Lawyers warn brokers about ‘referral selling’

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

Lawyers warn brokers about ‘referral selling’

James Mitchell 2 minute read

A leading law firm has warned brokers about the dangers of offering incentives for loan referrals.

In a note authored by Gadens partners Jon Denovan and Elise Ivory, the partners warn that brokers who have asked customers to refer family and friends and offered some kind of incentive for doing so need to be aware of section 49 of the Australian Consumer Law which prohibits ‘referral selling’.

Section 49 of the Australian Consumer Law (which is a schedule to the Competition and Consumer Act) states:

A person must not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for:

(a) giving the person the names of prospective customers; or


(b) otherwise assisting the person to supply goods or services to other consumers;

if receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made.

“Accordingly, it is illegal to encourage potential customers to buy on the promise that after buying they will be able to make money or get rewards if they refer their friends and relations,” the lawyers said.

“The penalties for breach of the section are hefty,” they said. “$1.1 million for a body corporate and $220,000 for an individual – so getting this right is vital.”

[Related: Brokers missing out on lead generation opportunities]

Lawyers warn brokers about ‘referral selling’
TheAdviser logo
James Mitchell

James Mitchell

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.


more from the adviser
Bank introduces review period for broker commissions

A lender has announced that it will alter the manner in which it ...

Risks flagged amid lending policy changes

An industry association has issued a warning over the “unintend...

Broker urges banks to accept APRA reforms

A Perth-based mortgage broker has called on banks to green-light ...