This page is currently under construction but has been published early because it could be useful to people now, before it is complete.
I am not qualified to give legal advice and this page should not be taken as such.
I have gathered together some of the common laws that are relevant to trading schemes in the UK.
Timeline of UK Pyramid laws.
1973 Fair Trading Act 1973, section XI Pyramid selling and similar schemes is passed.
1973 Pyramid selling regulations were produced, based on the Fair Trading Act.
1989 Pyramid selling schemes regulations 1989 and amendments 1990 revoked the 1973 Pyramid selling scheme regulations 1973.
Trading schemes Act 1996 is passed which produces the Trading schemes regulations 1997. They revoked the regulations from 1989.
So now we have the Fair Trading Act 1973 (section XI), with some changes and the Trading scheme regulations 1997. Hopefully in the near future these regulation will be updated again to counter all the dodgy goings on that we see now.
What is a pyramid scheme?
In the UK, the term ‘Pyramid scheme’ is used interchangeably with ‘direct selling’ and ‘Multi Level Marketing’. MLMs tell you that pyramid schemes are illegal but their scheme is legal. This is not true. All these schemes are subject to the same rules and they are deemed to be legitimate if they adhere to the relevant laws. Here is an extract from the government research paper that describes the changes and development of the Trading Scheme Regulations Act. The paper describes how Amway tried to have the term ‘pyramid scheme’ designated to mean an illegal scheme. They were unsuccessful. We just have legitimate or non-legitimate pyramid schemes.
Regulation 10 The Trading Schemes regulations 1997 You cannot pay more than £200 in the first 7 days of joining a scheme.
Cancelling a membership.
Also from the Trading Schemes Regs 1997.
Regulation 5 (e) you can cancel your membership within 14 days and get your money back.
You can return goods you purchased to a UK address and get a refund.
The scheme is not allowed to charge you for returning the products.
Returning stockpiled goods.
Regulation 6. You can return goods you purchased upto 90 days before leaving. The scheme has to refund you but can deduct a handling charge. This is because often people in these schemes end up stockpiling products because of the pressure to purchase and the difficulty in selling.
Members have to sell a product or service to others.
This is from The Trading Schemes Act 1996 section 1
A scheme is illegal if people are purchasing goods for themselves only or if there are no goods or services.
Translation in simpler language-
a) People in MLMs have to supply products or services.
b) These products or services
(i) are to be sold to customers by the people in MLMs or
(ii) Are to be used for helping the member make sales. For example- samples for helping the member demonstrate products to customers.
Either way, products cannot be sold to members just for their personal use. There has to be involvement of customers.
Advertising MLM schemes
Any advert trying to encourage people to join an MLM must satisfy certain criteria under The Trading Schemes Regulations 1997, namely
The name and address of the company should be mentioned.
The goods or services should be mentioned.
The ‘statutory wealth warning’ (see next section) must be included and not be a smaller font than the rest of the advert, and must not be hidden away.
Any written advert (e.g. Facebook post etc) that describes a brilliant opportunity that can earn you money, join me now, I need more people on my team etc should satisfy the above criteria. Many scheme participants choose to hide the name of their company or omit the warning. This is breaking the law.
Statutory Wealth Warning
This is schedule 1 mentioned above.
Making promises to prospects
This is from The Fair Trading Act 1973, from the wonderfully named section XI called ‘Pyramid selling and similar trading schemes’.
(3) means that an MLM participant cannot persuade another member or potential member to make a payment, based on a promise that they will get payments for recruiting others.
(4) means that the person making these promises is breaking the law.
Penalties for breaking the above laws
This is from the Fair Trade Act 1973, section XI (Pyramid selling and similar trading schemes). I think it is self explanatory. People involved in these schemes might be encouraged by their uplines or company to break these laws. There are penalties and you could end up in prison.
The Fraud Act 2006 describes the different ways people can be guilty of fraud.
Section 2 (fraud by false representation) If a person lies, or implies an untruth, and they gain from this lie, and the lied-to person is exposed to a risk of loss, this is fraud.
