Dáil Éireann díospóireacht -
Thursday, 22 May 1980

Vol. 321 No. 3

Pyramid Selling Bill, 1980: Second Stage.

Minister of State at the Department of Industry, Commerce and Tourism (Mr. Meaney)

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.

Mr. O'Toole

I welcome the Pyramid Selling Bill, 1980. It seeks to control the most objectionable type of exploitation. Pyramid selling is based on what we all know as the chain letter system, a system which has been shown in the past to be capable of making large sums of money for a few promoters at the expense of many foolish unsuspecting and indeed gullible people.

From inquiries I made on pyramid selling, or direct selling as it is sometimes called, I understand that it can be traced back to the Mafia in the US. Those origins are not the best. For obvious reasons this type of selling is almost universally disapproved of. It is disapproved of for many reasons, and the Minister outlined most of them in his introductory speech. The main overall objection to this kind of selling is that it seeks to ignore the consumer and places all the emphasis on the recruitment of promoters or agents. The responsibility for the sale of the commodity is passed on down the line in an ever widening circle. All we know is that the base widens all the time. If we follow this system to its logical conclusion one cannot escape the reality that in the end many agents are left with stock piles of unsaleable commodities because of saturation. Saturation point can be reached very quickly because of the doubling up effect of the recruitment of agents. The result is that agents who have paid their good money for the dubious privilege of handling goods sold in this way are left with stockpiles. It was not uncommon in the not too distant past to come across people who have literally thrown their life's savings away by being conned through the soft sales talk of suave Madison Avenue type individuals who promote this kind of high pressure selling.

I will give the House an example of the kind of approach used by these highly skilled people, an example which amazed me. I came across it only two months ago and I brought it to the attention of the Minister for Industry, Commerce and Tourism, who acted swiftly. A gentleman rang me to complain that his wife had attended an inaugural meeting of a group obviously involved in this kind of promotional work and the person handling the group, the salesman or promoter, did his job so well that when the wife came home she literally refused to tell her husband what had happened because they were told at the meeting that whatever was said was highly confidential. When her husband asked what had happened he was told that she was told not to tell by this agent. When we get that degree of influence being exercised by people skilled in the art of influencing people it is frightening what can happen if some sort of curb on their activities is not exercised. These people can influence or pressure otherwise intelligent, honest individuals.

This Bill is very worthwhile. Because of the lack of emphasis on the consumer and on product quality, the consumer, is being denied his basic rights. As we know certain rights have been universally accepted as basic rights of the consumer. There is the right to protection, for example, the right to safety, health, economic interest, redress, education, information and representation, which is the right to be heard. All those cover, basically, the overall rights which consumers ought to have in any given situation of purchase. In this case, obviously, the consumer is not considered at all because, as the Minister pointed out, no research has gone into the particular need for the commodity or the degree to which it can be sold in a particular area, the degree of saturation to which it can be pushed in a locality.

We are dealing with people who are extracting money from their peers under very dubious circumstances and in many cases under dishonest circumstances in the belief that the person who parts with his money can get it back twofold, threefold or tenfold provided he does what he is told without knowing that his neighbour down the road is being told the same thing. The rights of the consumer are completely ignored in cases of purchase of goods and services.

Consumers have the right to be protected against the abuse of power by the seller. This viewpoint has been expressed time and time again through directives, regulations and documentation suggesting certain changes and regulations concerned with consumer law emanating from the EEC in particular against one-sided standard contracts. In this case the contract dual situation is a very hazy grey area. The only objective in this case seems to be that the boss extracts money from the agent at a given point in time and thereafter the agent is left to his own devices to work out his salvation. There is gross dishonesty and people are mis-led. The consumer at the end of the line is not given any consideration at all.

The Bill, broadly speaking, covers the areas which cause problems in the pyramid selling system. There are a few points which it might be better to leave to the Committee Stage concerning a few definitions in the Bill in sections 2 and 4 which I will not go into now. This Bill, on the basis of what has been said, must be welcome. The sooner this reprehensible kind of dishonest, slick, suave sales system is brought under close legal scrutiny the better. I am sure many people will be saved from their own actions by the provisions of the Bill. It will save them money and it will save many families distress. It is a further effort to regulate our society in the way we want it. That is our business in this House and our duty. The Bill is a step in the right direction.

Mr. Briscoe

Deputy O'Toole said the Bill was one to regulate our society but I would have said to protect our society from the kind of animals those people are who have preyed so long on the people throughout the country. I am very happy to see this Bill being introduced. I would like to pay a very well deserved tribute to the Sunday World and to their journalist Bill Stewart in particular. This man pursued those people and published their activities. This induced the Government to bring forward this Bill. They were very generous in giving me credit some time ago for the questions I had been asking about pyramid selling and the representations I had been making to the Minister for Industry, Commerce and Tourism about the need to introduce this type of Bill. I know I am not the only Deputy who was active on this. It is very rewarding for those of us who have been active on this matter to see this Bill at last.

