Referral selling is when a business persuades a consumer to buy goods or services with the promise of a rebate, commission or other benefit when the consumer provides information that helps the business sell to others, and that information results in sales.
The consumer does not receive the promised benefit unless the information provided results in sales after the agreement is made.
Under Australian Consumer Law, this kind of business conduct is illegal and can attract significant penalties. The maximum penalty for each offence is $500, 000 for an individual. Body corporates can be charged whichever is greater:
- $10 million, or
- three times the value of the benefit received, or
- 10 per cent of annual turnover in the preceding year (if the Court cannot determine the benefit obtained from the offence).
It’s not referral selling for a supplier to promise a benefit to customers for simply providing the names of prospective customers or helping the trader supply goods.
It is only illegal when the promised benefit is dependent on a future event taking place after the agreement is made.
See an example
Bec wanted to join a gym but was worried about the cost. Before she signed up, the gym offered her a 25 per cent rebate on a 12 month membership if she gave the gym the names and phone numbers of five friends and those five friends took out a membership. This is illegal.
If you believe a business has engaged in referral selling, contact us on 13 32 20 or make a complaint online.
Can’t find the information you’re looking for? Call us on 13 32 20 or submit an online enquiry.
Who enforces Australian Consumer Law?
The following agencies enforce provisions relating to consumer goods and services:
- Australian Competition and Consumer Commission (ACCC)
- NSW Fair Trading, and
- other State and Territory consumer protection agencies.
The Australian Securities and Investments Commission (ASIC) is responsible for financial products and services.