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It has been discovered that the Department of Trade and Industry intends to provide MLM enterprises with authenticity seals. Protecting consumers from fraud is the goal of the seals.
According to PhilStar’s report, since chain distribution and pyramiding scams are illegal under Philippine law, the DTI is issuing this Seal of Legitimacy in an effort to safeguard the public against them. The seal will be prominently displayed, as well as on the company’s website landing page, if relevant, so that the general public can easily notice it.
To date, regulatory action has only been taken to dismantle pyramid schemes. The DTI’s approach to pyramid schemes poses a number of concerns, even though I’m fine with improved consumer protection. A pyramid scheme is specified in Section 53 of the Consumer Act and refers to sales methods in which a person is given the right to profit from the recruitment of one or more other individuals in exchange for making an investment by the manufacturer or a representative of the manufacturer.
If the earnings of the person employing such a plan are primarily generated from the recruiting of other people into the plan rather than from the selling of consumer products, services, and credit, then the plan is acceptable. Furthermore, the plan’s nature remains unchanged by a restriction on the number of members.
If you’re looking for more information about Section 53’s additional criterion, you may read about it here: (b1) Participants’ entry fees generate money or income. In order to receive money, B2 participants must sponsor at least one other participant, and each participant must also sponsor at least one other person. As a result of the timing, sequence, and order of their engagement, (b3) a participant’s earnings are heavily influenced by their position within the organization. Customers can’t return marketable and unused products for refunds within reasonable timeframes, or the conditions for such product returns are opposed to the Consumer Act’s stipulations. (b5) The commodities received are worthless in the open market…
Consumers’ willingness to pay the listed price for a product even if they are not part of the compensation plan is one sign. Since retail sales are the primary consideration, that last criterion has to do a lot of heavy lifting. “But We Have PrOdUcTs!” Pyramid scams are more common these days, and Section 53 will be able to identify them. The products offered by these MLM companies are real. The majority of sales volume is attributable to distributors participating in the MLM opportunity, which is what makes them pyramid schemes. I.e., there are no retail sales taking place. As an MLM company reviewer, I’m well aware of the time and effort it takes to complete a thorough job. In my opinion, DTI is just looking for the most obvious indicators.
For example, “Do you have a product to offer?” A seal of approval for your website is in order. The seal will be prominently displayed, as well as on the company’s website landing page, if relevant, so that the general public can easily notice it. As a result, consumers will have a false sense of security, because even organizations that have been approved as MLMs but do not have significant retail sales will continue to operate as pyramid schemes because of this, by and large harming consumers. Second, what happens to MLM organizations that fail the test? Will the Department of Trade and Industry (DTI) take further regulatory action? In addition, the DTI’s seal of validity program is an opt-in program, which brings us to the third concern.
A local government unit’s business permit or license; a General Information Sheet or list of officers and members, including their Tax Identification Number; a certificate of Bureau of Internal Revenue registration; and a compensation and marketing plan are among the documents required to apply for a business grant. No one is going to join a pyramid scheme. While some people may be put off by the lack of a seal, those who have one will be more likely to join if it is present.
Periodic and random audits would be used to make sure organizations awarded the seal were in compliance. There are some positive aspects to DTI’s approach, but I believe it falls short of its full potential. There is a set of requirements that companies that want to apply must meet. Why not make that a requirement for any MLM business doing business in the country? Using the DTI Seal of Legitimacy, Trade Undersecretary Ruth Castelo hoped to help the public avoid pyramiding schemes disguised as multi-level marketing by assisting them in their selection of direct-selling and multi-level marketing organizations. Because of these investigations, the DTI should have a list of companies that have received a mark of approval on their website that explains why those companies passed the DTI’s testing.
It would also force the DTI to take responsibility for its mistakes. MLM securities fraud is well regulated by the Philippine SEC. The Securities and Exchange Commission (SEC) publishes warnings about a company’s inquiry and the reasons why it is operating illegally. The DTI could learn a lot from that strategy. DTI’s plan is likely to go away, but I’ll keep a look out for any real-world effects.
