The Direct Selling Association provided Direct Selling News with the following update.
In a striking development, the Federal Trade Commission (FTC) issued a revised Notice of Proposed Rulemaking on March 18, 2008, recommending significant revisions to the proposed Business Opportunity Rule that the FTC announced nearly two years ago. The revised proposed Rule largely adopts the recommendations of the Direct Selling Association (DSA) and clearly indicates that the FTC intends to exempt direct sellers from coverage of the Revised Proposed Business Opportunity Rule. The FTC concluded major revisions to the initial Rule were necessary to “avoid broadly sweeping in sellers of multilevel marketing opportunities” and “that the proposed Rule is too blunt an instrument to cure fraud in the MLM industry.” Rather, the FTC determined that it will continue to use the flexibility it has in Section 5 of the FTC Act to enforce and address individual fraud issues in the direct selling industry as necessary on a case-by-case basis.
By way of background, in April of 2006, the FTC issued proposed changes to its 1970s era “business opportunity rules” by issuing a new proposed Business Opportunity Rule which would have broadened the rule’s scope to include direct sellers and other businesses that had previously not been covered. The Direct Selling Association (DSA) and its members implemented an advocacy strategy to educate the FTC about the direct selling industry and how the proposed rule would have negatively affected direct selling companies, salespeople and their customers. Among the proposed requirements, the original Rule would have imposed a seven-day waiting period on any person interested in signing up as a direct seller, and required a number of information disclosures related to earnings, legal actions and salespeople. In DSA’s view, these burdensome disclosure and reporting requirements were not only unnecessary but would have stifled the dynamic growth of the direct selling industry.
The FTC agreed with DSA’s views that the initially proposed Rule “would have unintentionally swept in numerous commercial arrangements where there is little or no evidence that fraud is occurring” and that the changes would have “imposed greater burdens on the MLM industry than other types of business opportunity sellers without sufficient countervailing benefits to consumers.” Accordingly, the FTC proposed changes to its initial proposed Rule to unequivocally remove direct sellers from coverage of the proposed Rule.
The FTC has requested comments to the proposed revised Rule by May 27, 2008. Following the end of the comment period, the FTC might hold hearings or workshops on the proposed Rule prior to the promulgation of a final Rule.
