False Claims

If you are part of the MLM or Anti-MLM communities, one commonly discussed subject is FTC compliance and false claims. MLM companies, like most businesses, are bound by the FTC Act and are not allowed to advertise in ways that can appear unfair and/or deceptive. This unfair/deceptive marketing applies to both health and income claims.

False claims are intrinsic to Multi-Level Marketing. Despite what many reps believe, and what many companies claim, the main pitch of MLM is the opportunity, not the products. When we look at where MLMs make the bulk of their profit, it isn’t from product sales to non-distributor customers. MLMs have notoriously low genuine retail sale profit. The real money maker is the reps themselves. MLMs profit most from reps buying into the “opportunity” through starter kits, training courses, or sign-up fees, and through rep product purchases. Whether or not reps, in turn, sell those products means little to nothing to the company. They’ve got their money, and that’s all they care.

Because these MLM companies are profiting most from reps, their goal is to sign up as many people as possible and influence them to buy. There is immense pressure put on reps to recruit, and the MLM business model is systematically designed as a recruitment scheme. Unless someone has a massive following-turn customer base, who make regular large product purchases, it is near impossible for reps to profit on product purchases alone. Recruiting a team and earning bonuses from their buy-ins and personal product purchases is the bread and butter of MLM. This leads to the need to hard-sell the opportunity by any means possible.

When we take into consideration that MLMs operate as commercial cults, and like all cults, they prospect new recruits based on their emotional, physical, social, or financial vulnerability, it’s easy to understand why health and income claims are inextricably linked to the MLM pitch. All sales pitches thrive on being a solution to your problems, and when you pursue the vulnerable it’s easy, albeit unethical, to go right for the vulnerability. Lonely and isolated? We have a community/team/tribe/girl gang you can join. Financially desperate? You can be a millionaire. Health issues? We have the cure.

If MLMs were to actually follow FTC advertising guidelines and pitch honestly it would look more like this: Lonely and isolated? We can lovebomb you, then overwhelm you with group and group chat invites, where you can be a part of a toxically positive, high-pressure control group of fake friendships that will immediately dissolve upon your exit from the company. Financially desperate? Give us your last few dollars and we can guarantee 99.7% of you will lose money. Health issues? Here is our unregulated, over-priced, potentially dangerous snake oil.

Who wouldn’t want to sign up for that? 🙄

Since false claims are inevitable in MLM, this creates the Anti-MLM activism community’s greatest weapon. With the lack of blanket regulation by government regulatory agencies in the US (goes for most other countries as well), we as a grassroots movement can use these false claim pitches to our advantage by reporting them. Regulatory agencies, at this time, deal with MLMs on a case-by-case basis. There needs to be sufficient evidence of unfair/deceptive marketing to warrant any investigation. Regulatory agencies get this evidence mostly through consumer reporting. This is why I consistently preach the need to report, report, report.

This leads many to ask, “Well, what constitutes a false claim?”. Let’s take a look at what the FTC says here in regards to business guidance for MLMs:

“13.   How should an MLM approach representations to current and prospective participants?

An MLM’s representations and messaging concerning the business opportunity it offers must be truthful and non-misleading to avoid being deceptive under Section 5 of the FTC Act. An MLM’s representations about its business opportunity, including earnings claims, violate Section 5 of the FTC Act if they are false, misleading, or unsubstantiated and material to consumers.

Although whether representations are deceptive is a fact-specific inquiry, below are some guiding principles.

• A company must have a reasonable basis for the claims it makes or disseminates to current or prospective participants about its business opportunity. A “reasonable basis” means objective evidence that supports the claim. If a company lacks such objective supporting evidence, the claims are likely deceptive.
• Some business opportunities may present themselves as a way for participants to get rich or lead a wealthy lifestyle. They may make such representations through words or through images such as expensive houses, luxury automobiles, and exotic vacations. If participants generally do not achieve such results, these representations likely would be false or misleading to current or prospective participants.
• Business opportunities may also claim that participants, while not necessarily becoming wealthy, can achieve career-level income. They may represent through words or images that participants can earn thousands of dollars a month, quit their jobs, “fire their bosses,” or become stay-at-home parents. If participants generally do not achieve such results, these representations likely would be false or misleading to current or prospective participants.
• Even truthful testimonials from the very small minority of participants who do earn career-level income or more will likely be misleading unless the advertising or presentation also makes clear the amount earned or lost by most participants. (For more information on this topic, see the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising.)
• In addition, a hypothetical earnings scenario – such as “if you recruit 30 people who each sell $1,000 of product each month, you will earn $1,500 a month” – may imply that the assumptions made (e.g., the number of people recruited, the amount sold by each recruit) are consistent with the actual experiences of typical participants. If the assumptions are not, the earnings scenario likely would be false or misleading to consumers.
• An MLM’s compensation structure may give its participants incentives to make representations about the business opportunity to current or prospective participants. As a consequence, an MLM should (i) direct its participants not to make false, misleading, or unsubstantiated representations and (ii) monitor its participants so they don’t make false, misleading, or unsubstantiated representations.”

This specific section addresses income claims. In simplified terms, it states that without the presence of verifiable typical earnings, such as an income disclosure statement (IDS), MLMs, and their reps, are not allowed to:

• Advertise a “get-rich” lifestyle through words or images.
• Advertise career-level income, or that that income can give them the ability to stay at home and quit their jobs.
• Showcase their paychecks if those paychecks are above typical earnings, even if the paycheck is real and true.
• Advertise specific potential income amounts for recruiting or sales.
• Have a compensation plan that incentives making claims unless they tell their reps not to make false claims, and monitor their reps so they are not making false claims.

If you see a rep, or company, doing any of the following without showcasing an IDS or a similar and valid typical earnings disclosure, please report it to the FTC and TINA.

As for false health claims, it is quite simple. An MLM can not advertise that their product or service can treat, prevent, or cure any disease or ailment without being able to back it up with valid scientific evidence. In warning letters to MLM companies they state:

“It is unlawful under the FTC Act, 15 U.S.C. § 41 et seq., to advertise that a product can
prevent, treat, or cure human disease unless you possess competent and reliable scientific evidence substantiating that the claims are true at the time they are made. For COVID-19, no such study is currently known to exist for [company name] products. Thus, any COVID19-related prevention or treatment claims regarding such products are not supported by competent and reliable scientific evidence. You must immediately cease and desist making all such claims for products that you advertise and market, sell, or otherwise promote or make available in the United States. You are also advised to review all other claims for such products and immediately cease and desist claims that are not supported by competent and reliable scientific evidence.”

Examples:

BOO warning letter

DoTERRA warning letter

Tranont warning letter

Again, if you see any MLM, or its reps making false health claims, please report to the FTC, FDA, and TINA.

I hope this was able to simplify false claims and the necessity of reporting. You can also help with activism by sharing this blog post. The more people are educated on how to report and actively reporting false claims, the more likely regulatory agencies will take action. Anyone can report, and doing so has been proven fruitful with the collapse of MLM company BOO. YOU have the power to cause change!

Not sure how to report? Check out my How To Report page here.