Referrals for a commission - illegal?

[Raymond Smit]

Hey guys, is it illegal to offer an incentive/reward/commission for someone who refers a customer in terms of S38 of the CPA? If so, what then is the difference
between people who refer and outside salespeople? (since they both operate on contingency). Furthermore what is the punishment for doing this?

[Nickolai Naydenov]

All i know is that when you offer incentives to your stuff they will push that specific product and therefore they might not give the best product based on the client's needs which is obviously against the interests of the consumer. The whole thing makes sense from a business point of view as well in terms of having happy clients and retaining the client database and getting other clients referred to your business.

[Dave A]

I suggest you need to read S38 far more carefully.

1) A person must not promote, offer, supply, agree to supply, or induce a consumer to accept any goods or services on the representation that the consumer will receive a rebate, commission or other benefit if—

a) the consumer subsequently—

i) gives the supplier the names of consumers; or

ii) otherwise assists the supplier to supply goods or services to other consumers; and

b) that rebate, commission or other benefit is contingent upon an event occurring after the consumer agrees to the transaction.

There's nothing in there that implies the person doing the promoting may not accept a commission (provided that they are not themselves a customer of the same provider).

[Nigel Hamilton]

I suggest you need to read S38 far more carefully.


There's nothing in there that implies the person doing the promoting may not accept a commission (provided that they are not themselves a customer of the same provider).

This sounds right, wonder how it will be policed, and how are the multi-level marketing companies going to change their strategy?

Almost every MLM company ie amway etc sells the product on the basis of recruiting customers to refer products for discounts or remuneration, or am i mistaken?

[Dave A]

...how are the multi-level marketing companies going to change their strategy?

That question has been asked, and not really settled.

I'm inclined to think systems like Tupperware, Mary K, Kirby and the like where selling is focused on more than "consume and sponsor" are going to be fine.

N21 (Amway) and Eagle Team (GNLD) style operations might have problems... if a consumer protection group goes after them, of course.

Running with Amway as an example, Amway itself might be fine - it's the IBOs that I'd guess are in the firing line.

[Raymond Smit]

Thanks for clarifying that Dave. However, I don't see the difference (or rather the harm/damage) between consumers selling your products or salesmen.
The result would still be the same ... Fraudelent products and services are really to blame, not the method in selling them.

[Dave A]

Fraudelent products and services are really to blame, not the method in selling them.

I regret I must disagree - the most common problem is questionable representation of the products and "business prospects*." Most often (and most certainly in the companies I've mentioned) there's nothing wrong with the products themselves.

Differentiating between sales people and consumers comes down to motivation. If consumers are buying a product because it provides them with an opportunity to make money, the "making money" bit might be the lead cause of their buying decision - as opposed to actually wanting the product.

*about the shortest phrase I could think of to represent the assurances of how much money there is to be made if you just...

[Blurock]

There may be a difference between income generated in line of your business and "incidental income" as stated in the act.

If you are a consumer and receive incidental income as a means to solicit the business, it may be seen as similar to a bribe?

The way I read it it is illegal to give the supplier names of consumers etc. because that can lead to unsolicited junk mail, spam, cold calls or other harassment that has now been outlawed.