Are Referral Commissions now illegal?

5 comments

Posted on 31st May 2011 by Tony in Business Advice

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I had a very interesting conversation last week with someone about the effects the new Consumer Protection Act has with regards to Referral Commission – apparently it’s now illegal.

Basically, referral commission is a small fee you get paid for when you refer someone to a company. For example if you know a friend is looking for a house, and you give this person’s details to an estate-agent, the Agent will pay you a referral commission if that friend buys a place (it’s usually something like R1000.00 or so).

Now, I know many businesses that use the Referral Commission model as part of growing a business and client acquisition – we’ll pay you RX.XX if you refer us a client.

In 2010 the US passed a law requiring everyone to declare their interest in referring you – and this makes sense. A person is more likely to refer you to a company that pays the best commission, rather than the company that provides the best service.

But I think to make Referral Commissions now completely illegal is taking things too far. I know the premise of the CPA is to look after a society that is simply too stupid to think for themselves (yes, I will admit, I am anti-CPA or anything Nanny-State-like) but this is yet another move to make it more and more difficult for business in South Africa to actually do business.

As a small business owner, I’m expected to spend a fortune on legal-fees to ensure all my documentation is now in order for this crazy CPA and now they tell me I can’t pay for business referrals? Good heavens! (Actually I don’t use a referral model system, but I should have the right to choose one).

What are your thoughts on Referral Commissions and the CPA?

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5 Comments
  1. Justin McCall says:

    The CPA is fantastic for us lowly peasants, commonly referred to as “consumers”. I do understand the business implications, but as a consumer, I feel so protected. As a future business owner, I will try and find a creative way around the CPA :) There’s always a solution!

    31st May 2011 at 11:58 am

  2. James M says:

    I feel that as a consumer the CPA is a good thing, but I think that as a small business owner, it must be a horrible thing. It seems to make business harder and more risky rather than rewarding. South Africa should be promoting small business ownership at every chance. I guess you just have to find a creative way around it like Justin said!

    31st May 2011 at 12:00 pm

  3. Tony says:

    Thanks for the comment, Justin. How do you feel the CPA protects you?

    31st May 2011 at 12:01 pm

  4. Brad says:

    I reckon bits and pieces of the new legislation are good.
    To often the larger guys have the power and we are forced to just accept things- however the piece on Lead Comm is a strange one.
    Cant believe that this has been approved- its a legitimate way of growing your business and rewarding the leads ensuring front of mind… Painful, and to be ignored until proven to be actually illegal!

    31st May 2011 at 12:04 pm

  5. Chris M says:

    Please let us know whether it’s legal or not when you find out.

    31st May 2011 at 1:23 pm

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