Latest FTC guidance to MLM industry emphasizes retail sales
One of the more frustrating aspects of covering MLM regulation and litigation is a tendency for people to ignore what’s currently happening, in favor of past legal opinions and decisions from the past.
Some of these opinions and decisions are decades old but people still cling to them as gospel.
One of the more common citations I run across is a 2004 staff advisory issued by the FTC. Yes that’s 2004, some thirteen years ago.
In the advisory the FTC reiterate the legality of internal consumption, that is affiliates purchasing product from the MLM company they’re in.
The amount of internal consumption in any multi-level compensation business does not determine whether
or not the FTC will consider the plan a pyramid scheme.
Somehow this got turned into “you can have as much internal consumption as you want, no worries.”
While internal consumption is of course legal, in the absence of retail sales it’s a good indicator of a product-based pyramid scheme model.
Internal consumption alone might not be a determining factor for the FTC, but retail sales certainly are.
Retail revenue and affiliate revenue (internal consumption) are part of the same revenue chart pie. If you were to graph out an MLM company with little to no retail activity, you’d find revenue would primarily be sourced via affiliates.
Proponents of pyramid schemes have argued this isn’t illegal since 2004.
Unfortunately the FTC advisory didn’t clarify as much and aside from common sense, the only clarification the industry has had in the last thirteen years has been a handful of regulatory actions.
The most prominent are Herbalife and Vemma, large well-known MLM companies that have been around for years.
These two settlements were so prominent that it was impossible for even the 2004 advisory supporters to ignore.
What we’ve since been left with is a state of confusion. Not that there wasn’t confusion before, it’s just that now most rational people have come to accept that internal consumption is not a substitute for genuine retail sales activity.
For whatever reason the FTC have been sluggish to clarify this matter outside of lawsuits filed against specific companies.
That ends today, with a new Business Blog entry clarifying the need for retail sales in MLM.
At the heart of a legitimate MLM are real sales to real customers.
For companies acting within the law, the business is driven by selling products to real customers.
Who do we mean by “real customers”? People unaffiliated with the company who actually buy and use the product the MLM sells – real retail sales, in other words.
And by “real sales,” we mean sales that are both profitable and verifiable – retail sales that can be confirmed.
Contrast that with MLMs built primarily on bringing in more and more recruits and racking up sales to other insiders. Very few people are going to make money and most participants will be left in the lurch.
Forget about what you think you know about MLM compliance. Here in 2017, there it straight from the horse’s mouth.
Proponents of pyramid schemes will of course counter with “but the FTC isn’t a court of law” and “Donald Trump is going to change things!”
On the first sentiment, while it is true the FTC aren’t a court of law, the Herbalife and Vemma complaints both demonstrated that a lack of retail sales in MLM will trigger a regulatory response.
Herbalife is a billion dollar company. Vemma wasn’t quite that much but we’re still talking hundreds of millions of dollars.
Herbalife, as one of the largest MLM companies in the world, could have taken the matter to court. But they didn’t.
In an effort to save face, Herbalife management and affiliates might come up with all manner of reasons to explain why.
At the end of the day though, considering the serious nature of the FTC’s allegations and fact that a non-pyramid model will likely see Herbalife collapse in the US over the next few years, if there was even the slightest chance of winning in court, don’t you think Herbalife would have contested the matter?
The FTC complaints against Herbalife and Vemma challenged compensation structures that rewarded distributors without regard to retail sales.
The court-enforceable orders in those cases require the companies to dismantle those systems.
In their place, Herbalife and Vemma must implement systems that incentivize participants to sell products to people outside the network.
The reality is it’s a bit like Paul Burks criminal trial. He could have accepted he was going to jail and plead guilty back in 2012.
Instead he dragged it out for four years in court, only to lose anyway.
Neither Herbalife or Vemma had significant retail activity taking place and both companies knew it. Easier to settle now and accept a lesser punishment than to drag it out in court and face heavier penalties later on.
That’s the blunt truth of the matter, stripped of all it’s marketing spin.
As for Donald Trump. I don’t know how pro-business turned into pro-pyramid, but Trumps inauguration on January 20th isn’t going to usher in four years of pro-pyramid litigation.
