Penny auctions not worth it, consumers warned
The National Consumers League says the sites can be very deceptive, cost people a lot of money, and that consumers should stay away.
You've probably gotten a spam or two pitching penny auctions or seen the ads on a variety of websites. They dangle the idea that you could grab a deal on a TV, a computer or whatever at a ridiculously low price.
While there's always someone -- real or invented -- who claims penny auctions are legitimate, the National Consumers League is urging consumers to "avoid them altogether."
The big difference between traditional auctions like those run on eBay and penny auctions, is that the latter typically cost the bidders regardless of whether they win or lose. The National Consumers League warns that the sites usually require participants to pay a fee before they can even start bidding. Generally, you have to buy credits on the site and use their currency. Credits bid in a losing auction are lost.
In its warning about the sites, the consumer group noted that many critics suggest the sites are really a form of gambling and the collection of lost bids can far exceed the actually value of the product being bid on. The sites counter that it isn't gambling and that the lost credits can be used to purchase the products at the retail price.
"It is very difficult for users to determine which penny auction sites are legitimate," the warning said. "For example, several state attorneys general have found that some penny auction Web site use software 'bots' that automatically outbid people as the clock reaches zero, making it virtually impossible to win items at a reasonable price."
The Federal Trade Commission also has cautioned about the penny auction sites.
Here is a list of penny auction pitfalls compiled by the FTC:
Time lags. How soon do you need the item you're bidding on? Can you tolerate it being delivered late, or not being delivered at all? Many complaints about penny auctions involve late shipments, no shipments, or shipments of products that aren't the same quality as advertised.
Misleading terms. Terms like "bonus bids" might suggest that bids are free. In a penny auction, you pay for every bid.
Insecure payment options. Consider how you'll pay. Do you have any recourse if something goes wrong? Don't send cash or use a money transfer service. Instead, consider using a credit card. That way, if something goes awry – say, you don't get your merchandise or it's not what you expected – you can dispute the charge with your credit card issuer.
Phishing trips. If you get a message that looks like it comes from an auction website or payment service and it asks for your password or financial information, hit delete. They're "phishing" for your information so they could use it to commit fraud.
Reputation rules. Avoid doing business with sellers you can't identify. Check out any penny auction site by entering its name in a search engine online. Read about other people's experiences before you commit any money.
Hello? Anyone there? Look for a phone number and call it to confirm that you can contact the seller in case you have questions or problems.
More from MSN Money:
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Whats that saying you sheep never listen too? "If it sounds too good to be true then is likely is"
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