Re: FTC Proposes New Business Opportunity Rule

> Hey MaaMaw,

> Something that might make you happy.

> For Release: April 5, 2006

> FTC Proposes New Business Opportunity Rule

> The Federal Trade Commission is proposing a rule to protect consumers from
> bogus business opportunities and further enhance law enforcement efforts
> in this area. The rule would cover business opportunities commonly touted
> by fraudsters, while minimizing compliance costs for legitimate
> businesses. Currently, the FTC brings law enforcement actions against
> fraudulent business opportunities under two laws, the Franchise Rule and
> the FTC Act. Neither is specifically designed for the unique scams that
> occur frequently with business opportunities.

> The FTC has brought more than 200 enforcement actions against business
> opportunities using the Franchise Rule since it took effect in the 1970s,
> and numerous cases against work-at-home and multilevel marketing companies
> under Section 5 of the FTC Act. Since 1995, the Commission has conducted
> 12 sweeps on business opportunities.

> The proposed rule would eliminate the $500 minimum investment requirement
> from the Franchise Rule, meaning it would apply to all business
> opportunities, even if they have a smaller start-up cost. The proposed
> rule also would eliminate many of the 20 disclosures that are required for
> franchises (trademarks, for example), but do not apply to business
> opportunities. Instead, the proposed rule would require a one-page
> disclosure addressing five items: whether or not sellers make earnings
> claims; a list of any criminal or civil legal actions against the seller
> or its representatives that involve fraud, misrepresentations, securities,
> or deceptive or unfair trade practices; whether the seller has
> cancellation or refund policies and such policies’ terms; the total number
> of purchasers in the past two years and the number of those purchasers
> seeking a refund or to cancel in that time period; and a list of
> references.

> The proposed rule would not require any business opportunity seller to
> make an earnings claim. However, if they did make an earnings claim, they
> would be required to provide additional substantiation in the form of an
> “Earnings Claims Statement.”

> The proposed rule also would prohibit unfair or deceptive practices that
> are common among fraudulent business opportunity sellers, including:

> * misrepresentations about the material terms of the business
> relationship;

> * the use of shills;

> * misrepresentations of endorsements or testimonials;

> * failure to honor territorial protection guarantees; and

> * failure to honor refunds.

> The proposed rule takes into consideration the comments from the Advance
> Notice of Proposed Rulemaking issued by the Commission in 1997. The
> Commission is seeking comment on the proposed rule for 60 days after the
> Notice of Public Rulemaking is published in the Federal Register, followed
> by a 20-day period for rebuttals. The comment period will close on June
> 16, 2006, and the period for rebuttal comments on July 7, 2006. Comments
> should be addressed to the FTC, Office of the Secretary, Room H-135, 600
> Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting
> that any comment filed in paper form be sent by courier or overnight
> service, if possible, because U.S. postal mail in the Washington area and
> at the Commission is subject to delay due to heightened security
> precautions.

> The Commission vote to approve a notice of proposed rulemaking was 5-0.

> The FTC works for the consumer to prevent fraudulent, deceptive, and
> unfair business practices in the marketplace and to provide information to
> help consumers spot, stop, and avoid them. To file a complaint in English
> or Spanish (bilingual counselors are available to take complaints), or to
> get free information on any of 150 consumer topics, call toll-free,
> 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at
> http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet,
> telemarketing, identity theft, and other fraud-related complaints into
> Consumer Sentinel, a secure, online database available to hundreds of
> civil and criminal law enforcement agencies in the U.S. and abroad.

> MEDIA CONTACT:

> Jacqueline Dizdul

> Office of Public Affairs

> 202-326-2472

> STAFF CONTACT:

> Steven Toporoff

> Bureau of Consumer Protection

> 202-326-3135

> (http://www.ftc.gov/opa/2006/04/newnewbizopprule.htm)

> Thanks for listening
> Woody Quiñones

The new proposed FTC Business Opportunity Rule has been discussed since 1995. The 1 page disclosure document will replaced the FTC Franchise Disclosure document, which has been required since 1974 for all distributors who a) require a payment of $500, and b) promise help with locating or the marketing of the distributors products.

The FTC used to regulate the direct selling and mlm industry through their general statutory oversight for misleading advertising.

The FTC believes that the Franchise Disclosure document was too onerous for most distributors to fill out, and that the new Franchise Business Opportunity disclosure document strikes a balance between the costs imposed on the distributors and the consumers right to information.