Donald Trump doesn’t run the FTC, nor will the agency be run by someone who is pro-scam. It’s just not going to happen.
The sooner those in denial about the 2004 advisory cease being in denial about Trump’s presidency, the better for the MLM industry at large.
Back in the day, even as late as 2004 MLM marketing was for the most part localized. With the prominence of the internet, in particular social media, you’re looking at a truly global landscape.
The reason who is President or who is running the FTC doesn’t matter, is because ultimately victims cannot be ignored.
Pyramid schemes, however you dress them up, are unsustainable scams. People join and lose money.
Over time the amount of people who have lost money grows, until it reaches tipping point and triggers a regulatory investigation.
No matter how much effort you put in, no matter what your upline tells you and no matter what you might have been lead to believe by the company itself, chances are if you’re working an unsustainable business model you’re going to lose money.
As we’ve seen in the Herbalife settlement, victim numbers and monetary damages are quantifiable.
When we’re talking hundreds of thousands of victims collectively losing hundreds of millions of dollars through unsustainable business models designed to mask fraud, no court in the US is going to rule in favor of the scammers running the companies.
That’s the bottom line.
So what if you’re in an MLM company whose business model looks remarkably similar to that of Herbalife or Vemma’s post FTC settlement?
The good news is a number of MLM companies have taken the initiative to abolish mandatory internal consumption and/or retail disincentives.
Over the last few months I’ve received correspondence from affiliates in such companies asking for review updates pending compensation plan changes. And that’s been great to see.
For the rest of you, take a look at your companies’ compensation plan and first and foremost ask yourself if you’re required to purchase product each month.
This could be a mandatory requirement or defacto, based on a monthly PV requirement you and everyone you know in the company qualifying for via internal consumption.
Are you making retail sales each month? Is your upline? Are there genuine retail incentives in the compensation plan?
If retail sales are given little more than lip-service by your MLM company, ask them about it. Why isn’t there more of a focus on retail sales and why are they ignoring regulatory guidelines in the US?
This isn’t optional advice or a suggestion. If the company you’re in is asleep at the wheel you as an affiliate need to start making noise.
Otherwise your MLM company might very well be the next Vemma or Herbalife disaster. You’re left without an income and what’s worse, it makes it that much harder for legitimate MLM companies to operate without prejudiced discrimination.
IIRC, sometime in the past year or so, a prominent MLM observer had asked the FTC about how to distinguish a legitimate MLM from a pyramid scheme, and the FTC advised him that there was no bright line differentiation, and that he should in fact follow ‘case law’.
as case law stands today, there is no >50% retail rule. as case law stands today, the 2004 advisory still stands, and so does the almost 40 year old amway ruling. caselaw does not get old, it is further developed or overturned, but until such time – It Stands.
i’m not sure if the current blog advise of the FTC has any legal weight.
further, i have come to realize that the FTC is a political animal. the five FTC commissioners are comprised of three from the ruling party and two from the opposition. as i understand it, the republican trump administration has 4 FTC posts [3 republicans+ 1 democrat] to fill in.
chairperson edith ramirez will be replaced by a commissioner Directly appointed by trump. the only FTC head to continue holding her post will be the democrat mcsweeny, who had once worked under alan hoffman of herbalife, and is considered to be MLM sympathetic.
i also note that the 2004 advisory [which has become a part of caselaw], was penned under the republican george bush and the following FTC regime under the democrats, took a harder line against MLM regarding retail requirements.
it will be interesting to see how the FTC posts are filled up this year and if there is any shift in the FTC’s position regarding MLM. we have to keep in mind that trump has got MLM Owners in his Immediate team [betty devos, carl icahn].
i think we can say, that there is a 50/50 divide in the US regarding MLM. about half the population under the republicans support the view of MLM as outlined in the 2004 advisory, and the other half supports the >50% retail rule as outlined under the democrats. to say that one view is Correct and the other is Wrong is not factual. it is a difference of opinion and not about ‘right’ or ‘wrong’.
personally, i have been following MLM for some time now, and i disagree with a >50% rule. retail is absolutely essential to prove the ‘retailability’ of an MLM product, but i wouldn’t affix a strict number on it.
if i see a comp plan which a fair price product, which encourages retail, discourages inventory loading, has a good buy back policy, an active compliance department, no false claims, i wouldn’t run around calling it a pyramid, even if it has retail figures of say 25%.
if the product is ‘retailable’ and participants are well protected from loss, i don’t necessarily see why only >50% retail will make an MLM legitimate and not a pyramid. it just seems to me to be an adamant stance, with no persuasive logic behind it.
