Pansy Speak - Buyer Beware
New migrants have a tough enough time trying to find a job without being duped by franchise sharks and scam artists. So far this year there have been two cases in the media involving hundreds of people who are now thousands of dollars out of pocket with no businesses to show for their efforts.
These alleged scam operators typically advertise their businesses in the ethnic media, highlighting the minimum (or no) English requirements and the guaranteed weekly income available from a franchise. New migrants are typical scam victims because they want to be financially independent, are underemployed, or may have trouble even finding a job. It is despicable that this vulnerable group is blatantly targeted.
The Green Acres saga highlighted for the first time that people with English as a second language are targets for franchise sharks. If a franchise business is run properly it can be a great start for people who want to run a small business without the worries of marketing or administration.
We are not alone in experiencing problems with this business model. In Australia, the body in charge of monitoring anti-competitive behaviour, the ACCC, receives around 1,000 complaints each year about franchise operations. Observers think this figure is too conservative, and that many small business operators are too stressed to report problems or don’t see much point in complaining.
While in New Zealand the problem franchises have been sold on what seem to be false promises, the scams seem to operate at a different level in Australia. There, the franchise is sold and then support for that business is withheld so it can be purchased back for a bargain and on-sold to another unsuspecting person. Two state governments have announced inquiries to find out how big the problem is.
Here, I am aware of four separate franchise schemes where owners have been the victims of a scam.
In the Green Acres case, Keith Lapham is alleged to have sold ironing businesses to about 200 people. Most locals would wonder how many people would wash their clothes and then send them out for ironing, but that question never crossed the minds of unsuspecting migrants.
The franchises were sold for $20,000 each and this money was then apparently used to pay the guaranteed weekly payments until the holes became too big to fill when there weren’t enough shirts to be ironed.
I have been working with victims of this scam since early January, and both myself and National’s Police spokesman, Chester Burrows, were unimpressed by the initial lack of urgency and reluctance by the Police, the Serious Fraud Office and Commerce Commission to get involved and show the offenders these schemes are not tolerated.
You can imagine my shock when, on a recent visit to Botany, I stumbled upon one of the victims at home. He showed me his ironing set-up in the garage and told me he is resigned to putting the whole debacle down to an expensive lesson.
I have also been approached about another alleged scam, this time involving a cleaning franchise under the name of Green Power. People allegedly paid $20,000 for a business with a guaranteed weekly income of $1,000 which would start after a three-month trial and learning period.
Green Power then allegedly offered free trials to businesses which the franchisees would do. These businesses would accept the offer and invariably cancel the contract once the free trial was over. The victims expected to be paid for their work but found it impossible to speak to Green Power managers when their money wasn’t forthcoming.
Even the lawyer for Green Power has claimed to have never met his clients. The victims tried to lodge a complaint with the Police, but were told there had to be a minimum of three complainants before they would be accepted. Of course, these victims have found it very difficult to find fellow franchise owners. Those who have tried to lay a complaint have got the distinct impression from the Police not to expect any action soon and have been told they should also complain to the Commerce Commission.
I wonder if the merger of the Serious Fraud Office and the Police will ensure that more attention will be paid to property crime instead?
Once the alleged scam hit the media, someone saying they were from Green Power called a Chinese radio station to deny any wrongdoing. I understand the company has promised to give affected franchise owners details about a meeting with managers next Monday. I wait with interest to hear the outcome.
Green Power has also repeatedly challenged franchise owners to resolve their issues through legal channels, but experience here and overseas has suggested that the cost involved is one of the many reasons why people hardly ever resort to legal action.
How can we clamp down on this emerging pattern of scams? It’s vital that they are exposed so potential franchise buyers do more research and are not duped. Our law enforcement agencies need to show more willingness to investigate claims, otherwise offenders will continue to get away with their crimes and New Zealand will get a reputation for being a hotbed of scams.
The Franchise Association has to do more than propose a law change to stop their sector’s reputation being further tarnished. They should publicise what interested buyers should do before committing themselves to a franchise. They also need to urge law enforcement agencies to take serious action that would send a strong message to the sector that underhand and atrocious scams will not be tolerated.
John Key on Facebook
Last week John Key launched a special Facebook page to open up yet another channel of communication.
The page is a place where you can register as a supporter of our campaign to take back the Government, and leave public messages of encouragement as we move toward that goal.
Please note you do not have to be a member of Facebook to view the page or use most of its features.