Anyone looking for some extra cash this holiday season might be tempted to join a “Blessing Loom,” the latest money-making scheme spreading through Facebook. But you need to be careful before you send in your money.
A Blessing Loom works like this: After getting an invitation, you get a link to a chat in the messaging service Whatsapp. Once there you will see a picture of a “loom” – sort of like a colorful spiderweb – and information on sending $100 to the PayPal account of the person at the center of the circle. For your $100, you get one of the eight spaces on the outside of the loom. Your job is then to recruit people to fill in the other outside spaces. As it fills, the loom splits and you advance a level until it’s your turn to be in the center and receive the $800.
Easy, right? Not so fast.
First, Blessing Loom and other such money-making ventures are likely against the law.
Almost every state has some form of regulation against pyramid schemes such as Blessing Loom. Pyramid schemes cover a variety of money-making ventures but basically requires revenue from new members to support payments to the original parties.
Such sets-ups require a constant flow of new money to continue and usually collapse when it becomes difficult to recruit additional members or if a participant doesn’t submit their payment, according to the the Federal Trade Commission.
In Alabama, the Deceptive Trade Practices Act specifically prohibits “using or employing a chain referral sales plan” as well as “selling or offering to sell…a right to participation in a pyramid sales structure.” Violators face a fine of up to $2,000.
There are other problems with the Blessing Loom as well. Both Facebook – where the Blessing Loom is being shared – and PayPal – the method used to send the money – have regulations against pyramid schemes.
Violating any of these terms of service could result in a user’s access being terminated.
But what if you just mail your $100? That won’t work either. The U.S. Post Office has similar regulations against using it to send money to support pyramid schemes.
“Regardless of what technology is used to advance the scheme, if the mail is used at any step along the way, it is still illegal,” the USPS said.
How do you spot – and avoid – a pyramid scheme?
First, it all goes back to the old adage – if it looks too good to be true, it probably is. The U.S. Securities and Exchange Commission has a couple of other warning signs:
It’s likely a pyramid scheme if:
The emphasis is on recruiting new members in turn for a fee as opposed to selling a product;
No genuine product or service is sold in return for the money;
There’s a promise of high returns in a short time prior
There are promises of easy money or high returns for very little investment
The Blessing Loom is just the latest pyramid scheme using social media to generate buzz and money. Last year, the Secret Sister Exchange, which involved participants trading presents in an ever-widening circle in return for a wave of gifts coming back to them, made the social media rounds. Secret Sister has popped up again this year but just like the Blessing Loom, experts advise people to stay away.