Consumer Law at Your Fingertips
Referral Selling Plans
- In a “referral selling plan,” a seller induces consumers to make purchases by offering to pay them for the names of other consumers who purchase in turn. The consumer buys, lured by the potential for future “referral” commissions that will offset (or more than offset) the consumer’s purchase cost. But “referral” commissions depend on an ever-expanding “pyramid” of referrals and purchases. The “pyramid” inevitably collapses, and consumers are left holding the bag.
- The Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) regulates unfair and deceptive business practices. DATCP has adopted a rule to prohibit “referral selling plans.” The prohibition does not apply if the seller pays all potential referral commissions to each consumer before the seller makes any sale to that consumer (so there is no element of “chance”). Rule violators may be prosecuted, and there is a private remedy for consumers. For more information, see Referral Selling Plans details.
- A referral selling plan may be an illegal lottery, prohibited under Wisconsin Statutes section 945.02(3), because it has the elements of prize, chance and consideration. For more information, see Consumer Law topic, Prizes and Sweepstakes.