A New FTC Rule? What You Need To Know

 

March 2022, the Federal Trade Commission released a statement that they are considering making a new rule to combat deceptive marketing and earnings claims. This followed two major developments in regards to the FTC’s ability to hold companies accountable for deceptive marketing. First, in April of 2021, the Supreme Court issued a ruling that severely restricted the FTC’s ability to seek compensation for victims:

“…the court said that Section 13(b) of the FTC Act does not authorize the agency to seek monetary relief for violations of the law, as it has commonly been used. The court noted that 13(b) doesn’t explicitly authorize the agency to obtain such a remedy, but instead allows the FTC to seek “a permanent injunction” pending administrative proceedings.”

To work around the Supreme Court’s ruling the FTC, in October 2021, resurrected its Penalty Offense Authority:

“The Commission is resurrecting its Penalty Offense Authority, found in Section 5 of the FTC Act, to ensure that bad actors pay a price when they break the law.”

Although The Penalty Offense Authority does allow the FTC to issue fines for deceptive marketing, it does not allow them to seek reparations for victims. Now the FTC is considering creating a new rule that would allow them to better protect consumers and compensate victims.

So why is this important to the Anti-MLM Movement? Well, multi-level marketing is one of the named business opportunities in the FTC’s proposed rule:

“…the Commission and other government agencies have alleged that misleading earnings claims have been used to tout offers as diverse as coaching or mentoring, education, work-from-home, “gig” work, and other job opportunities, multi-level marketing opportunities, franchise, e-commerce or other business opportunities, chain referral schemes, and other investment opportunities, as well as other types of business or money-making opportunities.”

As I have mentioned before, deceptive marketing is intrinsic to MLM. Limiting the MLM industry’s ability to recruit new members, while seeking monetary punishment and compensating victims, would cause huge issues for MLM companies. This is why the FTC requesting public comment is so important.

So what type of comment is the FTC looking for? For the full explanation, you can read and comment on the proposed rule here:

Deceptive or Unfair Earnings Claims

and they summarize it as:

“The Federal Trade Commission (“FTC” or “Commission”) is considering proposing a rule to address deceptive or unfair marketing using earnings claims. The Commission is soliciting written comment, data, and arguments concerning the need for such a rulemaking.”

and:

“The Commission requests input on whether and how it can most effectively use its authority under section 18 of the FTC Act, 15 U.S.C. 57a, to address certain deceptive or unfair acts or practices involving the use of false, unsubstantiated, or otherwise misleading earnings claims.”

To simplify it, they are asking the public to:

1. Explain the reasons the rule is needed.
2. Show evidence depicting deceptive marketing and data showing consumer harm.
3. Give solutions to how they can regulate companies participating in deceptive marketing with this new rule.

I want to make it abundantly clear that the FTC is not looking for anecdotal accounts. They are NOT asking for your personal story in MLM. If your story is relevant to your comment and gives background to the evidence and data you are presenting, then by all means include it. But, please be aware that personal stories alone are not evidence or data, nor are they solutions or ideas for regulatory rules.

I highlight that issue because there has recently been a strong push for people to comment on the proposed rule within the Anti-MLM Community, which is amazing. But, most of the time I see it either no information is provided on what the FTC is asking for, or it is explicitly stated that they are asking for your personal story, or resources are suggested that misinform community members that your anecdotal experience is what is being asked for.

It is also clear, from the purposed rule, that the FTC is well aware of the issues of MLM deceptive marketing and consumer personal accounts:

“Misleading earnings claims have long been a significant problem for consumers. The use of such claims both deprives consumers of the ability to make informed decisions and unfairly advantages bad actors in the marketplace at the expense of honest businesses. The promise of significant earnings is a powerful inducement to purchase or invest time or money.”

And:

“The Commission is aware that such claims are used by numerous companies and individuals to entice prospective purchasers, job-seekers, investors, or other participants in widely varying contexts.”

