Wednesday 30 October 2019

The Voice - Consumer's Voice

Is Crowd1 a pyramid scheme?

I would like to ask about Crowd1 investment group, how genuine is it? Is it a pyramid scheme?

Yes, it’s possible. The other possibility is that it’s a Ponzi scheme. Either way, it doesn’t matter, getting involved could result in serious fines and even jail time.

Several people have approached us recently asking the same question and it really seems that this South African scam is now looking for victims here in Botswana.

I joined one of their WhatsApp conversations and the introduction was always the same. “I would like to introduce you to a legitimate business that is paying so well and is still new globally. You get paid even if you dont recruit Register and earn real money.” There’s an interesting clue there. Why would a legitimate business make such a point about being legitimate? It’s a bit like a stranger introducing himself by saying “Hi, I’m not a criminal”.

The other clue comes in the next sentence in the conversation. “TURN R1800 TO R66000 MONTHLY SALARY”. I asked whether that was really correct, that by paying just “R1,800, you could earn R66,000 every month and they were clear that this was possible. However, they couldn’t give any real explanation about where the extra money might come from. Curiously, they also claim that people joining can make profit of “100% In 5 Days” and a bonus of “50% Per Referral”.

I think this is most probably a Ponzi scheme, in which some of the money paid by people to join is passed on to people who joined earlier. That’s the referral payment they’re talking about. In fact, what happens in most Ponzi schemes is that money isn’t actually paid to the people joining, it’s just held in a fake account online. The victims are often prevented from withdrawing their money because it doesn’t actually exist.

The good news for Botswana and the bad news for Crowd1 and anyone promoting it or even joining it is that this scheme is illegal. Section 9 of the Consumer Protection Act 2018 outlaws what it calls a “multiplication scheme which “offers, promises or guarantees … an effective interest rate that is above the market rate”. It also outlaws what it calls “chain letter schemes” in which “each successive newly recruited participant is required to make some form of payment which would be distributed to some of the previously existing participants”. The punishment for even joining such a scheme can be a fine of up to P100,000 or five years in prison. Are you prepared to take that risk?

Is the interest correct?

I bought some furniture a few months back on hire purchase. I was doing some end of year computations when I noticed that the interest charged on this contract of P1567.68 is precomputed. This means that it doesn't take into consideration the fact that the principal amount is been reduced with every instalment going forth and it will not change unlike in the AMORTISED system. Is this legal considering that they demand instalments which include capital. This doesn't favour consumers.

Do you think there is anything about hire purchase that favours customers? I don’t.

There are so many things I don’t like about hire purchase. The goods you think you’re buying don’t belong to you until you’ve made the final instalment, they remain the property of the store. The store can repossess the goods if you fall behind with your payments without a court order. The insurance included in the hire purchase agreement is often up to ten times as expensive as the insurance policy you can get elsewhere. If you buy something on hire purchase over two years, the total amount you pay is often double the cash price. Even if the goods are repossessed you can still owe the full amount or more once they add penalties and interest. The warranty on the goods you buy is usually only one year so if it goes wrong on the 366th day, you get no support and you still must pay for another year for something that no longer works.

Your question about interest is a good one but it’s not how hire purchase payments are made. As you say, the interest is calculated at the beginning of the contract and along with the various other elements such as delivery charges, installation and handling fees, contract costs and insurance and the total is then divided by the number of instalments and you pay them evenly throughout the entire period of the agreement.

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