Penny auctions… why they’re more like gambling than buying

(4/9/2015) Why you should be careful with pay-bid auction sites

Resolver.co.uk can make the process of complaining about a company simpler in almost any situation. But our system relies on one thing – that the company you’re complaining about, however poor their service to you, is a legitimate company.

Sadly, when you’re the victim of a scam, it’s simply no use complaining direct to the company (as Resolver enables you to do) – no scammer is going to hold his or her hands up to a fair cop.

So if you feel you’ve been the victim of an online scam, what do you do? Realistically, the only thing you can do is contact your bank or credit card provider, and ask them to refund the monies taken without your consent or permission. This is often easier with credit cards, as there is legal protection for you if you’ve spent over £100. It’s always worth raising the issue with the fraud team of your bank if you did not use a credit card, though, as they may still help you out in the interests of consumer protection (see – banks aren’t always bad!).

Some situations are a little murkier, however, such as when the practices of a company are actually legal. Which brings us to the tricky world of so-called ‘penny auction’ sites.

These sites were brought to my attention this week by an email I received from a gentleman (who wishes to remain anonymous) who had an issue with one of them.

“I have been cheated by an auction site named SWAGGI.com,” He writes. “When I joined their site I opened an account with them for £50 but when I checked with my credit card account with Barclaycard, Swaggi had in fact duplicated the amount by taking another £50.

“I made several bids, which produced nothing. After seeing the debit of £100 I contacted Barclaycard customer services, who said they would try to help me recover at least some of the money. I would like to know if other viewers of your website or in your forum have had similar experiences with Swaggi.”

We hadn’t actually received any other stories like this – and the good news in this chap’s case is that the team at Barclaycard helped him get his money back.

I’ve also done a little investigation and can’t actually find an online auction site called Swaggi. I did come across a Swoggi, though, as well as HappyBidDay, Quibids and MadBid (possibly the best known of this type of site).

The problem with these sites – and let’s be clear about this, we’re not suggesting what they do is illegal – is that they promise the chance to buy big-ticket items.

As the good folks at Wikipedia put it: “A bidding fee auction, also called a penny auction, is a type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid.

“The auction ends after a period of time, typically ten to twenty seconds, without new bids; the last participant to have placed a bid wins the item and also pays the final bid price, which may be significantly lower than the retail price of the item. The auctioneer makes money in two ways: the fees for each bid and the payment for the winning bid, totalling typically significantly more than the value of the item.”

In essence, by participating in an online ‘penny auction’ you are basically gambling. Yes, you might land yourself a massive TV for £200, but equally you could find yourself having spent hundreds of pounds to ‘win’ nothing at all. In fact, on some sites auctions can in theory keep going indefinitely as logn as the bids keep tolling in.
So what can we learn from this? Firstly, if you do wish to use a penny auction site… treat it very much as you would treat any other gambling activity, and remember that the house always wins. As for those ‘iPhones for a tenner’ ads? Well, if something seems too good to be true, it probably is…

Finally, if you do feel as though you’ve been duped out of money online – go to your bank or your credit card provider asap. You never know how much you could get back…