3.2. Pyramid schemes – No 14

This practice has been banned to prevent traders from luring consumers into a scheme promising them compensation when in fact the consumer will actually be compensated primarily for bringing new members into the scheme, rather than from the sale or consumption of products. The pyramid structure of the scheme is generally devised in such a way that it will deliver benefits only to the organisers at the top, whereas recruited consumers usually do not stand any reasonable chance to recover what they have invested. The Court has clarified the conditions under which a system of trade promotion can be considered a ‘pyramid promotional scheme’ within the meaning of Point No 14 of Annex I. The Court noted that: ‘the prohibition of pyramid promotional schemes is based (…) on three common conditions. First, such a promotion is based on the promise that the consumer will have the opportunity of making a commercial profit. Next, the realisation of that promise depends on the introduction of other consumers into the scheme. Finally, the greater part of the revenue to fund the compensation promised to consumers does not result from a real economic activity’ (237). In the same case, the Court clarified that: ‘a pyramid promotional scheme constitutes an unfair commercial practice only where such a scheme requires the consumer to give financial consideration, regardless of its amount, for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products’ (238). In the case at hand, a company had advertised a bonus to new customers for every other customer they would recruit. Any newly recruited customer had to pay a registration fee. The Court expressed doubts as to whether the possibility for the consumer to receive compensation was derived primarily from the introduction of other consumers into the scheme, noting that the bonuses paid to existing members were funded only to a small extent by the financial consideration required from new members. The Court also recalled that, if a given practice is not prohibited by the provisions of Annex I, it may still be concluded that the practice is unfair within the meaning of the Directive’s general provisions (Article 5 to 9). Another case Loterie Nationale concerned a scheme where players were recruited to play Lotto together. New players were constantly recruited and de facto paid upwards in the scheme to players who had joined before and to the benefit of the organisers of the scheme. New members would pay EUR 10 as an introduction fee and some EUR 43 monthly to participate. Players who won would effectively receive 50 % of their win and there was also a cap on winnings over one million EUR, which were not paid to players. The Court clarified that it is sufficient that there is an indirect link between the contributions paid by new players and the compensation/profit paid to existing players for such a scheme to be classified as a pyramid scheme. A contrary interpretation would deprive the prohibition of its effectiveness (239). ‘It cannot, on the other hand, be deduced from the wording of that provision that the required financial link must necessarily be direct. What matters is the description ‘primarily’ or ‘mostly’ applicable to the contributions paid by new participants in the scheme.’ (240) Hierarchical structures such as pyramid schemes are complex and it may be difficult to quantify the benefits of new members for the company. There may also be different methods for calculating the compensation received by existing members. It seems necessary to distinguish between banned commercial practice No 14, where participants make money mostly or solely by recruiting new participants into the programme, and multilevel marketing, where the sales force is compensated mostly for sales they personally generate and also for the sales of the other salespeople they recruit. It is also difficult to draw the line between consumers and traders: after a consumer has entered into a scheme, that person could, from the moment they starts promoting it, be considered as a trader and become subject to the prohibition of the UCPD themselves, as regards the professional conducts carried out in the framework of the scheme.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-25 · Text as adopted (Official Journal); later amendments are not incorporated in this text.