When the biggest MLM companies in the world don’t want to go to court, based on the evidence the FTC has against them, what happened 40 years ago doesn’t matter.
the same can be said of the FTC too.
meanwhile, as one FTC goes and another gets sworn in, caselaw stands unchanged.
in a world where a regulatory body is merely a political weather-vane, i find caselaw to be a more reliable standard.
even courts may not be completely insulated from politics [after all judges are politically appointed], but at least they have to follow set precedent and caselaw, and cannot swing randomly or sharply from a position.
No it can’t. The FTC put a stop to two MLM pyramid scams with no retail activity in the last 12 months.
When a billion dollar company isn’t willing to go to court to prove it’s not a pyramid scheme, the writing is on the wall.
It’s hard to know what Trump will do, but he can change the FTC into a completely pro MLM body like GWB did.
the downside is that this is US only and affects those companies based there and then operate world wide.
It therefore fails to stop others from setting up elsewhere, which is where Oz comes in and highlights those of a potential dodgy nature.
Other companies who have a responsible attitude will ensure they operate properly and legally.
That there is a lot of focus on the “product”. It is the system that is flawed, and that system will produce a pyramid scheme where the actual product is recruitment. And to recruit, you must mislead.
IMO, The “logic” behind requiring >50% retail sales is it will simply flush out MLM aka pyramid schemes as seen with Vemma/Hebalife. Again, because pyramid schemes harm the masses.
The MLM we know operates the way it does because it needs to. It is what it is.
I do give credit to the founders and “professional” recruiters for “pulling it off” for so long.
THIS FTC made two companies change their comp plan, but did not have the conviction to convert their idea of MLM to caselaw, applicable to the whole industry. vemma may have been [almost] bankrupt and unable to go to trial, but the FTC could have dragged cash rich herbalife, kicking and screaming, to court.
it’s not even that the FTC has a soft corner for these companies and wanted to avoid shutting them down. we Know that the FTC moved the court to shut vemma down completely as a pyramid scheme.
similarly, it should have taken herbalife to court for an injunction to shut it down, and get a >50% retail ruling from the court at trial. in its complaint the FTC said that herbalife claimed it had 39% retail, and suggested this was not enough .
so, this^^ was a golden not-to-be-missed opportunity to pitch the >50% retail idea to the court, and get a ruling that would cover the whole MLM industry. but, the FTC settled with herbalife, and has earned my criticism. [my criticism does not reduce my respect for the FTC as a regulatory body, it is merely a disagreement on one issue]
now, only two companies have had to change their model, and a new FTC will come in, which may have a different outlook. in it’s blog, the current FTC admits these[ vemma herbalife] actions are not applicable to the whole industry.
the current FTC used the omnitrition observation as it’s foundation for regulating MLM. it seemed to ‘ignore’ the advisory it sent to the DSA in 2004.
i have not witnessed a change of guard in the FTC before, but it is possible that the incoming FTC may use the 2004 advisory as its foundation to regulate MLM, and ‘ignore’ the vemma herbalife actions.
we’ll have to wait and see act 2 of this saga. [the way CNN reports on trump, it looks like he and his FTC may not survive even an year! he’s so horrible, he’ll get thrown out or something! 🙂 ]
i just find it strange that herbalife would be legal under the republicans in 2004, but illegal under the democrats in 2016. that makes zero sense to me, so something clearly needs fixing.
Herbalife with little to no retail activity was never legal. You just deployed the “if a regulator hasn’t shut us down we’re legal” argument.
All that happened was the FTC finally clamped down on their operating in the grey nonsense. I’ve been calling Herbalife on it ever since they reneged on their promise to introduce a preferred customer class back in 2013.
Who was in charge of the government at the time is irrelevant.
