Loan referrals as lead generators are good for business, right? Cheap commissions, efficient as once the referral is made you deal directly with the customer, and the more referrals you have, the more leads you can generate (equally more customers and more profit for you).

But have you ever asked customers to refer family and friends and offered some kind of incentive for doing so?  If so, you need to be aware of s49 of the Australian Consumer Law which prohibits ‘referral selling’.

S49 of the Australian Consumer Law (which is a schedule to the Competition and Consumer Act) states:

A person must not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for:

(a) giving the person the names of prospective customers; or

(b) otherwise assisting the person to supply goods or services to other consumers;

if receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made.

Accordingly, it is illegal to encourage  potential customers to buy on the promise that after buying they will be able to make money or get rewards if they refer their friends and relations.

The penalties for breach of the section are hefty - $1.1 million for a body corporate and $220,000 for an individual – so getting this right is vital.

If you are currently accepting referrals from customers, or wish to start, we suggest you speak to us to obtain expert advice on your structure to avoid being caught by this legislation.