FTC to Consider Potential Changes to Controversial "Business Opportunity Rule"
(9-Minute Read) Could this be a sign to the MLM industry that they're losing their home team advantage?
A little background…
The Business Opportunity Rule is a federal regulation that requires certain business opportunity sellers to provide prospective buyers with specific information before they enter into a business opportunity agreement. Under the rule, a business opportunity is defined as a "commercial opportunity that requires the purchaser to pay money and that represents that the purchaser can earn money through a specific business, investment, or other venture."
The “Biz Opp Rule,” or BOR, is designed to protect consumers by requiring sellers to disclose key information about the business opportunity, including the nature of the business, the potential risks and challenges, the financial requirements, and any legal or regulatory requirements. The rule also requires sellers to provide a written statement disclosing any litigation or bankruptcy that the seller has been involved in and any judgments or settlements that have been entered against the seller. Applicable prospecting businesses must comply with the Business Opportunity Rule to avoid legal consequences and to ensure that they are treating their prospects fairly and transparently.
At the time of this writing, however, the Business Opportunity Rule applies to a shockingly small number of business opportunities, including work-from-home medical billing and even vending machine sales—but not multilevel marketing.
It has been speculated (and not just by me) that this glaring omission was thanks, in large part, to both a virtual tsunami of facsimile protestations from thousands of distributors at the prompting of their corporate leaders and closed-door meetings between lawmakers, regulators, and lobbyists from the Direct Selling Association between the time of the FTC’s initial announcement in 2006 and the publishing of the final Biz Opp Rule in 2011.
Check out what industry expert and author of Ponzinomics: the Untold Story of Multilevel Marketing Robert Fitzpatrick had to say when I asked him about why MLMs were ultimately exempted from the BOR:
Like others, I was directly involved back then in providing the FTC with info for consideration of the BOR. Most of us, naively, thought the process would be driven by facts and evidence and pubic need. The original FTC request for public input made it clear that the BOR was to bring MLMs under the rule. The need for the BOR was obvious, since MLM business solicitations were touching virtually every household in America. Billions were lost by millions. Yet, with the franchise rule’s $500 threshold for required minimal entry costs, MLM was totally unregulated. Many MLMs required $499 to join.
Also, we wondered what other ‘business opportunity’ could the rule be for, if not MLM? The overwhelming need, the facts, the unreasonableness of MLM operating without oversight, all this encouraged those of us involved in anti-MLM work back then. We could not imagine the FTC would enact a rule that would end up covering nothing much more than vending machine sales routes and envelope stuffing scams, but that is exactly what they did in the end.
Unfortunately for the DSA, rules like the Biz Opp Rule are beholden to “retrospective review” and possible revision by the FTC every ten years, and over these past ten years, the truth about multilevel marketing has been revealed and gone viral, thanks in large part to documentaries like LuLaRich and Betting On Zero, podcasts such as The Dream and Sounds Like A Cult, and even late night TV.
Why? What’s happening now?
In what feels like one of the biggest breakthroughs of the #anti-MLM movement, the FTC announced in November that they were looking for public commentary on potential changes to the Business Opportunity Rule—this just months after the #anti-MLM community came together to submit more than 1500 public comments with anecdotal and empirical data showing the inherent deceptive nature of MLM prospecting, and asking that the FTC revisit its decision to exclude the industry from the 2011 rule.
The announcement came a few days after an Open Session FTC meeting held on November 17th, during which Douglas Brooks (attorney at law and MLM industry expert) and I each addressed the Commission regarding multilevel marketing’s odd exclusion. You can watch the video if you’d like, but here’s a transcript of my two-minute speech:
Thank you so much and thank you, Chair Khan, for the opportunity to address the Commission today. My name is Michelle Carpenter. I grew up in a working class family in the Midwest. I grew up mostly unaware of how hard my parents worked to keep a roof over our heads, and it wasn't until I had a child of my own that I really understood how my mom literally would've done anything to improve our quality of life growing up. And it's the same instinct of a mother to want more for her children that led me to multi-level marketing.
As you've seen from the 100s of comments submitted earlier this year on the FTC’s proposed rulemaking on deceptive earnings claims, ‘struggling mom who would do anything for her kids’ is part and parcel to the essential Boss Babe rags-to-riches story, and is what many MLMs are preying on, and I say this as someone who's done the preying.
In their public comment to the same proposal, the US Chamber of Commerce cited concerns that a new rule regarding earnings claims could negatively impact part-time flexible earnings for millions of Americans. While it is true that millions of Americans participate in MLM in the hope is that a new rule would make some kind of impact, it would be prudent to keep in mind that according to research done by Magnify Money in 2018 and backed by other studies, the median income—or as the Chamber of Commerce calls it, flexible earnings—in MLM is less than 70 cents per hour.
The extreme inequity built into this system is the antithesis of what I believe this commission stands for—advocating for human rights, protecting and promoting wage growth, reducing income inequality and underemployment. I'm here to implore the Commission to either introduce new rules explicitly devoted to regulating this industry or make improvements to the BOR, including removing the exemption for MLMs, constructing and requiring a standardized earnings potential disclosure, and requiring a waiting period, not a cooling off period, before potential participants can invest. Thank you.
What can you do?
The FTC has stated within the language of the new proposal for rule changes that, in addition to any public comments submitted on the proposal itself between November 25th and January 24th, they will be taking into account the 1600+ comments submitted earlier this year on their Notice of Proposed Rulemaking regarding Unfair and Deceptive Earnings Claims. This means that if you already participated during that initial public comment period (March-May 2022), and have nothing to add, your work here is technically done, and I thank you!
However, if you missed the initial deadline, forgot to include something you think the FTC should be aware of, or just want to help spread the word and garner attention to this cause, there are some handy resources to be found at www.MLMchange.org, including examples of comments that have already been published, and infographics to share online!
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