BBB verified penny auction website for $99

I keep seeing online ads claiming I can buy an iPad for $80. When I click the link, I end up on some sort of auction website that says I need to buy bids. How does it work?

You’ve found a penny auction. The concept is quickly gaining popularity. While the site claims to offer the opportunity to win quality merchandise at low prices, the Better Business Bureau warns that purchasing bids only provides you the right to bid on an item; it does not guarantee any product in return.

Penny auctions are gaining in popularity, but the online commerce is generating a number of complaints from consumers who feel they've been taken, according to the Better Business Bureau.

Unlike traditional online auction sites like eBay, penny-auction sites entice participants with the possibility of winning popular electronics, housewares and other merchandise for a fraction of their value. But there's a catch: Participants must pay simply to bid, with no guarantee of winning.

The sites sell "packets" of bids for prices that typically range up to a dollar per bid, depending on the site.

If someone buys 100 bids at a dollar each, that person is out $100 regardless of whether he or she is ever a successful bidder.

Whenever somebody else places a bid, the end of the auction is extended by 15 seconds, which gives other bidders a chance to keep bidding and extend the action for hours.

Dana Badgerow, president of the BBB of Minnesota and North Dakota, recently conducted her own "secret shopping investigation" on a company called Grabswag and found herself taken for $99 before placing a single bid.

Badgerow responded to an offer for 10 "absolutely free" bids for new customers. Grabswag.com advertises frequently through Facebook pop-up ads and falsely claims BBB accreditation, the BBB said.

Badgerow discovered the site required a credit card number and other personal information in order to receive the "absolutely free" bids. Shortly after signing up, Grabswag billed her for a $99 "starter pack."

"The company's terms and conditions did not disclose any charge upfront, which is a huge concern," Badgerow said. "What's also concerning is that in some Internet browsers the terms and privacy policy do not open or allow the reader to scroll past the first paragraph. People have no way of knowing what they're getting into."

Badgerow eventually got a refund, but only after employees at the company's Philippines call center tried to talk her into various compromise deals.

The BBB offers some tips to consumers considering bidding in a penny auction.

• Educate yourself by watching several auctions before bidding.

• Don't accept free offers that require a credit card.

• Pay for winning bids with a credit card whenever possible because if you don't receive the merchandise you can challenge the charges.

• Be suspicious if you click on a website's BBB accreditation logo and you aren't directed to the company's profile on the BBB's website.