Report 76 Business Practices CommitteeNotice 1135 of 1999 |
Department of Trade and Industry
Consumer Affairs (Unfair Business Practices) Act, 1988
I, Alexander Erwin, Minister of Trade and Industry, by virtue of the powers vested in me by section 12(6) of the Consumer Affairs (Unfair Business Practices) Act, 1988 (Act No 71 of 1988), and after having considered a report by the Business Practices Committee in relation to an investigation of which notice was given by General Notice 1545 of 1997 in Government Gazette No. 18390 dated 31 October 1997 and General Notice 2723 of 1998 published in Government Gazette No. 19455 dated 13 November 1998, which report was published by Notice 1134 of 9 June 1999 in Government Gazette No. 20169 of 1999, promulgate in the public interest the notice in the Schedule.
Alexander Erwin
Minister of Trade and Industry
Schedule
| 1) | In this notice, unless the context indicates otherwise-- |
"harmful business practice" means:
| 1. | The operation of or participation in a multiplication scheme offering an effective annual interest rate of 20 (twenty) per cent and more above the REPO rate determined by the South African Reserve Bank, to any investor or participant, whether or not the investor or participant becomes a member of the lending party. The applicable REPO rate is the rate which applied at the date of the investment or commencement of participation. The effective annual interest rate will be: |
Where:
| r | = the effective interest rate, |
| R | = the interest in rand, which is the difference between the amount paid out to the investor and the amount invested, |
| C | = the amount invested by the investor or any amount paid by a person to become a member of a scheme, and |
| T | = the period of the investment in months. |
| 2. | Directly or indirectly, operating, conducting, promoting or causing the operation of a chain letter scheme. A chain letter scheme is operated, conducted, promoted or caused to operate where any person (hereinafter referred to as the promotor(s) or supplier(s) of the scheme) |
| a) | invites any other person (hereinafter referred to as the "participating person") to enter into any arrangement with any of the promotor(s) or supplier(s) of the scheme the terms which include any provision which has the effect that the participating person is obliged to make a payment of a financial consideration with the prospect of such participating person receiving payment or other money-related benefits, directly or indirectly, in respect of the participation in the recruitment or introduction (whether by himself or another person) of other persons to enter into similar arrangements with any of the persons or promotor(s) or supplier(s) of the scheme; |
| b) | enters into any arrangement with the promotor(s) or supplier(s) or any person of the scheme the terms of which include any provision which has the effect that the participating person is obliged to make a payment of a financial consideration with the prospect of such participating person receiving payment or other money-related benefits, directly or indirectly, from his/her participation in the recruitment of other persons (whether by himself or another person) to enter into similar arrangements with any of the persons or promotor(s) or supplier(s) of the scheme; |
| c) | accepts any financial consideration from the promotor(s) or supplier(s) or any person of the scheme in terms of any arrangement which financial consideration is used in part or in full to fulfil the obligations of either party to make payment to a third party who has entered into a similar arrangement with any of the persons or promotor(s) or supplier(s) of the scheme; and |
| d) | makes any payment of any financial consideration or gives any money-related benefit, directly or indirectly, to the promotor(s) or supplier(s) or person of the scheme in terms of any arrangement as prohibited in terms of paragraph (b) or (c) above. |
| 3. | Directly or indirectly, participating in a pyramid promotional scheme where: |
| a) | "pyramid promotional scheme" means any plan or operation by which a participant gives consideration for the opportunity to receive compensation which is derived primarily from the person's introduction of other persons into a plan or operation rather than from the sale of products by the participant or other persons introduced into the plan or operation, |
| b) | "participant" means a person who contributes money or any other form of consideration into pyramid promotional scheme, |
| c) | "consideration" means the payment of cash or purchase of goods, services, or intangible property. Consideration does not include: purchase of products furnished at cost to be used in making sales and not for resale; purchase of products where the seller offers to repurchase the participant's products under reasonable commercial terms and the participant's time and effort in pursuit of sales or recruiting activities, |
| d) | "compensation" means the payment of money, a thing of value, or any financial benefit or any discounts which may accrue to the participant. Compensation does not include: Payments to participants based upon sales of products purchased for actual use or consumption, including products used or consumed by participants in the plan and payment to participants under reasonable commercial terms, |
| e) | "person" means an individual, a company, a partnership, a close corporation or any association, or unincorporated organization, |
| f) | "product" means a good, a service, or intangible property of any kind, |
| g) | "promote" means any of the following: To contrive or advertise or to induce or attempt to induce another person or persons to be participants, |
| h) | "reasonable commercial terms" includes repurchase by the seller, at the participant's request, and upon termination of the business relationship or contract with the seller, of all unencumbered products purchased by the participant from the seller within the previous 90 (ninety) days which are unused and in commercially resalable condition, provided that repurchase by the seller shall be for not less than 90 (ninety) percent of the actual amount paid by the participant to the seller of the products, less any consideration received by the participant for purchase of the products which are being returned and less a reasonable handling charge of not more that 25 (twenty five) per cent of the products' original purchase price. A product shall not be deemed non-resaleable solely because the product is no longer marketed by the seller, unless it is clearly disclosed to the participant at the time of the sale that the product is a seasonal, discontinued, or special promotional product, and not subject to the repurchase obligation. |
| 2) | The harmful business practice is hereby declared unlawful and no person shall operate, conduct, promote or cause to operate the harmful business practice and are directed to-- |
| a) | refrain from applying, operating, conducting, promoting or causing to operate the harmful business practices; |
| b) | refrain at any time from applying, operating, conducting, promoting or causing to operate the harmful business practices. |
| 3) | Regulation No R.469 of 14 March 1980, published in Government Gazette No 6880 is hereby repealed. |
| 4) | This notice shall come into operation on date of publication. |