— Also termed referral sales agreement. Cf. PYRAMID SCHEME. [Cases: Consumer Protection 12. C.J.S. Credit Reporting Agencies; Consumer Protection §§ 56–58.]
“The problem inherent in a referral sales contract is the problem inherent in a chain letter — the success of the arrangement depends on an inexhaustible supply of customers. For example, if each buyer submits 25 names and each of these ‘referrals’ becomes a buyer under a similar agreement, the completion of the seventh round of referrals requires 6.1 trillion persons…. Both courts and legislatures have acted against referral sales…. The Uniform Consumer Credit Code prohibits the use of referral sales schemes in which the rebate is conditioned on ‘the occurrence of an event after the time the consumer agrees to buy or lease.’ In other words, a referral scheme keyed to the consumer merely furnishing names is not affected; a referral scheme keyed to the consumer furnishing names of people who actually become customers is prohibited.” David G. Epstein & Steve H. Nickles, Consumer Law in a Nutshell 39 (2d ed. 1981).
