A new ordinance aiming at prohibiting pyramid selling has just been passed earlier this month in the Legislative Council to replace the existing ordinance on such prohibition. The new ordinance will come into effect by next month. According to the new ordinance, the sale of goods or services is not a prerequisite in defining whether operation is a pyramid selling scheme.
Such amendment would help consumers identify clearly pyramid selling scheme from legal multi-level marketing schemes. Consumers, young people in particular, are advised to stay alert to avoid being preyed on by pyramid selling operators.
Two complaint cases were highlighted in the December issue of CHOICE involving suspected pyramid selling.
In one case the complainant was introduced by a friend to join a direct selling company. He was asked to pay HK$5,000 joining fee, followed by HK$67,648 for purchasing merchandise, and then HK$400 training fee per session.
The complainant was told that he would share 5% of the profit for every person he recruited to join the scheme and the profit sharing was even down to the sixth level of his recruits.
When the complainant revealed that he did not have enough money to purchase the merchandise, he was taken by the company to a financial institute to arrange a loan and was asked not to mention the dealing to his family.
However, the complainant felt uncomfortable about the selling tactic of the company. After discussion with his family, he decided to report to the police and the Consumer Council. Upon the Council's negotiation, the company concerned agreed to refund 70% (HK$40,000) of the money he paid for the goods.
Pyramid selling schemes are different from normal business model in that their profits are mainly derived from recruiting participants who pay to join the schemes. The schemes are unsustainable as they rely solely on the recruitment of new members, and participants may suffer from financial loss when such recruitment can no longer be sustained.
When looking for jobs, young people and their parents should be aware of the followings:
- beware if somebody introduces you to a selling scheme that promises high returns in a short period of time;
- understand the terms and conditions before signing any contracts;
- seek help from the police if detained by organisers when attending talks or seminars;
- pay extra care if your are told not to seek advice from family and friends regarding the selling scheme.
The Consumer Council reserves all its right (including copyright) in respect of CHOICE Magazine and Online CHOICE ( https://echoice.consumer.org.hk/ ).