The FTC has gone after two companies for not having enough retail activity. Both have buckled, saving the taxpayer millions of dollars in legal fees.
The message has been received by the MLM industry loud and clear at a fraction of the cost of going to trial.
OZ, I think you provide some of the most accurate and concise info in the industry as a watchdog site.
However, in regards to the changes and reform of the industry, the pursuit of the FTC, etc.- I think it’s important to note that the FTC is a complaint driven agency, meaning it is far too often a reactionary agency not a proactive agency.
In the cases of both Vemma and Herbalife, the actions of the FTC were spurned because of complaints (Bill Ackerman’s public attack of Herbalife), (parents of college students who were encouraged to spend student loan money for front loading in Vemma).
Yes, the FTC has made many public statements regarding their push to see more customers than distributors, etc- they rarely go after an industry as a whole for change until public outcry forces their hand like the TSR of 1996 for telemarketing or Spam regulation.
It’s unfortunate, in my opinion, because if they would simply act proactively, purpose a uniform, industry rule, allow for industry feedback and acceptance- the results would be far better for everyone.
i deployed the argument that in 2004 the [republican] FTC which wrote the advisory to the DSA, would find herbalife legal under it’s own advisory.
the amount of self consumption [60% according to the current FTC’s complaint] would not matter because members were buying the product, and recruiting others to buy the product, to increase their discount level [buying club as explained in the advisory].
the current [democrat] FTC, has ignored the 2004 advisory, and has fallen back to the older [1990’s] omnitrition ‘observation’ of tying rewards to retail, and so has found herbalife to be illegal.
so, the same herbalife has been legal and then illegal under the FTC, depending on which government controls the FTC.
the incoming trump [republican] FTC is quite clearly not going to follow omnitrition. so herbalife’s old buying club set up would have become acceptable again under this new regime.
i find this^^ type of pendulum swinging regulation to be illogical, and it seems to me that something is broken and needs fixing.
what happens to this ‘loud and clear’ message under 8 years of a trump FTC [if it lasts that long]?
had the FTC not tried to save taxpayers dollars and had gotten a ruling from court, the new caselaw would have survived any incoming new FTC. now, the message may get buried and the writing on the wall may change.
if trump+ betty devos+ carl icahn manage to push HR 5230 through, the ‘message’ will be permanently erased. how important are a few millions of taxpayer money in the larger scheme of things?
i cannot believe the FTC is dumb enough t be penny wise pound foolish, and that’s why i suggest it was lack of conviction that made them settle with herbalife.
MLM companies with little to no retail sales activity have never been legal.
Reason being there is nothing differentiating a product based pyramid scheme from an MLM company with little to no retail sales activity.
Pyramid schemes have never been legal in the US. Regulation of all but the most obvious of them however has been lax until recently.
Nothing. We either go back to the “winkwinknudgenudge operate in the grey system”, which results in hundreds of thousands of victims created by the larger MLM companies with no retail, or the FTC continue to actively investigate and bust scams.
Both Herbalife and Vemma settled with the FTC, not the other way around.
what is so magical about the number 50% that it alone can flush out pyramid schemes? even say, 25% retail would be enough to show a product is retailable?
IMO, people join MLM opportunities because they may have some financial challenges/hopes. the idea of earning some money without high investment/risk is attractive.
chances are, these people will pitch the MLM product to family/friends/colleagues/neighbors who are [more or less] in the same income strata as them, and have financial challenges/hopes of their own.
chances are, that the people who are pitched the product, would be interested not only in buying the product, but also in the financial opportunity attached to it [hey! even i can do that!]. people are naturally curious and hate to miss an opportunity. most of these people will try the product, and work the opportunity halfheartedly for a bit, fail, and then dump it.
the idea should be to make the MLM opportunity as safe as possible for these people. If they buy only small amounts of products [no inventory loading] which they can either retail, or consume or return to the company if they choose to do so, the ‘harm’ is minimal to these ‘instant entrepreneurs’.
in this environment insisting that 50% people swear off the opportunity and swear to buy the product alone, is impractical. IMO if people are given the choice of buying a product alone or buying a product with an income opportunity attached to it, then the majority will choose the latter, because that’s human nature.
i think instead of focusing on impractical strict >50% retail requirements, the focus should be on minimizing harm to participants.
besides, checking whether an MLM has >50% retail can be a herculean task, and people are going to lie about their retail and fudge their reports. it is much easier to check whether a product has some reasonable retail, whether there is inventory loading, or false income claims etc.
