The rights we deserve

For the last few weeks I’ve been describing the range of protections that we’re offered by the Consumer Protection Regulations. Given that these regulations were published and enacted sixteen years ago I think they’re doing well. They’re still largely relevant and there’s not a lot that needs to be changed.

But there are some gaps.

Here’s a big one. We don’t have much protection in Botswana against pyramid schemes and their equally rotten cousins, Ponzi schemes. Yes, the Bank of Botswana has the power to declare them illegal deposit-taking schemes but that requires a great deal of investigation and evidence. I think we need another weapon to use against them. A stronger one.

But is it really a big problem? Do we need to spend time and energy writing new laws to protect people against these schemes?

Oh yes.

Many of you will remember the Eurextrade scam that cost so many people in Botswana so much money in 2012 and 2013. This pretend investment scheme offered people the “opportunity” (which is always a warning word) to invest and earn “up to 2.9%” every day. Not 2.9% each year, 2.9% every day. Unfortunately, the vast majority of people who were suckered into joining the scheme couldn’t do the maths because if they could they would have realized how extraordinary that figure is. The numbers are simple. If you invest P1,000 at 2.9% per day after a day you’ve earned P29, giving you a total of P1,029. Another 2.9% each day on top of the previous day’s balance gives you P1,187 after a week, P2,291 after a month, P13,103 after 3 months and after a whole year, the massive sum of P33 million.

Everyone knows that’s simply impossible, that it must be a scam but thanks to a number of very persuasive recruiters many people willingly handed over their money, giving into temptation, gullibility and greed. In fact Eurextrade wasn’t any sort of investment, it was a Ponzi scheme, where the “investments” each victim made were split between the people running the scam and the previous person who joined. If I joined on Monday and you joined on Tuesday part of the money you paid in went directly to me, and you got some of the money from the sucker who joins on Wednesday. It’s “robbing Peter to pay Paul”. It’s a scam. Most of the money went straight to the criminals running the scheme.

We don’t know how many people lost money when the scheme eventually collapsed (as all Ponzi schemes eventually do) or how much money the scammers got away with but I know for a fact it was at least tens of millions. We heard from victims and their friends who cashed in genuine investments, sold vehicles and property and even took bank loans to invest in the scheme. They all lost everything. Of course a small number at the top of the pyramid made a little but that was all at the expense of the victims.

We’ve seen the same again more recently with Helping Hands International, a donation or “gifting” scheme where people are encouraged to add money to a central pool and then withdraw larger amounts. Nobody involved in the running the scheme ever explains where the extra money comes from because if they did they’d give the game away. In fact, as a few people confessed to me, the growth in money just comes from new people joining, not from any interest or profits. Just new victims. That’s the definition of a Ponzi scheme.

But what could have been done to prevent people falling for it? Consumer Watchdog did its best to warn people as did NBFIRA, the regulator of financial services in Botswana but clearly that wasn’t enough.

That’s where I think an addition to the Consumer Protection Regulations might help. I think a new regulation should be added, saying that it would be “an unfair business practice” to “cause a probability of confusion or of misunderstanding as to the origin, amount or likelihood of any income or profits from any business or investment mechanism”.

That would go some way to preventing the sort of lies and exaggerations that the recruiters for Eurextrade, Helping Hands International and all the other Ponzi schemes, pyramid schemes and Get Rich Quick schemes tell us to part us from our money.

It might also go some way to curbing the excesses of the Multi Level Marketing industry with their promises of a new “lifestyle” when all the figures that the companies are forced to disclose show that it’s incredibly unlikely that any new recruit will make anything at all.

Another change I’d recommend is to follow the approach adopted in many other countries about what happens when consumer buy something that goes wrong. Right now if we buy something that breaks down, Section 13 (1) (a) of the Consumer Protection regulations applies because it clearly wasn’t “of merchantable quality”. We then have a right to one of the three Rs: a refund, repair or replacement. But here’s the problem. We don’t get to choose which of those three Rs we get. That’s up to the store who sold us the broken-down item. I think that should change. I’d like to see consumers have the right to demand a refund or replacement for an item that fails. Obviously there should be some limitations, I don’t think I should be able to demand a refund for a cellphone that fails after two years but maybe we should have that right for the first 14 days? Maybe 30 days? That would be reasonable and I think it would make life a lot simpler for those of us who buy faulty merchandise.

The only challenge would be enforcement but that’s where we consumers have a powerful weapon: the law. If we complain to them, the Consumer Protection Unit in the Ministry of Investment, Trade and Industry is required to investigate and establish whether the rules have been breached. I think these few new powers would help them become even more effective, don’t you?