The Multilevel Marketing industry is buzzing with opinions about the FTC’s Proposed Business Opportunity Rule.
You’ll see that link on the next few posts here at “On The Road With Dave”.
But, before I take on the issue of the proposed FTC rule, it’s important to realize that some of the problems the rule is hoping to address have been with the MLM industry for quite some time.
I’d venture to say that the Multilevel Marketing industry is the most questioned about its legality and right to exist than any other business; although I know other businesses exist that may be questioned as well.
“So where do the mines lay? Here are the most common:
It comes as no surprise that deceptive income claims top the list. The FTC has attacked such claims for years as they are one of the primary means used to recruit new prospects. Note that the term “deceptive” precedes the term “income claims.” Not all income claims are improper; the key is presenting proper disclosures to support the claim so that it is not deceptive.
Again, no surprise here; we’ve seen unsubstantiated product claims attacked since the days of the wagon-drawn snake-oil salesman! Unfortunately, people don’t seem to learn. No product will not cure everything from AIDS to zits, nor will it increase a car’s mileage by 300%, and everyone will not become a millionaire by following an infomercial real estate course. Anyone who claims their products will do these or any other unsupportable things should not be surprised when they receive an FTC Access Letter or a Civil Investigative Demand.
Testimonials are a unique category of product claims. Although they have been around forever, in the last few years they have become more aggressive than ever. The FTC has been cracking down, but it seems as though they are trying to plug a floodgate with a cork. Nevertheless, those who are indiscriminate and cannot substantiate the claims made in testimonials run an increased risk of regulatory action.
If you offer an industry standard 90% inventory refund upon a distributor’s cancellation, do it without delay when a distributor quits the business – don’t play games! With that in mind, it is important to understand the rules. You may recapture commissions paid to a distributor which is subsequently rendered unearned based on the product return (so long as you reserve the right to do so in your policies), but don’t try the artifice of claiming that since a distributor was to resell 70% of their inventory, you will only issue a refund based on the 30% of the inventory they should have remaining.
It’s deceptive to say you will pay someone on a given date, and then fail to do so. You may have a bit of leeway if a problem results from a computer glitch or something out of your control, but not much.
When recruiting for prospects, a network marketer is not offering a job. They are seeking independent contractors who will go into business for themselves. Recruiting by leading people to believe that you are offering a job is unquestionably deceptive. Don’t let it happen in your company.”
MORE ON THE FTC R511993 BUSINESS OPPORTUNITY RULE COMING UP!
“MLM Mondays” is featured every week on (what else?) Monday; and offers information, advice and tips on operating an MLM-affiliated business. On The Road With Dave does not guarantee any results from the information, but offers it as opinion.