What To Look Out For In Direct Sales

What To Look Out For In Direct Sales

March 20, 2016 Scams 0

Does it seem that every other person you know is a direct selling agent?  That is not surprising since the direct selling business is a RM4.5 billion industry. Anybody can be a direct selling agent – the homemaker, the fresh graduate and the fully employed.

But before you buy some expensive products or sign up as an agent, there are certain things that you should be clear about when dealing with direct selling companies. Below are some of the problems that you may encounter:

An old classmate asked me to join her direct selling company to earn extra income selling health products. I am much tempted to do so since she seems to be doing very well and is even talking about leaving her present job and doing it full time. The thing is even though she says that the company is genuine, I have not heard of it.  How do I find out more about the company since I will be recommending the products to my friends, colleagues and relatives?

You can check with the Ministry of Domestic Trade and Consumer Affairs (MDTCA) to find out whether the company is registered with it. Under the Direct Selling Act 1993, only a company (registered under the Companies Act 1965) which holds a valid licence granted by the MDTCA, may carry out a direct-selling business. The address of the MDTCA is as follows:

Director

Domestic Grade Division

Ministry of Domestic Trade and Consumer Affairs

31st Floor, Menara Dayabumi

Jalan Hishamuddin

50623 Kuala Lumpur

Tel: 03-22742100

Fax: 03-22745314

You can also check out the company on MDTCA’s official website.  At the website you will be able to check not only if the company is registered but also its licence number, the date the licence was issued, its address and telephone number.

I have two friends whom I shall call friend A and friend B.  Both are inviting me to sign up as direct selling agents.  If I join A’s company I would only need to pay a membership fee of RM60 but if I join B’s company, the membership fee is RM500.  From my observation B is making a lot more money compared to A.  I was sorely tempted to sign up with B’s company but A warned me that I would be taking a big risk, as I will be involved in a pyramid scheme.  But what is a pyramid scheme?  How is it different from a direct selling business?

The direct selling business is characterised by the seller initiating contact with the consumer, usually at the office or home instead of the consumer coming to the seller’s premise. The agents earn commission on the products sold.

Pyramid schemes can be mistaken for direct selling schemes since their agents also contact consumers directly, there is also payment of membership fee and there is also likely to be sale of products involved to hide their pyramid structure.

No matter what form they come in, pyramid schemes all share one overriding characteristic: they promise consumers or investors large profits based primarily on recruiting others to join their programme – not based on profits from any real investment or real sale of goods to the public.

They are essentially get-rich-quick schemes but to give them legitimacy or there may be pretence of selling of products.

But there are telltale signs that give the pyramid scheme away. These are:

  • Sellers and buyers are expected to recruit new sellers and buyers to keep the scheme going.
  • Promise of sky-high profits for a small amount of effort.        
  • Payment of high membership fee to participate.
  • Products are over-priced compared to similar products.
  • Unrealistic claims about product quality or performance.
  • No buy-back policy.
  • Forced to buy products in large quantities upon enrolment.

You risk losing all your money that you have invested because pyramid schemes will always fail. It will begin to collapse when a few people drop out or refuse to pay and new members are not recruited in their place (meaning the earlier recruits cannot be paid off).

In order for a pyramid scheme to profit, there would have to be a never-ending supply of potential and willing participants. In reality, however, the supply of participants is limited and each new level of participants has less chance of recruiting others and a greater chance of losing money.

Take the example where you start by recruiting 3 people in the first week. They in turn succeed in recruiting 3 people each the next week, and your plan continues perfectly week after week. In 16 weeks your recruitment should have exceeded Malaysia’s population. After 21 weeks you would have to go to another planet to look for recruits as your down liners would have exceeded the world’s population.

At this stage the money coming in is surpassed by the commissions that have to be paid out and the top men of the pyramid company would have to close shop and flee.

When a person rings the doorbell and says that he is carrying out a survey or that I have won a prize, it usually turns out that he is from a direct selling company.  Can the agents do that and aren’t they supposed to carry some identification?

The direct selling agent cannot mislead the consumer in order to make a sale.  Under the DSA, the salesperson is supposed to immediately make known the purpose of his visit and must at the same time; produce his national identification tag which should contain his photo and the necessary particulars (for example, the name of his company).

Under the DSA there are also rules on when the direct agent can come a calling.  Direct selling cannot be conducted on Sundays or Fridays (depending on the State’s weekend), public holidays and from 7 p.m. to 9 a.m. on other days (except where a prior appointment has been made).

Once I bought a set of stainless steel pots and was given a contract to sign.  But most of the time when I buy things from the direct selling agent, there is no contract. Why is this so?

A written contract must be made for any door-to-door sale of goods valued at RM300 and above. The contract must contain the following:

  • A detailed description of the goods or services.
  • The contractual terms of the contract, including the total consideration to be paid or if the amount is not yet fixed, then the manner in which it will be calculated.
  • The time, place and method of payment to be made.
  • The time and place for the delivery of goods or the performance of services.

Immediately above the places provided for the signature of the buyer, there should be this statement: This contract is subject to a cooling-off period of 10 working days.

Signatures of both the buyer and the seller.

After much persuasion, I bought an expensive water filter from an agent who called at my house. After he left I thought over and decided that it was a mistake to have bought it. Can’t I change my mind and not go ahead with the purchase?

Assuming that the machine costs more than RM300, you would have been given a contract and allowed 10 days cooling-off period. The cooling-off period is to enable the consumer to reconsider his decision to buy the product. Away from the high-pressure sales talk, the consumer may find the product less attractive.

For the consumer who is very sure that he wants the product, he can shorten the waiting period by giving a written notice to the seller. But no matter how sure the consumer is, no such notice can be served on the seller within 72 hours from the time the contract was signed. Meanwhile no money shall pass hand while the cooling-off period is in force.

Thus, you can rescind the contract by notifying the seller in writing before the expiry date of the cooling-off period. The notice of rescission can be personally delivered to the seller or sent by registered post. The notice is deemed to be served on the seller after 3 days from the date it was posted.

I know you should always buy from a reputable company but I saw a marvellous set of educational toys in a mail order catalogue by a firm, which is new in the market.  How safe is it to buy by mail order since I only get to see the product after I have paid for it?

Mail orders are also covered under the DSA. Most of them will allow you to return the product within, say, 14 days if you find them unsatisfactory (check if this is stated in the catalogue). If you have any problem with the company you too can approach the MDTCA.

I bought an expensive product from a direct selling company and am most dissatisfied with the results. I have asked for a refund, but the company has rejected my request. I wanted to complain to the Ministry concerned but a friend suggested that I first complain to the direct selling association. Is it worth doing so?

The Direct Selling Association of Malaysia handles complaints from consumers as long as it involves its members. But the Association cannot act where the company is not a member.

Thus, it is only worthwhile complaining to the Association if the direct selling company is a member.

As at May 2002, the Association has only 73 members whereas there were 370 licensed direct selling companies. This is likely due to the fact that membership in the Association is not compulsory.

I bought some slimming products that were advertised on television by calling the number on the screen. But the products do not work even though I followed the instructions faithfully. I think the Ministry concerned should take away the licences of such direct selling companies so they cannot cheat more consumers.

One of the major flaws of the DSA is that it only includes door-to-door and mail order, not sales made over television or the internet.  In other words, the DSA does not cover sales made over the electronic media.

Although the MDTCA cannot act against such companies under the DSA, it may, however, take action against them under the Consumer Protection Act for misleading consumers.

Source: Utusan Konsumer – May 2004