Friday, 5 June 2015

Too good to be true

Some things are too good to be true.

Sometimes it’s obvious. The orphaned daughter of the West African millionaire stranded in a refugee camp who now wants to share her inheritance with you? Too good to be true.

The job in a far-flung country with the extraordinary salary and amazing conditions that you didn’t actually apply for and for which you haven’t been formally interviewed? Also too good to be true.

The charming person you met on Facebook who now say they love you and has sent you a package containing a variety of valuable goodies but which is now held in customs in a foreign country and can only be released when you pay them some money? Too good to be true.

The offshore investment scheme that offers you returns of nearly 3% every day? WAY too good to be true.

The foreign exchange web site that offers to multiply your “investment” by up to 200 times so you can make fortunes, despite you not being a trained and experienced Forex dealer? That’s something else that’s too good to be true.

Those last two are in fact particularly dangerous. Eurextrade ruined many people in Botswana with its promises of fabulous profits and hid well the fact that it was a Ponzi scheme run by international gangsters. The Forex trading issue also has the potential to ruin you as well. A reader contacted us recently asking about one particular web site that will multiply (“leverage” is the technical term) your investment by up to 200 times, effectively giving you millions of Pula to trade with. What they neglect to tell their customers is that it works both ways. Yes, if you can correctly predict the fluctuations in the exchange rates between currencies you might make some money. They conveniently forget to tell you that is also means you can lose your entire “investment” in moments if the exchange rates go the other way. Within minutes of searching online I found stories of people who had lost over half a million Pula in an instant trading Forex.

Pyramid schemes like WorldVentures are also too good to be true. While they promise fantastic holidays in exotic places they often aren’t entirely clear that none of this is actually for free. You have to pay to join the pyramid and then all you get are discounted holidays. You still have to buy the holidays, just at a slightly cheaper price.

Of course what pyramid schemes really sell is the promise of income from recruiting multiple layers of people beneath you, each of whom pays to join and then starts a flow of money up the pyramid, some of which stays with you as it passes by. Of course this rarely happens because it’s almost impossible to recruit the number of people you need to achieve the targets the scheme sets you. The figures produced by WorldVentures prove this. More than three quarters of all recruits never make a single thebe. Of those who do make some money, more than 80% make less than P100 each month and that’s income, not profit.

Consider this. 84% of all the money flowing through WorldVentures is taken by the top 0.8%. Pyramid schemes (and their cousins, Multi-Level Marketing schemes) are too good to be true.

Then there’s holiday clubs. They sell the idea of fantastic discounts on flights, hotel stays and accommodation but the truth isn’t quite as good. Firstly, there’s the major flaw in all these schemes. You have to pay a membership fee to join before you get the discounts. Why would you want to do this when almost all hotel chains offer discounts for free? I have never paid the full rate in a South African hotel. Not once. Hotel chains offer similar discounts entirely for free depending on the days you want to stay with them.

Then there are the points-based timeshare holiday clubs that offer you the chance to stay at a variety of locations for free, subject to the number of points you’ve bought and so long as you’ve paid their annual fees. These also have their problems. Some, such as The Holiday Club and Flexiclub are constantly being criticized for their contracts which customers sometimes find almost impossible to cancel if they change their minds. The Holiday Club used to have a clause in their contract stating that the customer had made an “irrevocable offer” to join the club, one that seemed almost impossible to cancel. You were effectively a member for life.

I’ve had a look at the newer version of the Holiday Club terms and conditions and I think they must have learned some lessons. Firstly you have the five-day “cooling off” period that South African law requires (Botswana legislators, are you reading this?). Secondly the “irrevocable offer” clause has disappeared and instead there’s a section entitled “Cessation of Membership”. This is what it says:
“A Member shall cease to be such when he ceases to be the registered holder of Point Rights / Shares in terms of the issue to him of a Point Rights / Share Certificate.”
So you can cancel your membership when you sell your points. But that’s the issue. It’s sometimes impossible to find anyone who’ll buy them. You can’t just walk away. You don’t have the right to tell them that you’ve had enough, you’ll pay your year’s fees and you’ll walk away from the deal. You can only do this with their permission, something that can be hard to get.

We first wrote about The Holiday Club way back in 2007, exposing their “irrevocable offer” issue and that clearly angered them because within days we had silly legal threats from their attorneys. Clearly we had touched a raw nerve. I just hope that consumers these days have a better understanding of their rights and the sort of contract they should never sign. Like many other things these offers can be way too good to be true.

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