Cagey Consumer

CyberRebate: Too Good to Be True!

CyberRebate issued the following notice on their web site at 11 a.m. on 5/16/2001:
CyberRebate.com, Inc., an on-line retailer headquartered in Long Island, NY, filed for bankruptcy protection under Chapter 11 in the Eastern District of New York at 10 a.m. today. As of the filing time, CyberRebate.com suspended operations on its Web site. Questions regarding customers, vendors and others affected by today's action will be resolved as the bankruptcy process proceeds.

Sadly, most employees were released this morning. A small staff will remain to take the company through bankruptcy. More information will be available once the bankruptcy process gets underway. Customers will be contacted regarding their rights and remedies.

Analysis by the Cagey Consumer

This bankruptcy probably puts an end to this Ponzi scheme. Customers, some of whom reportedly had as much as $50,000 in rebates pending from CyberRebate, are the obvious losers in this fraud, but there are plenty of other creditors as well. Notably among them will be credit card companies, who will be required by law to honor at least some customers' chargeback requests, and who will likely honor many other chargeback requests in order to retain customer goodwill.

A bankruptcy proceeding generally precludes further lawsuits against the bankrupt company. Secured creditors have priority over unsecured creditors, which means that banks, credit card companies, and many other suppliers (e.g. web sites that ran CyberRebate advertising) get to fight over what paltry amount remains.

Since chapter 11 anticipates paying off creditors out of profits earned while the business continues to operate, small sums of money can trickle in over several years. If the business violates certain terms of operations while in chapter 11, it will likely be converted to chapter 7, resulting in liquidating the assets and using the proceeds to pay off creditors. Either way, the unsecured creditors usually end up with pennies on the dollar.


CyberRebate Discussion Boards


The remaining section represents the content of this page immediately prior to the bankruptcy declaration.

Consumers who send in for rebates are accustomed to going through a series of hoops to get back the money they've been promised. Manufacturers create these hoops as a way to increase the "breakage": the money they've promised to pay out in rebates but don't have to either because customers never bothered to send for the rebate or because the rebate was disqualified for not adhering strictly to the requirements of the rebate.

Although many people think that the length of time required to process rebates, frequently 10 to 12 weeks, provides the manufacturer with substantial savings that make the rebates workable, the most this float would save the manufacturer would be about 3% of the rebate. However, this can be added to a certain percentage of rebates that are returned because people have moved, which increases with longer processing times.

CyberRebate promises rebates of the full-purchase price (less a flat shipping fee for the entire order), but provides itself with up to 14 weeks to mail that rebate, which makes it harder to dispute the credit card charge with your bank.

The real question is how does CyberRebate make money if it returns all the money the customer pays except for a flat per-charge shipping fee? The answer is that they charge inflated prices for merchandise so that they have a very large gross margin. I've seen similar products sell for as little as 1/10th of what CyberRebate charges.

Of course, if CyberRebate made good on all the rebates, and everybody sent in their rebate requests, the only room for profit would be the 3% they might earn on the float. But now that I have some experience with CyberRebate, I know that they may arbitrarily dishonor a certain percentage of rebates.

The onus is on the customer to make sure their rebates all get approved, and follow up on any that are dishonored. If you're not prepared to do this, you won't be getting all your merchandise for free.

CyberRebate's record seems pretty good on resolving the problems once they're reported, but CyberRebate stands to gain if enough customers can't be bothered to do this.

CyberRebate Scam (Camp S'dei Chemed)
Consumers as Unwitting Venture Capitalists (timpicks.homestead.com, 5/16/2001)
When "Free" Products Are No Bargain (cnet.com, 2/23/2001)
Playing the Guess Your Weight Game (Fortune, 10/2/2000)
Cyberrebate.com Stinks (Madwand.org, 6/2000)
Problems with Cyberrebate.com (Phil Konstantin)
Internet Retailer to Modify Business Practices (N. Y. State Attorney General, 8/29/2000)
Details Pertaining to CyberRebate.com (SBBS Software and Consulting)
Complaint Station for CyberRebate.com
Epinions CyberRebate Forum
Ecomplaints CyberRebate Complaints

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February 26, 2000, updated May 20, 2001