Times. While he owns several Los Angeles-area restaurants, he didn't belong to the chapter, and his eateries received worse ratings than rivals who were lesser known but had paid $300 in fees, the piece adds. 

The BBB is hoping to regain credibility in the Los Angeles market by starting a "virtual BBB" at la.bbb.org, Hurt said. She added that she appreciates "the patience of businesses and consumers while we rebuild.”

Whether consumers will stick around when they could visit Yelp or other review sites remains to be seen.

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