Consumer protection has always been a key element accompanying the socio-economic development in general, and the development of businesses and individuals in particular. At its core, businesses can only grow if they retain their customers and create a certain competitive advantage in the market. Enterprises have the option to distribute goods to consumers either directly or through intermediaries. In Vietnam, alongside the legitimate distribution channels of organizations, individuals engaged in the production, import, and distribution of goods, there are still cases where organizations and individuals unlawfully use public places to carry out direct sales transactions with consumers. As a result, many products traded lack clear origin and quality assurance, businesses fail to fulfill their legal obligations, and ultimately, consumers are not protected under consumer protection laws.
In several countries, direct selling is a general term used to describe a business method that takes various forms, where sellers directly sell goods to consumers at different locations other than the official business premises. Direct selling includes two main forms: single-level and multi-level marketing. In Vietnam, the concept of direct selling was only introduced in the Law on Consumer Protection in 2023. However, the law has yet to classify consumer protection in specific fields, product categories, or different sales methods. Similarly, Decree No. 40/2018/ND-CP on the management of multi-level marketing activities only addresses the regulation and management of multi-level marketing. As a result, transactions involving goods sold through direct selling methods are still fraught with loopholes, posing numerous risks and violations of consumer protection laws.
Given this practical need, the research project titled “Research and Proposals for Improving the Legal Framework for Consumer Protection in Goods Purchase Transactions through Direct Selling Methods” aims to analyze existing regulations and propose solutions to the relevant parties to minimize potential loopholes affecting consumer rights while ensuring a fair competitive environment in the market.
Utilizing desk research methods, data synthesis, statistics, workshops, and qualitative analysis, the research focuses on the following key areas:
(i) A theoretical study on consumer protection in goods purchase transactions through direct selling methods.
(ii) An examination of international experiences in consumer protection for goods purchase transactions via direct selling methods.
(iii) An analysis of the current situation regarding consumer protection in goods purchase transactions through direct selling, including:
- The current legal regulations;
- Consumer awareness of products traded via direct selling methods;
- The practical implementation of responsibilities by businesses and individuals in transactions with consumers through direct selling;
- Common violations of consumer rights in direct selling transactions.
(iv) Proposing solutions to improve and enhance the effectiveness of the Law on Consumer Protection in direct selling transactions in Vietnam.
(v) Drafting a "Consumer Protection Handbook for Transactions through Direct Selling Methods."
Through this research, several key issues have been identified and analyzed.
1. Overview of the Direct Selling Method
Direct selling is still a relatively new concept within the legal framework of Vietnam. Prior to the issuance of the Law on Consumer Protection on June 20, 2023, there were virtually no legal provisions in the country addressing the concept or terminology of direct selling. However, based on practical experience, direct selling has become common in many countries and has a long-standing history in developed countries such as the United States, Japan, South Korea, and in developing nations and regions in Asia like China, Malaysia, Thailand, and Taiwan.
From the experiences and legal frameworks of countries around the world, direct selling is understood broadly, not limited to multi-level marketing, as is sometimes misconstrued by certain scholars or regions. Specifically, direct selling refers to a method of selling goods directly to consumers at locations other than the company's regular retail outlets. Instead, sellers may sell at home, workplaces, or through online platforms, among others.
In the goods distribution chain, with the direct selling method, sellers bypass all intermediaries in the distribution chain and sell directly to consumers. In traditional sales, goods are sold online or at fixed retail locations, but in direct selling, the key factor is the seller’s skill in interacting with customers in non-retail environments (such as homes, workplaces, etc.).
Direct selling eliminates intermediaries in the goods distribution chain, such as local distribution centers and wholesalers. Instead, products are distributed directly from the manufacturer to the direct selling company, and then to the seller (also known as the distributor). Products sold via direct selling are often not available at traditional retail outlets, meaning that if consumers wish to purchase a product or service from a direct selling company, the only way is through a direct seller.
There are various ways to implement the direct selling method, including:
· Single-level direct sales;
· Host or party-plan sales;
· Multi-level marketing (MLM).
