Lyoness scheme not pyramid, court finds

lyonessThe Federal Court has determined that the loyalty program of member-based online shopping portal, Lyoness Australia, does not contravene the pyramid and referral selling provisions of Australian Consumer Law (ACL).

The Lyoness program includes the ability for members to earn various rebates and bonuses from shopping.  It also includes ways for consumers to earn bonuses if they introduce new members who also shop or make down payments on future shopping.

While cash back offers themselves are not prohibited by the ACL, The Australian Competition and Consumer Commission (ACCC) had alleged that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.

The court found that any entitlement to receive a benefit was occasioned – not by the introduction of new members – but from the pursuit of shopping activity by those new members and the shopping activities of further new members potentially introduced by such new members. The ACCC also failed to establish that persons could become members only by making down payments. The court made similar findings about “referral selling” conduct.

“The manner in which pyramid selling schemes operate…is complex and elusive. The present Lyoness Loyalty Program is no exception,” said Justice Flick.

ACCC chairman, Rod Sims, said: “The judgment echoed some of the concerns the ACCC had with the scheme, in particular its complexity and the inducements that were held to prospective members”.

“The ACCC will continue to investigate schemes that encourage consumers to recruit new members. We will take action where appropriate to ensure consumers are not drawn into schemes where the financial benefits held out to induce potential members to join up rely substantially on the recruitment of further new members into the scheme,” Sims said.

The ACCC is considering the judgment.

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