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Penny auction deals can come with a steep price

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A new iPod Touch for $7.25? A new computer for $27.16? The latest Callaway driver for $3.34?

Wow, are those eye-catching deals.

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But, as always, if a deal sounds too good to be true, there's usually a catch. And that's the case with the big bargains so-called "penny auction" websites are claiming.

The online site offering brand-name new merchandise at unbelievably low prices are quickly gaining popularity but also warnings from the Better Business Bureaus (BBB) of Minnesota, North Dakota and Central Florida. The BBBs are reminding people that purchasing bids only provides consumers the right to bid on an item; they do not guarantee any product in return. The BBB has also noted an uptick in consumer complaints regarding penny auction websites recently.

Here's how the penny auctions typically work, according to the BBB: Consumers visit websites where they're told they can win auctions and receive products at exceptionally cheap prices. They then buy "packets" of bids at a particular rate, such as $1 per bid. If a consumer buys 100 bids, then that person is giving the website $100 straight away, which gives him/her an opportunity to bid 100 times, but does not guarantee any product in return.

According to Moneywatch.com, consumers must pay a fee of 50 cents to $1 each time they bid, depending on the site, and each new bid extends the auction time by 15 seconds. So while an eBay auction with two minutes left will end in exactly 120 seconds, a penny auction with 15 seconds left could go on for several hours - as bidders watch their account balances shrink.

One penny auction website - Grabswag.com - advertises frequently through Facebook pop-up ads and falsely claims BBB accreditation. Complaints indicate Grabswag's website claims to offer 10 "absolutely free" bids for new customers who sign up with them. However, while conducting a secret shopping investigation recently, Dana Badgerow, president and CEO of the BBB of Minnesota and North Dakota, discovered the site required a credit card number and other personal information in order to receive the "absolutely free" bids.

The bottom line is that consumers should know exactly what they're getting into before joining the penny auction craze. The BBB offers these tips:

• Always refer directly to www.bbb.org for legitimate business ratings. Click on any website's "BBB accreditation" logo to view their BBB profile; if you are not directed to a BBB profile, the business is claiming false accreditation. Also, verify the seller's identity and check on their reputation. Some sellers may use a forged e-mail header, making it impossible to contact them if you need to.

• When you find a site that you feel comfortable doing business with, watch several auctions without bidding as a way to give yourself a frame of reference as to how the site works. It's important to pay close attention to what you're bidding on and how much time is left - every time a bid comes in, several seconds gets added onto the end of the auction, so save your bids until it's close to the end.

• Remember that bids ONLY provide the consumer the right to bid on an item, and do not guarantee any product in return.

• Do not accept any offers to "free" trials that require a credit card number or personal information.

• Be cautious if the seller asks you to pay by check or money order. Some online sellers have put items up for auction, taken the highest bidder's money and never delivered the merchandise. Try to pay by credit card. If you don't get the merchandise, you can challenge the charges with your credit card issuer.

• Ask how you'll get follow-up service, if you need it. Many sellers don't have the expertise or facilities to provide service for the goods they sell. Is this important to you?

• Avoid impulse bids and purchases. Online auctions may be enticing, but always research the product before bidding to understand a fair price.

• Ask about return policies. Returning merchandise to an online seller may be difficult.

Here's our suggestion: Instead of risking your hard-earned cash on some tantalizing online deal that has a good chance of never materializing, give local stores a try. Keep your money circulating here locally - not vanishing in some fly-by-night operation on the Internet.

Today's guest editorial comes from the Alexandria Echo Press.

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