Single-level direct sales involve a one-on-one selling approach (between the seller and the consumer), where sales are conducted through door-to-door or in-person presentations, online meetings, or through product catalogs. In this model, the seller’s income typically comes from sales commissions, which are tied to the sales target achieved.
Host or party-plan sales are carried out in groups, usually involving sales presentations or meetings held at the seller’s home or the potential customer’s home. This is one of the most common forms of direct selling. Group sales are often organized as events, typically in the form of "home parties," where sellers provide product advice to customers.
Multi-level marketing (MLM) is a method of sales based on a system of participants organized into multiple levels or branches. It combines elements of both single-level and group selling. In MLM, a seller’s income consists of commissions from their own sales and additional commissions based on sales generated by other sellers in their downline (those recruited by the original seller into the sales system).
At times, the term "direct selling" is mistakenly used interchangeably with "multi-level marketing" (MLM) or "network marketing," but these terms are fundamentally different and should not be confused. MLM and network marketing are just specific forms of direct selling. Not all direct selling systems are related to MLM. For example, in single-level direct selling, the seller earns commissions only from their own sales, without recruiting other sellers into the network, and they do not receive commissions from sales made by others.
2. The Relationship Between Consumer Protection and Direct Selling
The direct selling method offers numerous benefits, satisfying consumers' needs when purchasing goods and services. Specifically, these advantages include:
· Providing diverse information: In multi-level marketing (MLM), for example, consumers receive not only product introductions from distributors but also useful information about the production process, nutritional regimes, healthy living habits, etc. This enables consumers to fully understand the product information and make informed decisions.
· Saving time and costs in accessing goods and services: Since direct selling involves direct transactions between sellers and consumers, consumers do not need to physically travel to access goods or services, thereby saving both time and costs. Particularly during the Covid-19 pandemic, direct selling to consumers helped meet consumer demand while ensuring compliance with social distancing regulations imposed by the state.
· Guaranteed after-sales services: When purchasing goods through multi-level marketing, consumers are typically supported by a consultant or distributor throughout the entire process—from initial product inquiry to after-sales care. Distributors provide product usage guidance and act as intermediaries between consumers and businesses in the event of product-related issues. This ensures that consumer complaints and feedback are handled promptly, protecting consumer rights through timely resolution.
In addition to these positive impacts, direct selling also poses several risks that may infringe upon consumer rights. Some of these risks include:
· Incomplete information: Due to the nature of direct selling, where information is conveyed through consultants or distributors, the accuracy and completeness of product information depend heavily on the distributor. If the distributor adheres to both legal and company regulations, consumer rights are generally well protected. However, if the distributor fails to follow these regulations, there is a risk of providing inaccurate information, leading to poor purchasing decisions and ultimately harming consumer interests.
· Harassment: After purchasing goods through direct selling, consumers' personal information is often known to consultants or distributors. To boost sales, distributors may increase their marketing efforts by calling, sending promotional emails, or sending text messages. When excessive, these activities can become a form of harassment to consumers.
· Consumer information not securely protected: During direct sales transactions, consumers provide their personal information to consultants or distributors. If these individuals later move to another company, they may retain the personal information of potential consumers for use at their new company, risking the misuse of consumer data, contrary to the initial purpose for which it was collected. This issue is a major concern for direct selling companies, as it affects consumer rights when they choose to transact with the company.
· Product warranty: While direct selling eliminates the need for physical travel to purchase goods, concerns remain about product warranties. If a consumer is located far from the company’s warranty center, they may face difficulties in seeking warranty services. Complaints about product quality, warranty policies, and disputes arising from shipping products between the consumer’s location and the warranty center are significant concerns for consumers and represent practical challenges that direct selling companies must address.