50% is a definitive number, it’s even affiliate revenue and retail sales.
No it wouldn’t, because 75% of the product was being purchased by affiliates. You might get away with that in a smaller MLM company but in the larger ones that scale would strongly suggest affiliate purchases were tied to the comp plan.
You prove that by having retail qualifiers, which is what the FTC had Vemma and Herbalife enact. Retail qualifiers bring retail volume to at least 50% of company-wide revenue, so there you are.
The only people who have a problem with this are those trying to make excuses for product-based pyramid schemes.
well then, it seems the FTC in 2004 and the incoming FTC [probably] are both pyramid scheme supporters.
orrrr we could say that approximately half the people believe in the amway/2004 advisory view of MLM, and the other half prefers the omnitrition view of MLM.
this calls for a vote, and the majority view should have it’s way. an MLM specific law is the need of the hour, so that the FTC can regulate with some continuity, instead of obeying me half the time and you half the time! 🙂
Like the scams they regulate, regulators also evolve over time. How else can they be expected to keep up.
Take a look at the current explosion of MLM cryptocurrency scams. Sooner or later regulators will adapt but you can hardly look back and say “in 2016 regulators supported Ponzi schemes”. Yet that’s exactly what you’re claiming with the irrelevant 2004 advisory.
I don’t need a vote to reaffirm that MLM companies with little to no retail sales activity are pyramid schemes.
Common-sense has always and will continue to suffice.
if you check recent US politcal history, the republicans and democrats seem to take eight year “turns’ to lead the country.
the omnitrition observation which was picked up by the FTC and held up as a ‘standard’ for the MLM industry, happened in the late 1990’s under the democrat clinton administration.
in the early 2000’s under the republican administration of george bush, the FTC adopted the 2004 advisory view of MLM.
in the recent years, again under a democrat administration of obama, the FTC has picked up omnitrition to run with as the MLM standard.
now we will have trump setting up his republican FTC again, and i leave you to guess whether this new FTC will prefer omnitrition or the 2004 advisory.
as the republicans and democrats seem to take turns to run the US for 8 year periods, i’m making a [broad] assumption that approximately half of US votes republican and half votes democrats.
so, one can broadly assume that approximately half of the US [through their elected representatives] supports the 2004 advisory view, and the other half supports the omnitrition view of MLM.
it’s not an exact method, but a reasonable conclusion.
Companies will now have to differentiate themselves from the majority of established product retailers online. They’ll be competing not only on value but on price also.
Guess, you mean.
Unless you can provide some evidence of what percentage of US voters included the current stance of the FTC in deciding their vote, you’re merely guessing.
It’s a “conclusion” but definitely not reasonable by any stretch of the imagination.
A judge doesn’t ask the drunk driver if he was “reasonably” sober before causing the crash.
Like Oz said, 50% is definitive and fair, splitting the difference.
I feel your view of MLM is a little rosy and at surface level. Dig deeper.
Statistics show that roughly 99% of participants lose money, and many lose relationships, homes, gain debt, and some thier lives. All harmful.
I’m also getting a sense that you view MLM as giving hope to people. I understand your intentions. But, I’d argue that it is cruel to give false hope (99% failure rate) to someone (the poor) especially when one aims to make money off them. Coupled with, it usually requires them to spend money on products they could buy cheaper and might not need. Very cruel.
when people vote in the democrats/republicans they give their consent to that particular view of regulation, which includes regulation of MLM and pyramid schemes.
of course there will be republicans who like the democrat way of regulating MLM and the converse, but broadly speaking when people vote republican, they consent to their view on MLM.
if you want exact percentages you can make a quick dash across the US and make a head count.
