A more thorough explanation:

A referral sales contract is a type of agreement between a consumer and a seller. In this agreement, the consumer agrees to buy goods or services from the seller at an inflated price. In return, the seller agrees to compensate the consumer for each customer or potential customer referred to them.

For example, a seller may offer a referral sales contract to a consumer where the consumer agrees to buy a product at a higher price than usual. In return, the seller promises to pay the consumer a commission for each new customer they refer to the seller.

However, referral sales contracts can be problematic because they rely on an endless supply of customers. If each buyer refers 25 people, and each of those people refers 25 more people, the number of potential customers quickly becomes unmanageable. This is similar to a chain letter, where the success of the arrangement depends on an ever-increasing number of participants.

Because of these issues, referral sales contracts are often prohibited by law. For example, the Uniform Consumer Credit Code prohibits referral sales schemes where the rebate is conditioned on an event that occurs after the consumer agrees to buy or lease. This means that a referral scheme that only requires the consumer to provide names is allowed, but a scheme that requires the consumer to provide names of people who actually become customers is prohibited.

Overall, referral sales contracts can be risky for both consumers and sellers. Consumers may end up paying more than they should for goods or services, while sellers may struggle to find enough new customers to make the arrangement profitable.