Lawyers warn beware when referral selling

Anjelica Balis from The Fold Legal has warned retailers, including those in financial services, to use caution when offering referral incentives, as some illegal arrangements could warrant penalties of up to $1.1 million for a company or $220,000 for an individual.

Referral arrangements, which involve offering a reward to your customers for sending new customers to you, are common with Australian retailers, but some selling practices are prohibited under Australian laws.

Types of prohibited selling practices are those that require a person to make a financial commitment upfront, and that commitment is often inflated payment, or those that cause the person referring to purchase more before they can access their incentive.

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Balis said to avoid penalties, retailers should keep their referral incentives simple, and ensure there is a material connection between giving someone’s name and receiving the reward.

It was advised that in order to make referral programs legal, retailers should:

  • Draft their terms and conditions well;
  • Keep the purchase separate from the reward; and
  • Identify the referrer.



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