50% may be definitive but IMO, it is not fair or practical.
this is due to the nature of MLM which is a unique combination of a product and an income opportunity.
when people buy an MLM product, they will be naturally inclined to keep the Option of earning from the product Open. asking people to make a strict choice of being purely a retail customer, when being a distributor involves only a small refundable fee is unfair.
some people will be absolutely sure they don’t want to be a distributor, but IMO the majority will be undecided and mostly wanting to ‘try it out’.
if becoming a distributor involves thousands of dollars as investment, i can understand that people will give the idea some deep thought and make a decision to be purely a retail customer and not a distributor.
if becoming a distributor involves a small refundable fee of 50/100 dollars, people are going to want to have a stab at it.
hence, expecting 50% of people to make a strict choice of being a retail customer is impractical.
it is more important to make the MLM environment safe for people who join up without much thought.
What place does “broadly speaking” have in the discussion ???
If neither party has announced a specific policy on reclassifying pyramid schemes as legitimate MLM, or even relaxing the regulation of the MLM industry specifically, your hypothetical outcome is completely invalid.
i see a correlation between which party is in power, and the FTC’s attitude to MLM.
the 2004 advisory which came AFTER the omnitrition observation of the late 1990’s, did not say that retail has to trump internal consumption. it said that the Amount of internal consumption [conversely, the Amount of retail] was not the basis on which the FTC differentiated between MLM and pyramid schemes.
the current FTC has been pushing the omnitrition idea that retail has to trump internal consumption.
we will have to see what track the new FTC takes and whether my hypothesis is correct.
i did not say either party would reclassify pyramid schemes as legitimate MLM. i say they have different views on MLM. as there is no law defining MLM, you cannot call any one view legitimate. that is not a fact but merely your opinion.
My point is, remove the hypothetical scenarios, speculation and invalid conclusions from your posts, and we’re left with nothing of substance.
Which MLM has been unfairly targeted for being at or near your mythical “50%” rule ???
So, you’ve carefully eliminated any other reasons to explain this apparent “correlation” have you ???
You know, things like a change of personnel, time, natural evolution of the FTC policies in response to smart-ass fraudsters, growth in MLM participant numbers, an increase in the number of consumer complaints and the growth of blatantly fraudulent pseudo MLMs.
What you call a unique combination, expert MLM researchers call an inherent flaw.
How you read about why?
Not many people will purchase MLM products without the lure of income and the dreams attached. They haven’t in the past, and they won’t now. MLM “go boom” too?
my hypothesis and speculation about the FTC’s attitude being correlated to the party is power, is not a unique discovery i’ve made by myself.
there’s plenty of discussion in the media about how trump’s new republican SEC and FTC will approach regulatory issues across various industries. MLM is also one industry which will see a regulatory shift.
if a republican FTC is expected to behave differently from a democrat FTC on other business related issues, why will MLM not see a shift too? i am speculating of course, but it’s not wild baseless speculation.
at the time the 2004 advisory was written the FTC had 3 republican commissioners, 1 democrat and 1 independent commissioner.
a the time of the herbalife settlement there were 2 democrat and 1 republican commissioner.
the anti pyramid bill HR 5320 which is very [very!] MLM friendly, has 22 republican sponsors and 8 democrat sponsors so far.
these instances^^ definitely point out that republicans and democrats have differing viewpoints on MLM, with the republicans being more sympathetic, and so their FTC’s can also be expected to reflect their stance. this is not wild speculation.
let’s wait and see.
why are you calling it mythical? the current FTC chairperson edith ramirez has asked the entire MLM industry to follow the >50% rules in line with the vemma and herbalife settlements.
MLM attorney kevin thompson has also commented on the upcoming change in guard at the FTC:
i read that they [expert MLM researchers] have their opinions and are totally allowed to have them.
most countries in the world allow and regulate MLM, and it wouldn’t be so, if they found MLM inherently flawed. pyramid/ponzi schemes with zero retail, and hence valueless products, are inherently flawed and are not allowed anywhere.
It’s “mythical” because Ms Ramirez used the word “primarily” and not “above 50%” and you have extrapolated that to mean the FTC is demanding at least 51% retail sales and then further claimed such a limit is either unfair and unreasonable and / or should have a specific percentage enshrined in law.