Keeping that in mind, here are some of the examples of what they are looking for comments on are:

•  The Commission seeks comment, information, and evidence on whether a disclaimer can be sufficient to correct an otherwise misleading impression created by earnings claims, and, if so, whether and how the issue should be addressed in a rule.
• Whether some or all entities and individuals making earnings claims should be required to give recipients specific earnings information.
• The current rules require companies and reps to include an income disclosure statement when making earnings claims. Should similar provisions be implemented in an earnings claim rule? How would it effectively prevent or curb deception regarding earnings? If so, what information should such a disclosure include? What would be the benefit to consumers and the burden to businesses of such a disclosure requirement?
• Should a disclosure requirement apply to only certain types of entities and individuals or in certain contexts, or should its application be limited in some other way? For example, should its coverage exclude job postings and help wanted ads? Should it apply only to those whose claims cite atypical earnings figures? Or should it be limited on some other basis?
•  The Commission is interested in exploring whether a rule should address the use of real or purported earnings data or statistics from an industry or professional field in the promotion of money-making opportunities.
• Before making an earnings claim, should a business have a reasonable basis for the claim  —that means both gross income and expenses incurred in generating that income.
• In regards to requiring recordkeeping of gross income and expenses: what information must be kept? In what form? For how long? What would be the costs of such a requirement, and are there ways to streamline the requirement to minimize the costs on businesses?
• Should lifestyle claims, meaning claims that participating in a money-making opportunity will lead to a material change in lifestyle—such as getting to go on expensive vacations, quitting your job, or buying a luxury car, be included in the rule?
• Comment, evidence, and information are therefore sought on (a) whether and what lifestyle claims are deceptive; (b) the benefits to businesses and consumers from receiving guidance on this topic; and (c) what evidence a company must have before making a lifestyle claim to substantiate it.
• the Commission seeks comment on, among other things, the costs and benefits of a rule that would address the above practices, and on alternatives to such a rulemaking, such as the publication of additional consumer and business education.

The FTC explicitly states:

“In their replies, commenters should provide any available evidence and data that supports their position, such as empirical data, consumer perception studies, and consumer complaints.”

Some key points anti-MLM commenters could touch on:

• Require all MLM companies to have an income disclosure statement.
• Require MLMs to use the median, not averages, on income disclosures.
• Require a waiting period before a rep is allowed to sign up for an MLM.
• Require prospective recruits to sign a document stating they have fully read and understand the income disclosure before being allowed to sign up that includes a disclaimer warning the FTC states over 99% of those who join MLM make no money or lose money.
• Require prospective recruits to sign a document stating they have fully read and understand the return policy, auto-ship fees, membership fees, website fees, personal volume requirements, and any other mandatory expenses, before signing up as a rep.
• Require mandatory expenses/fees to be lower than typical earnings to prevent reps from near-guaranteed debt aka “pay to play”.
• Require MLMs to track and disclose common expenses.
• Require those expenses to be included in the final income statement amounts.
• Require a verified percentage of genuine retail sales to non-distributor customers to earn commissions.
• Require MLMs to track and publically disclose genuine retail sales to non-distributor customers.
• MLMs claiming to abide by the Amway rules must track, prove and disclose they are in fact abiding by them.
• Require income disclosure statements to be written in clear and concise language.
• Require the total number of reps, active or not, to be calculated in the income disclosure.
• Require bi-yearly or quarterly income disclosure reports.
• Require inclusion of canceled accounts showing turnover rates on income disclosure statements.
• Uphold the currently required income disclosure when the company or reps make earnings or lifestyle claims.
• Include lifestyle claims.
• Include health claims.
• Require a simplified and straightforward opt-out option from both membership and auto-ship.
• Clearly define preferred customer versus distributor.
• Inactive distributors should still be included as a distributor and not preferred customers.
• Purchase of a starter kit or paying membership fees to receive commissions should automatically categorize a prospective recruit as a distributor and not as a preferred customer.

Please also keep in mind this isn’t a competition. I have seen multiple fear-mongering posts telling people they need to comment because the last time the FTC opened comments to the public on an issue involving MLM they received mass comments from MLM reps. The FTC and its regulators are not stupid. They are asking for comments with a very strict set of criteria. Spam from MLMers praising the industry or their company is going to be disregarded because it does not apply to the criteria they are asking for. We do not need to mass comment on our personal stories to combat MLM spam. What we need is intelligent, impactful, and well-thought-out comments that show irrefutable evidence and data of deceptive marketing, as well as give logical, carefully considered, and sensible solutions to deceptive marketing on which the proposed rule can be based. Quality over quantity.

***All comments are required to be posted by May 10, 2022.***

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