Direct selling firms barred from charging entry fee from agents

The Centre has decided to bar direct selling companies such as Amway, Tupperware and Oriflame from charging any entry fee from agents or compelling them to buy back unsold stocks. That apart, the companies will have to enter into an agreement with direct sellers or agents, and give full refund or buy-back guarantee for goods and services sold to them.

These are part of the new Direct Selling Guidelines, 2016 prepared by the Consumer Affairs Ministry and will be notified in a day or two. "The new guidelines have been finalised and approved by the Minister. These are model guidelines and state governments have been asked to issue as per their needs," Consumer Affairs Secretary Hem Pande said. In the proposed guidelines, the government has clearly defined legitimate direct selling and differentiates it from ponzi schemes to help investigating agencies identify fraudulent players, he said. Among others, sources said, the government has specified several conditions for setting up of direct selling business in the country.

"One main condition is that direct selling companies should not charge entry fee from its members and compel them to buy back unsold inventory," the sources said. Currently, direct sellers need to pay registration fee as well as purchase some products for selling. If they fail to sell the products, it imposes burden on them.

As per the proposed guidelines, there should be a proper agreement between companies and direct sellers or agents. The companies will have to train direct sellers and maintain their complete details, sources said. At central level, Consumer Affairs Ministry will monitor the direct selling industry, while the states have to put in place a regulatory mechanism for the same, they added. The guidelines also talk about obligation of direct seller, relationship between direct seller entity and direct seller as well as consumer protection.

The new guidelines have been framed as direct selling industry is facing problems in the absence of clear legislation that defines the regulatory framework.