“IF” and notice I said “IF” an MLM company had been prosecuted, or even put on notice for sailing too close to a 50% figure, you might, at a stretch, have a case, but that simply hasn’t happened
Just as with Securities laws, pyramid scheme laws are purposely left “sufficiently broad” to give the MLM industry sufficient room to move, in both directions.
hmm let’s see. chairperson edith ramirez points to the >50% retail requirements of vemma and herbalife and says – do this or be gutted! this is the new law!
then she also says – ‘primarily’.
i wonder what she meant? did she mean 25%, you think??
firstly, there is no pyramid scheme Law in the US. there is a ‘koscot test’ courts use and ‘deceptive practices’ that the FTC uses.
secondly, what is this “sufficiently broad” mythical river you talk about?
vemma with 22% retail was out of this parameter. herbalife with 39% retail [that too in a buying club model!] was out of this parameter.
a more hardline FTC could tomorrow find 45% to be too less for this ‘sufficiently broad’ parameter.
who can you trust with the definition of this mythical ‘sufficient broadness’ and who will draw the line?
IMO, stop the numbers game. if the product is fair priced and is selling at retail, leave the damn thing alone. check for other problems like inventory loading, whether the MLM is honoring buy back offers, and make companies correct that.
making MLM difficult to succeed, will just make MLM run out of the US, and citizens will turn to pyramid/ponzi schemes instead. and that’s much worse and will cause greater losses. the world does not run on precise correctness, but needs a healthy dose of practicality to move along.
What is your ‘opinion’ as to why statistics, mathematical numbers, show that 99% fail to thrive in MLM?
Smoking is legal too. That doesn’t mean it’s good for you!
FTC chair Edith Ramirez to step down, leaving three empty seats:
loss is high in ponzi/pyramid schemes.
the type of MLM i would like to see is where it is not mandatory to purchase any product, and any purchased product can be returned within a [generous] period of time.
this will greatly reduce any loss, and if people put in an effort they can earn some money too, at retail or by recruiting.
MLM cannot guarantee anyone’s success, and should not be allowed to advertise themselves as such ie, no misleading income claims.
we should ensure people don’t lose money, and then leave them to do what they want with the opportunity.
the bottomline is that smoking is legal, and people make their individual choices to smoke or not, and that is exactly how it should be. why run around being everybody’s mommy?
All that you stated would be nice. But again, you don’t go into detail and make a very broad statement similar to, “Open up a shop, make money.” It’s not that simple.
Take earning money at retail as one example: (in brief)
MLM is “sold” as business owner – not commissioned salesperson
Product price is high to compensate multi-levels – more difficult to retail
Product gets sold at cost – pennies commission on BV only
Focus recruitment – MLM by default – product could be anything and founders know it
The difference. In MLM land, people don’t know ‘smoking’ has a 99% sick rate, people are told of residual benefits of ‘smoking’, they are lead to believe ‘smoking’ will enrich their lives, people hang out at malls approaching people to smoke etc..
Smoking is portrayed as cool and something it is not by skilled salesmen/tactics. (like in the 50s)
People are not well enough informed about MLM to make their own decision.
an MLM distributor is as much a ‘business owner’ as a distributor of any other retail product, ie both work independently and are paid on the basis of their sales. a commissioned salesperson on the other hand, is an employee who mostly gets a base salary and then commissions on sales.
neither in amway, nor in the recent herbalife standoff, was the price of the product found to be high. so you cannot generalize by making sweeping statements about MLM product prices being high.
like i said in comment #35 : MLM cannot guarantee anyone’s success, and should not be allowed to advertise themselves as such ie, no misleading income claims.
this^^ will cover any misrepresentations about earnings, residual or otherwise.
i don’t believe an MLM with a retailable, returnable product will have a 99% failure rate. not making money in MLM is not failure, losing money is failure, in my book. if a participant finds that they cannot retail or recruit, they can return the product and get off the bus. where’s the failure? it didn’t work for them, and that’s it.
we cannot stop people from hanging out at malls or from approaching each other, whether it is to ask for the time of the day, or to sell something. [protip: if people approach you at the mall with a pamphlet about this or that, say ‘No, Thankyou’ and move on. if they persist give them a hard stare. it works]
so inform them! define MLM with a law and enforce it.
if MLM are not allowed to make false income claims and are forced to have buyback, even people who are not well informed about MLM will be well protected. what more do you want to do? ban MLM?
