Penny auction sites are hot, but have more risk than reward

Penny auction perilsWhen Anice Keenan went looking online for a pair of pants for her son, she didn't imagine she would end up trying to buy a Honda Civic for a penny. At least, that's what hooked her in to the penny auction site SwipeBids. Skeptical at first, she decided to do some research by watching a news report from a local Oklahoma television station talking about penny auction sites as great places to score bargains.

Before she knew it she was out $150 -- confused by the registration process, and unsure of what she spent her money on. "They refused to give my money back," said Keenan, a resident of Marietta, Ga. "You can't get a hold of these people, you can't talk to them, there's no way to connect."

It's next to impossible to find a phone number on SwipeBids, something people have complained about on consumer boards. A Better Business Bureau report says it is based in Orem, Utah with roots in Sherwood Park, Alberta, Canada. Its site is blind-registered to a private proxy service, and if you've been reading this column, you know that's a big warning sign. In oddly fine print on its chat page it lists an address in the UK: Circle Media Bids Limited, 72 High Street, Haslemere, Surrey. Its live chat works, though (some are so obviously auto-scripted that you can have more enlightened conversations with a Turing machine), and was staffed by a very polite human being when I had the following exchange (excerpted for brevity):
You: I am a reporter for AOL Money & Finance's Consumer Ally. I am looking for someone to talk to regards a person who has written to us about a problem with your site. I do not have an account with SwipeBids.

Carol: You may talk to me about that.

You: OK. A woman named Anice from Marietta, Ga., said that she signed up to bid on your site, but before she knew what was happening, she had lost $150, which she says you would not refund.

Carol: We do refund people, but only to those who qualifies for our money-back guarantee.

You: Her last name is Keenan. Would it be possible for you to verify whether she registered for your site? And can you tell me more about your money-back guarantee? Why would she not qualify? What would need to happen for her to qualify for a refund under your guarantee?

Carol: She is entitled to get refund, but she have to follow the procedure for that.

You: What would be the procedure? Is it listed somewhere on your site so that I can show her?

Carol: Yes, it is. Please go to:

: Can I tell her that I spoke to Carol at SwipeBids, that she is entitled to a refund, and that she should read what's on that page and follow the directions? Sorry to ask so many questions but the details are important.

: Yes, you can do that.
Now, before we get a warm feeling in our heart, note the refund instructions actually say that you have to spend all your $150 in bids and not win any auctions before you are eligible for a refund. Quite a leap of faith for a blind-registered site that may or may not have U.S. offices -- call the Orem, Utah phone number and you get an automated recording, that, among other things, explains an $11.95 charge levied to customers every month "for the right to bid on our auctions." Sounds like lots of SwipeBids customers weren't prepared to part with $144 annually for the privilege.
Welcome to the booming frontier of penny auctions, where no one knows how big the market is, except that it's on fire. Where fearless regulators have yet to tread (The FTC told us, more or less, that they haven't heard much about them). Where sites open their tents at night, fold them in the morning and move on like desert nomads. Where people like Pennsylvania's John "Duffy" Conley, who served two stints in a federal prison for illegal gambling, decide to go straight and make a good living.

Penny auctions started in Germany (you know those Germans always make good stuff). Some of their marketers use dumb tactics like this page, an ad for auction site Foopile, that's pretending to be a news site, though the TV newscast that drew in Anice Keenan was legitimate.

Penny auctions are fairly easy to set up, and easy for their operators to game. They may be more akin to games of chance at the carnival, like lobbing ping-pong balls at goldfish as opposed to places to hunt for a bargain -- though some sites claim you can save an average 80% over retail.

The differences between a penny auction and a regular auction: One, you buy the bids, either as part of a registration fee or in packs of all denominations going up to hundreds of dollars. Two, when someone bids, the price of the item goes up by a uniform increment as in a regular auction, but each bid adds a chunk of time to the clock, giving everybody else a chance to bid again and again. (Oklahoma-based QuiBids compares the process to the "going ... going ... gone" phase of a real auction). In theory, you could snag a flat-screen TV for something like $80 plus shipping. In reality, you're probably going to be squaring off with other bidders for hours, or competing with bidding software.

"You can't always get a bargain, but it's not quite the same as gambling," says Amanda Lee, founder and owner of year-old Penny Auction Watch, one of the few apparently objective sources of information about penny auctions, though the site does take ads from a number of them. "But it is risky," she says.

Lee started up her site after participating in penny auctions herself, which she still does. Safeguards are few and oversight is basically nil, so readers on her site trade tips and form communities around her digging, such as this story pointing out how easy it is, if you run a penny auction site, to find programmers who will write code to cheat. One of the most common ways to do that is by deploying "bots," which look from the outside like human bidders but are in fact computer programs created to bid up the item price and even win it, so the auction runner doesn't actually have to part with any merchandise.

There are some decent sites out there, Lee says. BidCactus is one that's subjected itself to an official audit, and is a member of the Better Business Bureau in Connecticut (it earned an A- rating). Another site with BBB accreditation (it also earned an A- rating) is, based in San Francisco, They offer a "Buy it Now" option to frustrated bidders on most items: If you lose an auction, you can actually buy another of the same item for a quoted retail price minus the amount you bid.

For beginners, the "buy it now" function is a good indicator of whether a site is legitimate or not, Lee says, along with how much traffic the site gets, and if they have a large number of items up for bid. QuiBids, which recently cracked the top 1,000 most trafficked websites by Alexa's assessment, offers "buy it now" on all its items. "We are a bargain site that has an entertainment aspect to it," said Jeff Geurts, the site's CFO. "You're either going to get a great deal, or pay an Internet price, like you would pay on Amazon." Quibids has a decent BBB rating.

In addition, you can watch the site for a few days, look for mentions of the site on consumer complaint boards, and, most sensibly, find a site that has items you want to buy. A number of them sport an odd collection of stuff: gift cards of all kinds, flash drives, ballpoint pens, tire gauges, Pilates balls, Tupperware. PennyAuctionList, which feels more like what its name says than a watchdog, claims to list only auctions that don't employ sneaky tactics like shill bidding.
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