Section 3 (fraud by failing to disclose information). If a person omits to tell something that they are legally bound to disclose, and this omission leads to someone being exposed to a risk of loss, or the liar gaining, this is fraud.
Section 4 (fraud by abuse of position). This happens when someone occupies a position where they should be safeguarding someone’s financial position. If they then lie or omit to tell the truth and that causes the liar to gain or the victim to be exposed to a loss, this is fraud.
I can think of lots and lots of examples where MLM companies and the recruiting members commit fraud. It is pretty widespread. These companies and the recruiting participants are taking quite a risk because the potential repercussions are a fine and/or up to ten years in prison. TEN YEARS!!
The Fraud Act 2006 apples to companies, as well as individual people so that the people running the business could be found guilty and subject to a fine or prison sentence.
Adverts in the UK are governed by the CAP code. The Advertising Standards Authority oversees this code. Here are some of the sections-
Section 8 Promotional marketing. This section reminds people to ensure their raffle/ lottery/ prize draw complies with the Gambling Act 2005 and data protection legislation. It covers offers that may be made, such as ‘buy one, get one free’, sales, competitions and prize draws.
Section 13 Weight control and slimming. “A weight-reduction regime in which the intake of energy is lower than its output is the most common self-treatment for achieving weight reduction. Any claim made for the effectiveness or action of a weight-reduction method or product must be backed, if applicable, by rigorous trials on people; testimonials that are not supported by trials do not constitute substantiation”.
“Vitamins and minerals do not contribute to weight reduction but may be offered to slimmers as a safeguard against any shortfall in recommended intake when dieting”
“Health claims in marketing communications for food products that refer to a rate or amount of weight loss are not permitted”
“Claims that an individual has lost an exact amount of weight must be compatible with good medical and nutritional practice. Those claims must state the period involved and must not be based on unrepresentative experiences. For those who are normally overweight, a rate of weight loss greater than 2 lbs (just under 1 kg) a week is unlikely to be compatible with good medical and nutritional practice. For those who are obese, a rate of weight loss greater than 2 lbs a week in the early stages of dieting could be compatible with good medical and nutritional practice”
Section 12 Medicines, medical devices, health related products and beauty products. Adverts must not offer advice on the treatment or diagnosis of an illness or condition. They must not falsely claim that their products can cure anything. There are links in this section to other laws and resources to assist in working out if any rules have been broken. The MHRA have a Blue Guide that has more details on medicine reporting.
More on health claims
According to Regulation 2 of the 2012 Human medicines regulations, and amended since then
A medicinal product is:
- any substance or combination of substances presented as having properties of preventing or treating disease in human beings
- any substance or combination of substances that may be used by or administered to human beings with a view to restoring, correcting or modifying a physiological function by exerting a pharmacological, immunological or metabolic action, or making a medical diagnosis
Medicinal products have to be carefully tested and registered with the MHRA for them to be considered medicines. To tell if a product has been through this process and is properly registered, it will appear on the MHRA’s medicines information database. The European Medicines database covers the whole of the EU, including herbal remedies and veterinary products. Look up a product on these lists. If it isn’t there, no health claims can be made.
Libel and slander
When faced with criticism scheme participants will often cry slander or libel, often inaccurately. This is a brief description just to help clear up any misunderstandings if you are accused of either. The relevant law is the Defamation Act 2013.
Libel is defamation of a person that is written down. The complaining person does not need to prove they have been damaged by the comments made.
Slander is defamation of a person that is verbal. The complainer has to prove that they have been damaged by it.
For both types of defamation, the burden of proof rests on the defendant. For example, if I complain that you lied about me, and I have been harmed by that lie, you have to prove you are telling the truth. If you say it, you have to be willing to prove it.
If a comment is made and someone is upset about them but the comment is true, this is not libel or slander. This is why people say things like ‘I believe you are running a scam.’
To avoid being accused of libel or slander, do not tell lies on purpose. If you are saying something you think might offend or upset a powerful, rich and litigious company, be sure to make it clear your statements are based on facts or your beliefs.
To be added soon-
How to complain