Network marketing case study under the Consumer Protection Act, 2008: WorldVentures.

Abstract

Statutory law provides a framework for consumer protection and specifically, the regulation of prohibited schemes in South Africa. The prohibition against fraudulent schemes has its roots in the Consumer Affairs (Unfair Business Practices) Act, 71 of 1988 (Consumer Affairs Act) and is now regulated under the Consumer Protection Act, 68 of 2008 (CPA). The CPA seeks to promote a sustainable marketplace for consumer goods and services and in an effort to protect consumers, it deals specifically with pyramid and related schemes. Despite the existence of statutory law prohibiting such schemes, there still exists a myriad of alleged prohibited schemes in South Africa, as is evident from bustling social media, newspaper and television reports.1 Often, prohibited schemes operate under the guise of network marketing companies. There are serious implications that attach to the participation in prohibited schemes and there is a need to properly identify prohibited schemes so that authorities can act appropriately. A pyramid scheme is one in which participants in the scheme receive compensation that is derived primarily from the recruitment of other persons as participants, as opposed to the sale of any goods or services. Products or services offered by pyramid schemes often have minimal value and the success of the scheme depends on the recruitment of more and more participants. The risk in pyramid schemes is that eventually the pool of possible participants will dry up and the scheme will collapse. Once a scheme collapses, investments cannot be recouped and this proves harmful to consumers. Furthermore, participants in prohibited schemes face substantial penalties for engaging in conduct prohibited by law, even in circumstances where they are unaware of the prohibited nature of the scheme. Network Marketing however, is a legitimate practice in which an income is derived primarily from the sales of products. That being said, a product can be sold along with the marketing rights to further market the product i.e. the recruitment of an individual to on sell the product themselves. It can be distinguished from a pyramid scheme by assessing the merits and value of that product. Certain codes of ethics and associations that govern the practice, further legitimise network marketing as a business model. Nevertheless, there can be an overlap of elements between pyramid schemes and network marketing companies. The problem with this overlap is that consumers become involved in illegal schemes believing them to be legitimate. This leaves unassuming consumers at risk as to their financial wellbeing and the legal consequences of their participation in the scheme. This mini-dissertation focuses on the critical analysis of the widely publicised company, WorldVentures Holdings, LLC operating in South Africa as WorldVentures Marketing South Africa (Pty) Ltd (WorldVentures), in order to establish the core elements of the company and to properly examine its business model. This analysis will clarify whether or not, taking into consideration the requirements of the CPA, WorldVentures can operate legally, as a network marketing company, under South African law.