The Federal Trade Commission (FTC) released an Advanced Notice of Proposed Rulemaking (ANPR) and request for public comment this week regarding a new trade regulation rule on the use of earnings claims.
In the notice, the FTC expressed interest in requiring companies to provide substantiated earnings claims without hyperbole or the use of hypothetical or past profits to consumers, and is considering whether lifestyle claims—like a new luxury car, lavish vacations or being able to quit a nine-to-five job—could be addressed in this rule as well.
While this is a broad rule that would impact a number of industries, the FTC lumped direct selling in with gig work, franchise, work-from-home and ecommerce opportunities as one of its targeted categories for regulation, and cited its previous legal actions against AdvoCare as proof of the Commission’s history of “aggressive enforcement,” saying:
“For example, the Commission is aware that, historically, some multi-level marketing companies have made earnings claims to potential distributors without knowing what expenses their distributors incur. But earnings claims that reflect gross income and omit material expenses are misleading. Before making an earnings claim, a business must have a reasonable basis for the claim—that means both gross income and expenses incurred in generating that income.”
Regulating bad actors in the industry is a vital effort, and one that is supported by the Direct Selling Self-Regulatory Council (DSSRC), but there are concerns that the lines drawn by the FTC around the definition of “unfair and deceptive” are highly subjective. It’s a move that is reminiscent of the FTC’s efforts to fortify Section 13(b) of the FTC Act after the U.S. Supreme Court unanimously ruled that the Commission had been incorrectly wielding its power to inflict monetary damages.
“There is never a clear definition for us of what rules we need to follow,” a direct selling chief executive told Direct Selling News off the record last year. “We’re always guessing and interpreting. They use words that they don’t define, like ‘typical’ income claims. What’s ‘typical?’ If you make $50, is that OK? Who knows? Because there are no actual rules. Instead, there is this ever-evolving guidance that we’re all trying to interpret.”
