The FTC is seeking public comment on proposed changes to the Business Opportunity Rule, as well as a newly proposed Earnings Claim Rule.

While deceptive income claims are already illegal as per the FTC Act, the FTC states the proposed changes

would allow the FTC to seek strong relief – including money back for consumers and civil penalties – from covered companies making deceptive claims.

Under the existing Business Opportunity Rule (BOR);

Business opportunity sellers [are required] to give prospective buyers specific information to help them evaluate a business opportunity, thus ensuring that the prospective purchasers have the information they need in order to assess the risks of buying a work-at-home program or any other business opportunity.

The BOR was enacted in March 2012 and notably exempts MLM companies. This will remain so under the proposed changes.

The FTC’s proposed BOR changes would expand the scope of the rule to “cover money-making opportunities, such as business coaching and investment opportunities.”

The newly proposed Earnings Claim Rule specifically targets the MLM industry.

In addition to the Business Opportunity Rule changes, the FTC is also looking to introduce a new Earnings Claim Rule.

The Earnings Claim Rule would explicitly prohibit MLM companies from (quoted verbatim from the FTC):

  • making misleading earnings claims;
  • making earnings claims without having substantiation (or a reasonable basis) for those claims;
  • misrepresenting the opportunity to become an MLM participant as an employment opportunity; and
  • making any misrepresentation or unsubstantiated claim to prevent consumers from benefiting from truthful information about earnings.

MLM companies are currently exempt but the FTC is seeking comment on the exemption;

The proposed revisions would exempt MLMs from the definition of money-making opportunity.

Should this proposed exemption be altered in any way? Why or why not, and if so, how? Provide all evidence that supports your answer. Provide proposed rule text for any changes you propose.

Here are a few thoughts from my end, within the context of MLM regulation;

The proposed BOR changes don’t really affect the MLM industry. The cited “money-making opportunities” targeted are non-MLM.

While this is a good move for consumers, within the context of the MLM industry there’s no change.

The proposed Earnings Claim Rule, while welcomed, does leave me wondering why the FTC didn’t just propose applying BOR to the MLM industry.

The only thing I can think of is the FTC isn’t confident such a proposal would pass, hence an entirely new rule.

I don’t really agree with that but if it essentially applies the BOR to MLM companies, albeit in a roundabout way, that’s a win for active regulation.

Another win for consumers with the Earnings Claim Rule is strengthening of the FTC’s ability to clawback ill-gotten gains from bad actors.

Up until recently this was a pretty-straight forward process. The FTC filed for a TRO and injunction, funds were frozen, assets were seized etc. etc.

In 2021 payday loan scammers won a case against the FTC in the Supreme Court. The legal framework behind the ruling might be justified but the end result has cost consumers billions.

Having new clear framework the FTC can use to target monetary gains would go some way to restoring the status quo. That is effective regulation of non-investment and trading MLM companies. Those would remain under the jurisdiction of the SEC and/or CFTC.

Once posted by the Federal Register, the public has 60 days to make a comment on either the proposed BOR changes or the new Earnings Claim Rule.

Note that there is no timeline for what happens after the public comment window has closed. The FTC will consider public comment received and go from there.