More regulations, more government agencies, more civil servants, more lawyers.
That’ll stop people trying to game the system
errr, so your’e saying having laws/regulations is waste of time, effort and money as people will try to game the system anyway?
let’s abolish all laws/regulations and have no regulations, no govt agencies, no civil servants, no lawyers. let’s go back to the jungles and hunt game! at least we wont be trying to game legal systems and upsetting littleroundman!! YAY!!
Err, no, I’m not.
The current system works well enough to pass the “reasonable person” test.
is this your ‘opinion’ or have you conducted a referendum across the US?
in your post #38 you did not express that an MLM law was not required as the current system works well enough. you were complaining about more regulations and more what not.
the FTC cannot make law, and caselaw is not sufficient because of very few MLM litigation cases.
so, a law voted in by parliament sounds like a good idea to me. this is my opinion and you are welcome to yours.
in oct 2016, the [now outgoing] FTC chairperson edith ramirez had addressed the Direct Selling Association’ s Business & Policy Conference, and had said some of the same things which are included in the FTC blog post this article covers.
at that time, she had indicated that the FTC would soon be providing ‘guidance’ to the MLM industry.
fearing that a combative FTC would issue guidance without hearing the DSA’s viewpoint, joseph mariano [DSA president] wrote to her on dec 9, 2016, asking her to withhold any formal guidance, pending a meeting with the association and involving public participation:
not to be outdone, edith ramirez decided to fire one last salvo before stepping down from the FTC. basically, she wrote via a letter to the DSA dated jan 19, 2017, that the industry should use the FTC’s settlements, litigated cases and blog posts as a guidance, though she clarified it was not binding.
i fully understand that caselaw as established by FTC litigation can be used as a guidance.
but settlements and blogs? these are not admissible in court, in the manner that the FTC staff advisory of 2004 was! the ninth circuit appeals court had accepted the FTC advisory 2004 as a legal statement of the commissions stand on self consumption, and not any previous settlement or an FTC blog post.
does this letter by ramirez to the DSA have the weight of an FTC advisory [like the 2004 one?]? i think not, but an MLM attorney would be better placed to answer this.
as far as i can see, ramirez has left/is leaving, without issuing any formal binding guidance to the MLM industry, which will now try one or both of two things : get a new formal staff advisory ‘guidance’ from the FTC and/or try to get HR 5320 passed in parliament.
according to an article in natural products insider, attorney douglas brooks ‘a lawyer in the greater Boston area who has studied the MLM industry for a quarter century and represented victims of deceptive MLM practices’, does not think the FTC has provided any firm guidance to the MLM industry:
edith ramirez has been replaced by current FTC commissioner Maureen K. Ohlhausen, who has been appointed by trump as the ‘acting’ chairperson of the FTC. ohlhausen is a republican appointed to the FTC during obama’s presidency.
ohlhausen signed off on both the vemma and herbalife settlements, what attitude her new FTC adopts vis a vis the MLM industry under her leadership, remains to be seen.
the name of the new chairperson of the FTC, being proposed by the trump administration, is Utah Attorney General Sean Reyes.
AG sean reyes is to be the special guest speaker at the direct selling edge conference to be held on may 18th, 2017. he is a supporter of the MLM industry:
utah is the mecca of MLM in the US, and is considered to have an MLM friendly environment.
i don’t think the MLM industry has Ever had it so good, political administration wise, with donald trump, carl icahn, betsy devos on their side, and now a proposal for sean reyes as chairperson of the FTC.
if i were to guess, i think this MLM power group will try to get MLM laws which are similar to the guidelines approved in india recently.
in india, it was amway which was at the forefront of negotiations with the govt, and in the US too, betsy devos is in a position to pull the strings.
as india’s MLM guidelines are new, i suspect the govt would have tried to establish guidelines which would be in tune with expected US guidelines, so as to allow proper growth of this industry.
clashing MLM laws across countries make growth difficult considering that MLM is borderless due to technology. china has clashing laws but then it is not an open market democracy.