Pyramid schemes


INSIGHT
Published
Sep 24th '21
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A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme without any product or service being delivered. Committee of Advertising Practice (CAP) understands that, in the UK, pyramid schemes are illegal.

 

On 24 June 2008, CAP introduced a new Code clause to reflect the Consumer Protection from Unfair Trading Regulations 2008 (CRPs). Advertising rules state “No marketing communication may promote a pyramid promotional scheme. Pyramid promotional schemes are those in which consumers pay for the opportunity to receive payments derived primarily from the introduction of other consumers into the scheme, not from the sale or consumption of products”.

 

The Advertising Standards Authority (ASA) has since investigated a number of ads under this rule, namely purported home working schemes including envelope filling (P Bartley, 24 March 2010) and posting links online (Aden Lowell, 27 May 2009). In both these cases the ASA noted that consumers were paying a fee for the opportunity to receive compensation that was derived primarily from the introduction of other consumers into the scheme and so upheld the complaints. In autumn 2008, the ASA investigated a complaint about an ad that claimed “HOME WORKERS URGENTLY REQUIRED. No Experience Necessary … Direct marketing company requires self motivated home workers to do envelope work”. In fact, respondents were told to place ads in shop windows or newspapers stating, for example, “Marketing company requires workers to earn extra cash doing home-based work” and asking consumers to send a stamped addressed envelope to the recipient’s address for free details. They were required to forward any replies they received to the advertiser. The ASA considered that, because consumers were being paid primarily for introducing other consumers to it, the scheme was a pyramid scheme and therefore should not be advertised. (Direct Marketing UK Ltd, 17 September 2008).

 

CAP understands that multi-level marketing opportunities are not considered pyramid schemes, as, whilst participants also gain commission from recruiting others, MLMs also offer a legitimate product or services which differentiates them from pyramid schemes. See guidance on Multi-Level Marketing for further information.

 

Any marketers who are concerned that their scheme could be considered a pyramid scheme by the ASA to contact the Copy Advice team for advice, or their local Trading Standards office.

 

See also: Social Responsibility 

 

Source: CAP

 

Note: This advice is given by the CAP Executive about non-broadcast advertising. It does not constitute legal advice. It does not bind CAP, CAP advisory panels or the ASA. CAP’s AdviceOnline entries provide guidance on interpreting the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing.

 

Related: US Multi-Level Marketing Businesses and Pyramid Schemes

 

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