3. Current Situation of Consumer Rights Protection in Transactions through Direct Selling
The 2023 Consumer Protection Law has introduced a new definition of direct selling and added a new chapter on specific transactions with consumers, including regulations on direct selling. According to Clauses 7 and 8 of Article 3, the law defines:
“7. Direct selling is a business practice where businesses or individuals directly approach consumers to introduce and sell goods and services, including the following forms:
a) Door-to-door selling: Selling products, goods, or providing services at the consumer's residence or workplace;
b) Multi-level marketing (MLM): Selling goods through a network of participants at multiple levels and branches, where participants earn commissions, bonuses, and other economic benefits from both their own sales and the sales of others in the network;
c) Selling at non-regular business locations: Introducing and selling products, goods, or providing services at locations that are not fixed retail outlets or regular service provision sites.”
“8. Special transactions include remote transactions, continuous service provision, and direct selling between businesses or individuals and consumers.”
Compared to the 2010 Consumer Protection Law, the 2023 law introduces new regulations on direct selling, including:
· Clarifying the concept of direct selling and categorizing it into door-to-door selling, MLM, and selling at non-regular business locations.
· For door-to-door selling, the revised law specifies the responsibilities of businesses or individuals conducting such activities and states that businesses are accountable for all actions of door-to-door sellers (employees, representatives hired or authorized, or commercial agents).
· For MLM, the revised law introduces new provisions:
(i) MLM companies must repurchase products upon request from participants within 30 days of receiving the goods and are responsible for the activities of MLM participants.
(ii) Outlines the responsibilities of MLM participants.
(iii) Requires a written contract between the MLM company and participants, detailing essential terms of the MLM agreement.
· For activities involving selling products or providing services at non-fixed retail locations, businesses must notify the local People's Committee before conducting sales, publicly list company information and product details at the sales site, and maintain contact information for handling complaints during and after sales. Additionally, consumers have the right to return products within 30 days of receiving them if the product remains unopened, labeled, and within its expiration date.
Direct selling businesses are required to ensure consumer safety from risks to life, health, and property during both production and product usage. Thus, direct selling companies must strictly comply with legal regulations on quality standards, measurement, hygiene, and food safety for each type of product, and provide consumers with comprehensive safety information. Businesses are also obligated to issue warnings if products pose health risks or other issues arise during usage. Clear usage instructions should be provided to avoid consumer confusion or misuse that could result in unnecessary harm to health or financial loss.
For defective products, direct selling companies must recall, repair, or take necessary measures to prevent and remedy any harm caused to consumers due to product defects. Under the Consumer Protection Law, companies must fulfill the following responsibilities:
· Provide complete, accurate, and timely information;
· Issue proof of transaction;
· Offer product and accessory warranties;
· Recall defective goods;
· Compensate for damages caused by defective goods.
Based on this analysis, the research team suggests several solutions to improve and enhance the effectiveness of consumer protection laws. The recommendations are divided into categories based on the stakeholders:
For businesses:
i) Raise awareness of legal compliance regarding consumer protection among business organizations and individuals;
ii) Establish and implement transparent, ethical business standards that prioritize consumers and are subject to regulatory and consumer oversight;
iii) Increase the social responsibility of direct selling businesses toward consumers;
iv) Participate in consumer-focused programs to foster positive impacts within the direct selling community.
For state management agencies:
i) Strengthen political commitment to consumer protection at all levels of government;
ii) Improve the law enforcement capacity of relevant state agencies concerning consumer protection;
iii) Enhance the operations of consumer protection associations and industry groups;
iv) Increase inspections and crackdowns on violations of direct selling regulations and consumer protection laws;
v) Refine legal provisions to ensure coherence and enforceability regarding consumer protection and direct selling oversight;
vi) Promote the implementation of consumer-focused business programs, encouraging sustainable, green production and consumption.
For consumers:
i) Increase knowledge about consumer protection laws and safe, smart, and sustainable consumption;
ii) Develop self-defense mechanisms for consumers;
iii) Ensure the ability to protect consumer rights through judicial mechanisms;
iv) Encourage consumer participation in movements promoting safe and healthy consumption;
v) Encourage consumers to monitor and provide feedback on businesses’ participation in consumer-focused programs.
