Personal finance is all about watching your money. You need to spend, invest and save wisely to reach your maximum potential.

As someone with an interest in personal finance, I’m a massive fan of consumer education. Smart consumers spend more wisely and make better decisions.

I want you to avoid bad deals and bad companies. I strongly support online research as a means of protecting your interests as a consumer. Knowledge really is power and individual consumer self-empowerment is great.

So, it would stand to reason that I’m also a fan of websites dedicated to revealing scams and rip-offs, right?

Wrong.

At least I’m not a big fan of the most successful online “pro consumer” site and I’m actually very suspicious of many others.

The reigning champ among sites that purport to give consumers the low-down on bad businesses is Ed Magdeson’s Rip Off Report. For reasons that defy both logic and Google’s stated preferences, Rip Off Report is often one of the top results when you query search engines with company names.  It’s a busy place, frequented by thousands upon thousands of Internet users looking for information about businesses.

If you aren’t familiar with the way Rip Off Report works, here it is in a nutshell:  Anyone can sign up with the site and then submit a warning or complaint about a business that consumers engaged in pre-purchase research can then find.

That sounds good, but the reality is a little stickier.  Although I’m sure there have been many people who have avoided bad deals because they read a post on Rip Off Report, there are big problems with relying upon it for smart guidance.

Many of these reasons to be wary of Rip Off Report apply to other similar sites, where user-generated content or reviews serve as foundational material, by the way.

Here’s why you need to take those negative reviews with a grain of salt (and then some).

The customer isn’t always right. I know that people love to say that the customer is always right, but that doesn’t make it true.  Anyone who’s ever worked in a retail environment knows that a hefty percentage of customers are very wrong.  They’ll also tell you that the ones who are the most wrong are also the ones who are most likely to complain.  The folks who are willing to take the time and effort to unload on someone via Rip Off Report may not be your best source of entirely accurate and sane assessments of situations and transactions.

There’s zero editorial control. There’s very, very little exercise of editorial control at Rip Off Report. That isn’t an accident, either.  The lack of editorial meddling is one of the reasons why its ownership can deftly avoid losing defamation lawsuits via the safe harbor provisions of existing laws.  In any case, though, no one is actually monitoring or investigating the often wild complaints lodged by site users.  These entries could’ve come from a perfectly reasonable person who wants to warn others of bad business tactics.  They could also come from a frustrated fiction writer on a two-week whiskey bender who has a series of psych diagnoses and has opted not refill necessary prescriptions.  The comments can be 100% accurate or complete fabrications and no one is testing them before publication at the site.

Where there’s a lot of smoke… Rip Off Report is a fairly frequent target of lawsuits.  Some are tossed out, some are settled and others end up resulting in uncontested judgments against the site’s ownership. We can argue about the legal and overall merit of individual cases, but when you start hearing the same accusations from a variety of seemingly reputable people, you might reasonably assume that something might be wrong.

Following the money. If you run a business and someone unleashes on you with a scathing review, you can get the folks at Rip Off Report to intervene on your behalf.  You’ll just need to pay them.  Alot.  Charging companies to battle negative reviews appears to be a key component of the ROR business strategy.  That’s alarming, to say the least.

There are other reasons to question the veracity of the complaints lodged at sites like Rip Off Report. Some contributors are obviously disturbed and/or of limited intelligence.  You’ll notice a variety of obviously baseless reports and a tendency amongst those “squeaky wheels” to wedge any inconvenience into the “evil conspiracy” category.

Being a smart consumer is great.  Self-education can be one of the best ways to protect your money.  Sites like Rip Off Report, however, aren’t the best place to get an education.

In our next post, we’ll discuss a few ways to get better information about the quality and legitimacy of those with whom your considering doing business and a few other consumer education tips.

NOTE:  By the way, if you’re interested in learning more about ROR and its founder, I strongly recommend a rather lengthy article that originally appeared in the Phoenix New Times.  I think it’s at least somewhat fair to the site and its operator, Ed Magdeson, and it’s a lot more comprehensive than other criticisms of the site.  Let me add that whether you love or hate the site, it’s certainly a very interesting story.