The Italian competition authority (AGCM) adopted a decision (19 December 2018) – as the Norwegian competition authority did before – showing that Lyoness/Lyconet’s business practices are wrong (incorrect/irregular) and now prohibits its dissemination and continuation. Amongst others, investigations are currently still in progress in Poland.
Page 35 of the Italian decision: (Decision Italy 19.Dec. 2018)
a) che la pratica commerciale descritta al punto II del presente provvedimento, posta in essere dalle società Lyoness Italia S.r.l., nella qualità di professionista ai sensi dell’articolo 18, comma 1, lettera b), del Codice del Consumo, costituisce, per le ragioni e nei limiti esposti in motivazione, una pratica commerciale scorretta ai sensi degli articoli 20, 21 comma 1, lettere b) e c), e 22, nonché dell’articolo 23, comma 1, lettera p), del Codice del Consumo e ne vieta la diffusione o continuazione;
- è the practices of Lyoness Italia S.r.l. infringe Article 20,21 (and so on). Their practises are therefore wrong (uncorrect/irregular).
- è since their practices infringe Article 23 and prohibits their dissemination and continuation.
First, a fine of 3.2 Mio € was imposed, which could be seen as a warning shot. Significantly more serious are the findings of the investigations that are similar to Norway’s findings. This is no surprise since the structure and procedures of Lyoness are the same in all countries.
After the conclusion of a long inquiry, the competition authority (AGCM) stated that:
The promotion system for the purchase model “Cashback” Lyoness Italy S.r.l. uses, is incorrect, because it is a pyramid scheme/snowball system, which the Consumer Protection Act classifies as a definitely misleading business practice.
The system revolves around a fee-based discount card with which consumers can “save money” in certain stores. Only the leaders of the Lyoness system yielded high profit rates with the members’ “careers”.
The promotion system used the advantages of the Cashback system just as a pretext and in fact, banked on the recruitment of a high number of consumers as their sales representatives. “After they have ‘joined’, a very high ‘entry fee’ is requested for reaching the first commission level and the start of their ‘career’ as Lyconet Premium Marketers. After this, the marketer has to recruit other consumers and has to make further payments for their ‘career progress’”, said a spokesperson of the authority.
Within the inquiry, it was it has been found that the Cashback system in fact has a secondary position within the economic turnover of the Lyoness system, namely 16%. The remaining 84% are achieved by the sale of Lyconet products! So much for the so-called “purchasing association”. It is only possible to reach a high level of Shopping Points (the compensation mechanism of the payment plan) if the participating consumers or persons recruited by them make further payments. As it has been noted, several ten thousand consumers made these payments to become included and to stay in the system. Only a few people were effectively able to reach relevant positions.
“The regulation authority further noted that methods with which properties, conditions and time limits of the system were presented, are misleading. The different aspects have neither been explained at events nor on the websites. Also, some necessary indication on distance selling contracts, as for example information on the right of withdrawal, the place of jurisdiction and dealing with complaints are missing on the websites.”
Lyoness Italy now has two months left for submitting a new marketing plan that has to be approved by the AGCM. Several Italian Lyconet presidents asserted that they already have implemented all points criticised by the resolution and that they “have received an ‘OK’ from the AGCM”. After consultation with the AGCM, this assertation is incorrect. The AGCM did not receive anything or authorise anything like that. Right now, purchases can still be made with the Cashback card and SMEs can still be added. But anything concerning Premium, ESP, Cloud, EC1 and EC2 (the main source of income) is prohibited. (We already know all this from Norway!)
Lyoness reacts with long known “crisis wording”, the criticised Lyconet business practices are not mentioned:
“Dear Lyconet Marketer, (Google-Transalte)
In the context of the requests of the competition authority (AGCM) to Lyoness we would like to inform you, that we have heard the decision of the AGCM. We are more than surprise by this latest decision and will of course take all necessary legal measures.
We note that took suitable measures after the beginning of the AGCM inquiry in September 2018 and that we reacted to the authority’s objection immediately. We were therefore even more astounded about the latest decision, which is not plausible for us in any way, even if the changes of the system already made are being regarded. In the whole world, Lyoness is a company that meets the requirements as shown by the closing of proceedings in Austria.
Lyoness is an international purchasing association with 11 million members and more than 120,000 partner companies. In Italy, more than 1.5 million members are daily receiving benefits from more than 25,000 related companies that are feeding tens of millions of purchases back into the community of related companies every month.
As already mentioned, we will oppose this decision at the appropriate places. We can count on a team of competent lawyers and competent independents (super partes), who are supporting our view. We are confident that, like in Austria, we will reach a positive outcome. Therefore, our members will still receive benefits from their purchases and the loyalty program will still be provided to small and medium-sized enterprises.
Of course, we will keep you up-to-date.
With best regards, Lyoness Italia S.r.l.”