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.
ends