This week, the Federal Trade Commission ("FTC") proposed changes to the Business Opportunity Rule, together with the possible enactment of a new Earnings Claim Rule. Due to the increasing number of individuals seeking work-from-home arrangements, deceptive potential earnings claims are becoming more problematic. Earnings claims are especially prevalent in the multi-level marketing ("MLM") and money-making opportunity arenas. As our readers are aware, MLM programs and money-making opportunities have been closely scrutinized by the FTC for quite some time. Over the years, for instance, the FTC has regularly clamped down on illegal pyramid schemes which were being marketed as MLM programs. Now, the FTC is focused on addressing an ever-increasing number of complaints from consumers who were looking for honest income, but ended up "spending thousands, even tens of thousands, of dollars on multi-level marketing, business coaching and other schemes."
To ensure that its regulatory measures are well-tailored, the FTC is seeking comment from the public regarding its proposed expansion of the Business Opportunity Rule and creation of its new Earnings Claim Rule.
What are Some of the FTC's Proposed Changes to the Business Opportunity Rule?
The Business Opportunity Rule was originally established by the FTC to address deceptive and unfair practices employed by companies in the marketing of their business opportunity programs. The FTC now seeks to amend the Business Opportunity Rule to better address the increasing number of deceptive earnings claims conveyed by these companies. Among other changes, the proposed rulemaking would:
- Expand the Business Opportunity Rule to cover money-making opportunities, including business coaching and investment programs;
- Require those who market business opportunity programs to comply with the Business Opportunity Rule's substantiation requirements and prohibitions on material misrepresentations;
- Revise the Business Opportunity Rule's prohibition on misrepresenting "the amount of sales, gross or net income, or profits a prospective purchaser may earn or that prior purchasers have earned," to instead prohibit "false or misleading earnings claim[s];" and
- Retitle the Business Opportunity Rule to "Business and Money-Making Opportunity Rule" in order to reflect its amended scope.
What Are Some of the Key Provisions of the Newly Proposed Earnings Claims Rule?
The goal of the new Earnings Claims Rule is to prevent the use of misleading and/or unsubstantiated earnings claims to advertise, market, or promote MLM programs. For the uninitiated, an MLM operation is a business that operates through a network of participants who can earn income through: 1) selling products and services directly to consumers; and 2) the recruitment of other participants into the MLM program network. Among other regulations, the Earnings Claims Rule would:
- Prohibit claims that misrepresent the opportunity to become a MLM program participant as an employment opportunity;
- Require MLM program marketers to substantiate earnings claims and to provide substantiating records to anyone who requests them. MLM companies would be required to maintain substantiation records for three years and provide them to the FTC upon request; and
- Prohibit providing prospective participants with recruitment materials that contain deceptive earnings claims.
Hire Experienced Attorneys to Help Ensure Compliance with the FTC's Earnings Claims Rulemakings
The FTC views deceptive earnings claims as a serious issue that now affects many American consumers. The FTC has proposed a significant number of changes to the Business Opportunity Rule and the enactment of a new Earnings Claim Rule to better safeguard consumers. The above are only a few of the many new requirements and prohibitions contained in the FTC's Notices of Proposed Rulemaking.
Considering the above regulatory action, it is imperative for businesses that market money-making opportunities and/or operate MLM programs to stay abreast of the FTC's rulemaking proceedings as they move forward. Hiring experienced counsel can ease the burden of keeping up with this time-intensive and nuanced process. The attorneys at Klein Moynihan Turco have significant experience in both defending businesses against FTC actions, and ensuring compliance so that future actions may be averted.
If you require assistance with regulatory compliance or related litigation defense, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
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