I move: "That the Bill be now read a Second Time."
The purpose of the Pyramid Selling Bill, 1980, is to prohibit the inducing of persons to participate in pyramid selling schemes and to provide for other matters connected with such schemes.
Most Deputies will have at least a general idea of what pyramid selling schemes are and indeed many of them have on other occasions in this House urged that such schemes be prohibited. As the explanatory memorandum circulated with the Bill says, the inducing of people to participate in pyramid selling schemes is no more than a confidence trick.
These schemes are objectionable because the promoters have been found to make exaggerated and misleading claims regarding the benefits to be obtained from participation in the selling arrangements. There is greater emphasis on the cash benefits to be derived from recruiting new participants than on the benefits from retail sales. New participants are required to make investments which, particularly when a scheme has been in operation for some time, they not only have little or no hope of profiting from but the actual investment is at risk. A volume of goods is sold to participants without regard to consumer requirements and, in practice, the volume of goods is often far in excess of what can be absorbed by the available market.
Pyramid schemes differ in detail but they all have three main features: (a) they are described as direct selling schemes; their objective is represented to be the sale of goods or services to the consumer; (b) anyone who joins a scheme has to pay to do so; and (c) the prospect of rewards is held out to participants for inducing other people to become participants.
The bait offered to participants by promoters is a high rate of commission on whatever is sold to the public; commission—probably at a lower rate—on sales by persons recruited by the partici-pants, and payments for recruiting further participants.
The principal reason why pyramid selling is dishonest is that it is designed to recruit as many participants as possible—each of whom has to buy a specified volume of whatever the promoter is trying to sell. No account is taken of the need for a limited number of salesmen in an area, the volume of sales a person must achieve to get a worthwhile return on his investment and efforts, or the capacity of the market. Door-to-door selling is never easy but, when the organisation you are attached to does not take account of what the public is likely to buy it is almost impossible.
I will give an example of what I mean. Let us suppose that a promoter recruits just one participant to begin with and he and the first participant each recruit one participant the following week. At the end of week one there are four people recruiting—the promoter and three participants. Proceeding on the same basis, there are eight in week two; 16 in week three; and so on in a geometric progression. I am prepared to concede that this neat progression I have visualised would probably partly break down early on, but, on the other hand, the promoter does not in practice merely recruit one participant per week, he often promotes his scheme in various parts of the country at the same time and it is not an exaggeration to say that several hundred participants could be recruited in a matter of weeks.
Even in Britain, which has many times our population, it has been established that a grossly excessive number of participants can be recruited by this "chain-letter" system in a very short time.
The question which arises is "How are people conned into investing in these schemes?" First of all, the promoters of these schemes are exceptionally skilful salesmen. They would deny vehemently that they are promoting pyramid selling. They describe their operations as direct selling and they have a sales talk worked out to the last letter which, unless one has time to consider it in detail, is very convincing. But people who are invited, or who volunteer, to go to meetings held by promoters are not given time to ask questions. If they persist in their ques-tions they are subjected to sarcasm and abuse and are hustled out of the meeting. Those who stay are talked into signing up immediately. The sum of money they initially hand over is not always great, but there is an unfortunate tendency for people who are thus hooked to get in deeper either in an attempt to recover their losses or in the belief that a larger-scale participation would improve their chances of success. Needless to remark, promoters encourage further investment.
If people insisted on getting straightforward answers to a few ques-tions, there would be no need for this legislation. What market survey has been carried out? What is the size of the market in my particular area? Will I have exclusive selling rights in that area? Can I get my money back if I can't sell the goods? Why should I pay for promotional literature or training to sell the goods?
Unfortunately, it is quite clear that people need to be protected, and that is what the Pyramid Selling Bill is designed to do. It defines pyramid selling chiefly by reference to its two peculiar and objectionable characteristics—the prospect being held out to participants of rewards merely for recruiting new participants and the requirements that participants should make a payment to a promoter or an existing participant.
Three main offences are being created: (a) inducing a person to become a participant in a pyramid scheme; (b) receiving a payment or other benefit from a person who is a participant or who has been invited or applied to become a participant; (c) inducing a person to make a payment to or for the benefit of a promoter or participant.
A person guilty of an offence under the Act will on conviction on indictment be liable to a fine not exceeding £10,000 or up to two years imprisonment or to both the fine and the imprisonment.
There is a provision in the Bill which will entitle a participant who returns goods supplied under the scheme to a refund of his money.
It is also provided that any agreement between a promoter and/or participant and another person shall be null and void in so far as it provides for the payment of money.
My concern about pyramid selling is one which is shared by everyone in this House. I am satisfied that this Bill will deal fully with the problem and I commend it to the House.