As President of DSA, it is my job to evaluate and report on cases like the recent Federal Trade Commission announcement regarding AdvoCare dispassionately and to analyze the impact on the direct selling channel and assist our members in charting a course forward. Nonetheless, it is difficult for me to believe the investigators got all of the facts right in this case.
Some of the executives involved have been strong and public proponents of the decades-long efforts of the Association to ensure that our customers and salespeople are treated ethically and fairly. However, there were significant allegations of impropriety made by the FTC. While the company agreed to effectively settle the matter and pay a significant monetary amount in settlement, it did not admit to the FTC allegations.
I remain concerned about possible inconsistent application of the law by the government, confusing public statements, or errant prosecutions based on inaccurate allegations, faulty economic analyses, or hidden hostility to our model based on old biases or lack of knowledge. These are matters we simply cannot accept. To be sure, since AdvoCare’s announcement earlier this summer, there has been much speculation about the FTC’s position vis-a-vis multilevel companies. In response, DSA executives have met repeatedly with FTC officials to express our concerns about possible misinterpretation and misapplication of the law, as well as about potential government and investigator overreach in pyramid and related actions.
“Notwithstanding my ongoing concerns about some of the FTC’s positions related to anti-pyramid enforcement, we share the FTC’s stated goal of protecting consumers and salespeople from shady operators that pretend to be legitimate direct selling companies.”
In all of DSA’s private and public conversations with FTC representatives, at the October 2nd AdvoCare press conference, and in comments by FTC Consumer Protection Director Andrew Smith at DSA’s Legal and Regulatory Conference (after the FTC press conference), the FTC has acknowledged that multilevel companies can be and frequently are operated legitimately. And in our private meetings, they have unequivocally rejected the idea that there is any coordinated campaign to target or eliminate direct selling or multilevel companies, or that they have retreated from their earlier guidance.
The key issues identified by the FTC in the AdvoCare matter are ones about which DSA has issued repeated guidance and information, and are matters addressed with specificity in DSA’s own Code of Ethics:
- Compensation must be based on product sales and not on recruitment;
- Required inventory purchases are suspect and evidence of recruitment-based compensation, rather than compensation based on use by real consumers, and are indicative of a pyramid scheme; and,
- Earnings claims touting large potential earnings are inconsistent with relatively low average distributor earnings, and thus are misrepresentative.
Notwithstanding my ongoing concerns about some of the FTC’s positions related to anti-pyramid enforcement, we share the FTC’s stated goal of protecting consumers and salespeople from shady operators that pretend to be legitimate direct selling companies. We are also committed to addressing real and perceived problems even among otherwise legitimate companies. That’s why we followed the counsel of the FTC in establishing the Direct Selling Self-Regulatory Council (DSSRC), a program that Mr. Smith himself recently publicly lauded.
I make this pledge to all DSA members, our salesforces, member of the public, and all interested observers, including policymakers and regulators, as DSA works to protect salespeople and customers and ensure there is no inappropriate government regulation or overreach regarding legitimate direct selling:
- We will vigorously defend the direct selling model;
- We will work with government officials to improve their understanding of the direct selling business model so that their actions support and do not hinder the effective functioning of legitimate direct selling companies;
- We will vigorously establish, promote, and enforce standards of marketplace behavior that protect our customers and salespeople;
- We will support enforcement of the law against true pyramid schemes;
- We will work to address real and perceived problems among otherwise legitimate direct selling companies;
- We will hold DSA member companies accountable for inappropriate marketplace behavior;
- We will support the enactment of strong consumer protection laws; and,
- DSA will continue to monitor and inform DSA membership about these and other upcoming regulatory actions.
In the meantime, I trust the FTC’s announcement will serve as a clear signal to direct selling companies about the importance of adhering to and enforcing the standards set out in the DSA Code of Ethics, their own company policies, and of course, the law.
