Amway & Other Direct Selling Firms Can’t Engage In Pyramid Schemes!

The government has drafted norms to regulate Direct selling companies like Amway and Tupperware in order to protect consumers.

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The government has drafted norms to regulate Direct selling companies like Amway and Tupperware in order to protect consumers.

New Draft To Regulate Direct Selling Firms

Under this draft, now these firms will not offer the pyramid and money circulation scheme.

Now, direct selling companies have to register themselves under relevant Indian laws.

They will also have to register with the Department of Promotion of Industry and Internal Trade (DPIIT) to allotment the registration numbers.

Apart from that, they will have a minimum of one physical location as a registered office in India.

Penalties For Violations

For the first time, the Union consumer affairs ministry has framed the Consumer Protection (Direct Selling) Rules, 2021, and sought public comments by July 21.

In 2016, the ministry released guidelines for these companies that were advisory. But now, these draft rules propose penalties for violations.

Ban On Pyramid Scheme and Money Circulation Scheme

The direct selling companies are banned from promoting a pyramid scheme and money circulation scheme under these draft rules.

For unaware, a pyramid is a multi-layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers to receive any benefit, directly or indirectly, for enrolment of additional subscribers to the scheme.

This draft requires direct selling companies to appoint a chief compliance officer, grievance redressal officer, and nodal contact person to coordinate with the law enforcement agencies.

Apart from this, the firms must maintain a proper and updated website with all relevant details of the entity, contact information, product information, price, and grievance redressal mechanism for consumers.

Maintaining Seller Identity

In addition to that these companies need to issue proper identity cards and documents to their direct sellers fulfilling KYC verification requirements.

They need to maintain a record of all direct sellers who have repeatedly offered defective or spurious goods.

The draft rules said, “A direct selling entity and a direct seller shall not induce consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases if such reductions or recovery are contingent upon some uncertain, future event,.”

Now, the government has proposed that they will not visit a consumer’s premises without an identity card and prior appointment or approval to regulate direct sellers.

Direct sellers should not provide prospect literature that has not been approved by the parent direct selling entity.

Any individual selling products or services of a direct selling entity through an e-commerce platform must have the direct selling entity’s prior written consent.

According to the draft rules, convicted individuals and bankrupts should not engage in direct selling.

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