FTC Considers New Disclosure Rules
Let your voice be heard!

Victims of the MLM industry should take an active participation in letting the FTC know they favor the new proposals.   The rule is still just a proposed rule. It is currently in the "comment" period during which the FTC is accepting comments from those who wish to make a submission. Comments can be submitted to the FTC at https://secure.commentworks.com/ftc-bizopNPR/, and must be received by the FTC no later than July 17, 2006. While comments can be submitted directly on the comment form, the FTC affords personal responses more weight than stock comments. Therefore, it is best to draft a personal response in a letter and attach it to the response. For former distributors and MLM victims that elect to submit a comment (and you are strongly encouraged to do so), the response should include your personal story of how the direct sales industry has caused you to lose money and a well reasoned analysis of how the proposed rule would help prevent others from being deceived by the direct selling industry. . A suggested outline would follow this format:

1. Describe your personal story, including your years in the business and how much money you made or lost and the time you spend doing it.   Describe if you were not told to sell product but to merely "buy from yourself" and teach others how to do the same for their own pyramid buying club.

2. Discuss the seven day waiting period, and how it would take the emotion out of the decision to get in a direct selling business.  Discuss the cult like tactics used to keep distributors for getting outside information about the business opportunity and how important the waiting period would be to make a better decision.

3. Emphasize how the income claims portion is very important to preventing lies and misconceptions in the promotion of MLM schemes. 

4. Express that you appreciate FTC's goal of reigning in fraudulent programs and how you hope the FTC will continue to crack down on MLM schemes that are just product pyramid schemes disguised as direct selling opportunities.

5.  You might note that the disclosure statement is very important since some groups inside Quixtar do not mention the Quixtar name.   Many people do not know they are being prospected for Quixtar since the lines of affiliation prefer to use their own relatively unknown brand names.

The possibility of the proposed rule is real, but the outcome is far from certain. Every MLM victim has an opportunity to influence its outcome by filing a comment with the FTC, and the people abuse by MLMs need to come forward with a strong response. The time for action is now, because if you delay and miss the July 17th deadline, our opportunity will pass, so don't miss this call to action.

Personally, I see no need for the reference list if id just contains mostly current distributors.   Possibly more important would be a reference list of former distributors associated with the company so that the prospect is not getting information from just one side.

The proposed rule represents such a serious challenge for direct sellers because it contains obligations that will restrict their flexibility in recruiting new distributors and dramatically increase the disclosure by distributors. Consider the provisions of the proposed rule:

1. The Disclosure Document. At least seven days before a new distributor can sign a distributor application or make any type of payment to join a program, the sponsor or parent company must provide the prospective distributor with a disclosure document. This document must disclose:


1. Identifying information. This includes the name, address and telephone number of the direct selling company, the name of the sponsor, and the date on which the disclosure document is provided to the prospect.
   
2. Earnings claim information. If the company or distributor makes earnings claims (which includes "quality of life" claims such as pictures of boats, expensive cars, homes, etc.), an earnings claim statement must be provided which discloses the beginning and ending dates when the represented earnings were achieved, the number and percentage of all distributors who achieved that level of earnings within such time period, and any specific characteristics applicable to the person making the earnings claim that differ from the characteristics of the prospect (e.g., a different geographic location).
   
   If earnings claims are published in the media, in conjunction with the claim, the person or company making the claim must publish the beginning and ending dates when the represented earnings were made, the number and percentage of distributors during the given time who achieved the represented earnings, and industry financial information unless the seller has written substantiation demonstrating that the information reflects the typical earnings or performance experience of other business opportunity buyers.
   
   The company or distributor making the claim must provide written notification to prospects of any material changes affecting the reliability of information contained in the earnings claim before the prospect signs up or pays any money.
   
3. Legal Claim Disclosures. If the seller, or any affiliate or prior business of the seller, or any of the seller's officers, directors, managers or similar individuals have been the subject of any civil or criminal action involving misrepresentation, fraud, securities law violations, or unfair or deceptive practices in the prior ten years, the seller must disclose the name of the action, the caption, the court, case number, and the names of the parties.
   
4. Refund Policy. The seller must disclose the terms of its refund policy.
   
5. Cancellation and Refund Requests. The seller must disclose the total number of purchasers who have cancelled their business within the preceding two years.
   
6. Reference List. The seller must state the name, city, state, and telephone numbers of ten people who have purchased the business opportunity within the last three years who are located nearest to the prospect's location. Otherwise, the company can disclose all of its distributors. The company's application must also disclose to prospects that if they join, their personal contact information may be disclosed to other future buyers.
1. Record Retention. Direct sales companies must archive for three years:
   
   1. Each materially different version of all disclosure and earnings claim documents;
      
   2. Each purchaser's disclosure receipt;
      
   3. Each oral or written cancellation or refund request;
      
   4. All substantiation upon which the seller relies for earnings claims.

   

Dr. Stephen Barrett posted the following on his Consumer Health Digest and MLM Watch web site:

FTC requests help in stopping "business opportunity" scams. The Federal Trade Commission is seeking comments on its proposed rule to protect consumers from work-at-home schemes, multilevel marketing (MLM) scams, and other dubious business opportunities. The proposed rule defines business opportunity as a situation that includes (a) a solicitation to enter a new business, (b) payment or a promise of payment to a third party, and (c) an earnings claim or an offer to provide business assistance. The proposal is intended to require all sellers of business opportunities to provide enough information to enable prospective buyers to make an informed decision about their probability of earning money. The most important provisions pertain to MLM companies, in which independent distributors sell products, recruit more distributors, and theoretically profit from both their own sales and those of the people they recruit. MLM companies, which nearly always exaggerate what new distributors are likely to make, are terrified about meaningful disclosure. If the proposed rule or a stronger one becomes final, millions of Americans will benefit. Citizens who would like this to happen can express their support or suggestions through an FTC Web page until July 17th. The process is simple to do online. FTC trade regulation rules usually take 1-1/2 to 3 years before a final rule is established. For detailed background information, links to key documents, and instructions for submitting comments, see http://www.mlmwatch.org/06FTC/business_opportunity/npr.html.