I know there were a lot of difficulties in relation to the drafting of this Bill because legislation has to be drafted in such a way that it will not throw the baby out with the water. Legitimate enterprises might well be caught up in the prohibitions contained in this Bill. I have always thought pyramid selling was particularly despicable because it preyed on the small people, the people who had saved a few pounds for their retirement, who had been conned into believing that the £500 or £600 which they had been saving could be turned into £3,000 or £4,000 in a couple of weeks. Once a person found himself in a situation where he had to part with his meagre savings he was caught in a situation where the only way he could possibly get out of the straightjacket he had put himself into was by involving other people and very often put temptation in the way of people who normally would not be involved.

As the Minister stated other people were also being told the same thing and saturation of the market was taking place. The goods were for buying and selling and were not for using. This is the whole emphasis of pyramid selling. Some of those people are quite violent. The particular journalist I referred to ran considerable risks for the exposure he gave to the activities of some of those people. They came from across the water and I hope they have now left the country. I hope the Minister and his Department will keep a very close eye on those people and that, if he finds it necessary to amend the legislation in order to catch up with those who undoubtedly will be trying all sorts of ways and means of getting around the legislation, he will do so. It has taken a long time to get this legislation through the House, considering that pyramid selling has been in existence since the late sixties. I recall at about that time Deputy David Andrews tabling questions in this regard. The Bill is one in respect of which we must be specific.

I suggest that when we come to Committee Stage the Minister introduce whatever amendment might be necessary to give himself power to change upwards the maximum fine of £10,000, if that should prove necessary, without having to amend the legislation. A fine of £10,000 might not be much of a deterrent in, say, five or ten years' time, to people engaging in this sort of activity and who would have a very big turnover. It might be well worthwhile for somebody like that to risk a £10,000 fine. Because of the delay experienced in bringing legislation to the House, it would seem wise to be able to adjust the fine upwards at any time by way of regulation. Another consideration in this regard is that the people concerned are coming in from outside the country in most instances and could possibly escape from the jurisdiction on finding that the law was catching up with them. It might then be difficult to have them extradited from whichever country they had gone to.

I would urge the Minister to keep a close watch on the way in which the legislation will operate, since the people at whom it is aimed can safely be described as con-men. I can say that outside the House just as easily as I can say it in here. I hope that the legislation will put a stop to pyramid selling, but in the final analysis the people themselves generally will be the ones to put an end to such activity. No matter how often one might warn a small businessman or a retired person from being tempted by very lucrative promises of having their money doubled or trebled without there being any hard work involved, such people are often the victims of the sort of activity we are talking about. If, for instance, one were to buy a painting cheaply and then to find that it was a Renoir or a Monet, one would be likely to get a huge return for his money, but in the ordinary way money is made as a result of hard work.

I am surprised that the Labour Party spokesman is not here to contribute to the debate and to show his interest in the Bill. This is the second piece of legislation to come before the House today which affects the citizen directly. To this extent, the day has been very worthwhile.

Mr. White

For once, I wish to congratulate the Government side for introducing something with which I agree. I had not realised that pyramid selling had been in existence for so long. The message that the Minister must get across clearly is that anybody found engaging in pyramid selling will not be shown any leniency but that they will be brought before the courts, who will be empowered to impose fines of up to £10,000 in respect of such offences. If only one or two people are found guilty in this respect, others should be deterred from committing similar offences. Recently I had a call from one of my constituents who had replied to an advertisement in which there was mentioned the name of a person further up the county. The reply suggested that this woman, who was an ordinary housewife, should invest £50 in the operation concerned. I wrote to the agent named asking for full details of the scheme in question and the reply I got was that she was merely a sub-agent and that her agent was in Scotland. That is the sort of activity that we must endeavour to curtail. The sub-agent would not know anything about the operation. She would merely collect the £50 of which, presumably, she would in turn get a high percentage. This legislation will protect the weaker sections of the community, and I am glad to have this opportunity of welcoming the Bill.

Minister of State at the Department of Industry, Commerce and Tourism (Mr. Meaney)

I wish to thank those Deputies who have contributed to the Bill. There is general agreement that this Bill should go through the House as quickly as possible. I agree, too, with Deputy White that leniency should not be shown to anybody caught contravening the law. The main point is that the legislation is for the protection of the consumer against the activities of the con-men who engage in the type of activity in question.

I shall be willing on Committee Stage to discuss any point arising from the Bill or to discuss any amendment that may be tabled to it. I recall Deputy Briscoe speaking here on many occasions about pyramid selling. Regarding the Deputy's suggestion that there be provision to increase the maximum fine by way of regulation, I am not sure whether this is possible. There would be other considerations in this regard, but I shall investigate the matter.

I assure the Deputies opposite that there will not be any delay, apart from the usual delay of about two months, in putting the legislation into operation.

Question put and agreed to.

Committee Stage ordered for Tuesday, 27 May 1980.