The hidden warning about penny auction websites

CHARLOTTE, NC (WBTV) - It's shocking to see the going rate of items sold to the highest bidder on penny auction websites.

There are digital cameras selling for $25, high-end computers for $200 and $25 gift cards going for pennies.

Terrie Lee checked out one of the sites and couldn't believe what she saw.

"These people were winning $2,000 TVs for $200.  It was incredible," she said.

Each time you bid on an item, you're charged for that bid.  You're in a bidding war against other users as a countdown clock ticks away the time remaining on the auction.

Once time runs out, the winning bidder must pay the final auction price of the item, on top of the money they've already spent on bids.

The losing bidders have lost any money they spent on bids.

"In the beginning I was winning.  So I tried for a Kindle that I've wanted.  I tried three times.  The first time I was just learning how to do it.  The second time I ran out of bids.  So I tried a third time and lost again," Lee said.

In the end, when she counted all of the money she spent bidding, she would have saved money if she simple went to a store and purchased a Kindle.

Jeremy Gin runs the website  It has a federal grant to investigate online businesses. He says these sites started popping up 18 months ago.

"Over time we have had thousands of people who have written negative scathing reviews of these penny auction sites," Gin said.

He claims the potential for fraud is significant.  These sites have been accused of hiring people to bid against users and even using computer programs to bid against users.

If you look closely you'll find that some of the websites aren't trying to hide their money-making motivation.

In the lengthy terms and conditions spelled out by it clearly states you are likely to spend more money than you'll ever get back in products.

"People should treat these websites like a trip to Las Vegas.  It's gambling," said Gin.

Gin advises against using these sites but if you're determined to check them out, please first watch the video at the top of this page.  Gin shares his three tips you must hear before visiting a penny auction website.

For advice from the Better Business Bureau about penny auction websites, click here.

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