Use of a multi-level sales platform by Hong Chi International to sell membership cards and illegal handling of the withdrawal of participants and the distribution of refundsaw

Chinese Taipei

Case:

Use of a multi-level sales platform by Hong Chi International to sell membership cards and illegal handling of the withdrawal of participants and the distribution of refunds

Key Words:

multi-level sales, membership card, travel

Reference:

Fair Trade Commission Decision of September 19, 2002 (the 567th Commissioners’ Meeting); Letter (91) Kung San Tzu No. 0910009338

Industry:

Travel Agencies (5710)

Relevant Law:

Articles 23-1 and 23-2 of the Fair Trade Law; Article 17(1)(iv) of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. Hong Chi International (Hong Chi) sold “travel membership cards” through a multi-level sales platform. Three-person cards and six-person family cards were available at membership fees of NT$20,000 and NT$30,000 respectively. Through their specially contracted travel agencies (currently a relationship that includes only the affiliated Hong Chi Travel and Hung Liang Travel) members could order plane tickets, process passports and visas, book overseas travel, and enjoy other favorable rates and benefits provided by specially contracted firms.

2. The Fair Trade Commission (FTC) initiated with an investigation upon receiving several complaints from members alleging illegal methods employed by Hong Chi in calculating refunds for members withdrawing from their organization. It was found that participants who sought to rescind or terminate their contract and obtain a refund had to wait longer than the 30 days prescribed by law, with some waiting more than two months. Furthermore, when calculating the refund, Hong Chi would deduct an NT$500 service value reduction fee based on the length of their membership. Deductions were also made for bonuses already received by upstream members and any other bonuses received by the withdrawing party as a result of having brought in new members.

3. Grounds for disposition:
(1) Pursuant to Articles 23-1 and 23-2 of the Fair Trade Law, a multi-level sales enterprises handling the rescission and termination of contracts by their members, their withdrawal from the organization, and the subsequent distribution of refunds shall complete all procedures within the statutory period of 30 days. Hong Chi exceeded the statutory period in a number of cases and was therefore in violation of the law.
(2) When a participant seeks to rescind or terminate a contract, a multi-level sales enterprise may, according to Article 23-2 of the Fair Trade Law, make deductions for any decrease in value, provided the deductions are reasonable. If a bonus is deducted, it shall be limited to the portion already received by the participant from the given transaction. It was found that, when calculating refunds for participants terminating their contracts, Hong Chi was deducting an NT$500 service value reduction fee for each month of their membership. Furthermore that fee actually included costs that were not related to the company or not directly related to the participant's services, and thus was unreasonable. Furthermore, upstream participant bonuses were also deducted from the funds returned, and deductions were also made to prevent situations where bonuses could not be recalled after withdrawal of downline participants. Hong Chi’s method of handling these matters as stated above were in violation, respectively, of Article 23-1(2), Article 23-2(2) of the Fair Trade Law and Article 17(1)(iv) of the Supervisory Regulations Governing Multi-Level Sales.

Appendix:
Hong Chi International’s Uniform Invoice Number: 97367685

Summarized by Chou, Pai-Wei; Supervised by Yeh, Tine-Fu