Internet Marketing

When signing in to my internet banking account today, I was presented with a message that told me that February 2011 was Scambusters month so I looked into what they were telling me. What I found has a UK perspective but is relevant everywhere. It comes from one of our government bodies so can be considered to be a reasonable interpretation of legal matters although it should not be seen as legal advice.

Check out the following before you sign-up for that internet marketing scheme that arrived in your email because it migh just save your credit card from maxing out.

Pyramid selling and chain gift schemes

The scam

You hear from a friend about a great new money-making venture. Once you've paid a joining fee, you can earn large amounts by recruiting new members to the scheme.

This is a pyramid-selling scheme. In reality, only a tiny minority of those involved make money.

During the recruitment process, you might be invited to a presentation about the scheme and given a brochure about it. You may come across claims such as:

• 'Your recruits do all the work for you - you just sit back and bank the money.'
• 'You and your friends can enjoy wealth together.'
• 'I was unemployed and in debt before I discovered this opportunity.'

The power of a friend's recommendation can make it difficult to resist these schemes. And it can make it harder for you to tell family and friends afterwards.

In a similar scam, a letter or email promises you an expensive high-tech gift for free. But first, you have to buy something low value which gets you on the waiting list. You will get your high-value gift only once large numbers of new members sign up - and you have to help recruit them. In reality, you're unlikely to ever get the gift you were expecting.

These sorts of schemes are almost certain to leave you out of pocket. That is because, for every participant to receive the money or gift on offer, there would have to be an endless supply of new recruits. Since this is impossible in practice, these schemes inevitably collapse and result in most people losing their money.

Protect yourself

• Avoid schemes that offer money or a gift or reward based purely on signing up new members.
• Don't agree to anything - or sign anything - at high-pressure meetings or seminars.
• Don't hand over any money or sign a contract to participate in any multi-level marketing plan until you've investigated it. Take independent professional advice.

If you think you've been a victim of this scam, call Consumer Direct for advice on 08454 04 05 06.

Trading schemes

Trading schemes (also described as direct-selling schemes, network marketing, multi-level marketing and other names) are a legitimate form of business activity offering people the opportunity to earn money by selling the scheme's goods or services from home. In some schemes, participants may earn additional commission by recruiting others to the scheme and from sales by their recruits.

However, trading schemes must comply with certain laws - provisions in Part XI of the Fair Trading Act as amended by the Trading Schemes Act 1996 and the Trading Schemes Regulations 1997.

Trading schemes become illegitimate and illegal when, while claiming that they trade in goods or services, their real purpose is to generate money by recruiting new participants. This is when they become pyramid selling.

Note that recruitment rewards are not in themselves unlawful. But it is against the law to persuade someone that the main incentive for joining a scheme is to profit from recruiting others, or to take money from someone on the basis of such a claim.

To find out more, read the Department for Business, Innovation & Skills booklet 'The Trading Scheme Guide'.