New Web Survival Guide

Dealing With a Dead Service

The ramifications of the changing Web can be much more painful to consumers than a simple conversion from free to fee services. Just ask Dawn Czajak (pictured), who lost several hundred dollars when Flooz.com went under.

Flooz, which sold online gift certificates that consumers could use to buy products from affiliated online retailers, filed for bankruptcy in August. This event left thousands of people stuck with worthless certificates that retailers refused to honor because they in turn couldn't collect the price of the purchases from Flooz.

"I purchased $650 worth of [Flooz currency]," says Czajak, "and had only spent $124.94 from my account when Flooz went out of business. I tried to use it weeks before Flooz actually went under, but its Web site was down with no explanation and with no way to reach the company."

Little more than a week after Flooz folded, Beenz.com, a similar gift certificateA-based site, announced that its members would have ten days to redeem their online currency.

Consumer rights lawyer Edgar Dworsky, who runs the watchdog Web site Consumer World, advises consumers to cash out of troubled programs early, before bankruptcy laws enter the picture.

"Look for warning signs," he says. "If they cut half their staff, you'll want to pay attention. Convert whatever you have to some real-world equivalent [if possible]--real airline miles, hard currency and goods, or paper gift certificates."

Probably the most egregious case of a dot com pulling consumers down with it came when online retailer CyberRebate.com filed for bankruptcy and left a reported 200,000 customers with more than $80 million in unfulfilled rebates. Until it folded, CyberRebate.com offered consumers a tempting deal: 100 percent rebates on electronic and household goods that it sold. The catch was that the site's prices were higher than those of other retail sites, and you had to wait 90 days after purchasing to get your refund. The idea spread faster than a computer virus--at one point CyberRebate was the number three Web retailer, after EBay and Amazon.com. And for the first year at least, CyberRebate (which was founded in 1998) delivered as promised.

"The consumers who got in early had empirical proof that this wasn't a scam--they got their merchandise and they got their rebate," says Dworsky.

But eventually the plan imploded.

"My guess is that [CyberRebate] had to keep raising prices [to pay rebates that were coming due]," Dworsky continues, "to the point where they were charging up to ten times the usual retail price. When you've got to get new people in to pay the old ones, that [might be] called a Ponzi scheme [named for scam artist Charles Ponzi]. The point is, consumers lost, and they lost big."

One CyberRebate victim, Janice Leverentz, lost $4300 when the company folded. "I was willing to pay the grossly inflated prices, figuring I'd be making about 10 percent on my time and money investment," she says.

Leverentz appealed to her credit card company to recoup her loss--to no avail. Credit lenders are required to investigate when a cardholder has a problem with a purchase bought on credit. But there's no guarantee your lender or card company will agree that you have been swindled.

Dworsky has seen hundreds of complaints from CyberRebate victims. "[Credit lenders] seem to be saying, 'You got your merchandise; it's not our fault you didn't get the rebate,'" he says.

It's unclear whether CyberRebate did anything illegal, but the end results mirrored those of any pyramid scheme: The people who got in early made out fine, and those who came in late got burned. The lesson: If it sounds to good to be true...