A stalled economy and push for new rules by the FTC presented challenges to direct sellers in 2022
By: SSN Staff
US Chamber Leads Pushback Against ‘Rogue’ FTC
The U.S. Chamber of Commerce sent three letters to FTC Chairwoman Lina Khan on Nov. 19, 2021, objecting to recent actions by the Commission that the Chamber considers to be abuses of power. The Chamber’s letters address three topics reflecting some of the actions and decisions made by the Commission since the 2020 election cycle—“zombie” votes, undue political influence, and the FTC’s use of the Penalty Offense Authority.
Direct Sellers Confront Pandemic Fatigue
As the COVID-19 pandemic passed the two-year mark, the field’s giddiness from the channel’s record growth had given way to the emotional and mental weight of coping with ongoing disruptions from the Omicron variant’s ubiquitous surge. And with this surge came more changes and shifts in consumer and distributor patterns. Executive leadership teams in the channel met this challenge with a renewed focus on connection and communication with their sales teams to recharge their energy and positivity. Fresh perspectives and tools also helped to carry the message of product and sales strategy innovation to consumers.
FTC Takes Action Against COVID-19 Claims with Customized Powers
In the wake of the Omicron variant’s global surge, the FTC publicized a series of cease and desist demands it sent to 25 businesses. Granted under the authority of the COVID-19 Consumer Protection Act, the list included four direct sellers targeted in November and December 2021 for engaging in a deceptive act or practice associated with the treatment or cure of COVID-19. Unlike standard Section 5 enforcement by the FTC, the COVID-19 Consumer Protection Act allows first-time violators to be targeted with civil penalties.
FTC Initiates Action on New Earnings Claims Rule
Eleven months after announcing a new rulemaking group to reinvigorate and streamline its Section 18 powers, the FTC conducted a virtual open meeting to announce, accept public comments on, and vote on the publication of its Advanced Notice of Proposed Rulemaking (ANPR) Concerning Deceptive Earnings Claims in the Federal Register. Chairwoman Lina Khan listed the types of businesses that would be held accountable under the proposed new rule, designating “multilevel marketers…for-profit schools…and ‘gig’ platforms” as the targeted business channels.
Overcoming Supply Chain Troubles in 2022
Forecasting and planning for supply chain distributions isn’t anything new for logisticians, including those working for or servicing the direct selling channel. As COVID-19 forced many companies to shut down temporarily, manufacturers and shipping companies assumed that demand would experience a sharp drop. However, the pandemic merely shifted the demand. Instead of dining out and traveling, consumers increased their online shopping. Solid supplier relationships and healthy operations kept direct sellers afloat amid these continued supply chain disruptions.
FTC Seeks Public Input on New Earnings Claims Rule
The FTC published its Advanced Notice of Proposed Rulemaking (ANPR) as well as a request for public comment concerning false, misleading and unsubstantiated earnings claims to the Federal Register on March 11. The ANPR provided insight into several areas where the Commission is considering “regulatory alternatives” for businesses offering money-making opportunities, including direct sellers.
Independent Contractor Rule Reinstated
On March 4, the U.S. District Court for the Eastern District of Texas ruled unlawful the Department of Labor’s (DOL) 2021 cancellation of independent contractor regulations under the Fair Labor Standards Act (FLSA)—also called the Independent Contractor (IC) Rule. The court vacated both the delay and the withdrawal of the Rule and held that the Independent Contractor Rule was effected on March 8, 2021, and remains in effect at present.
May – June Headlines
Alvaro Bedoya Confirmed as FTC Commissioner
After months of Commerce Committee gridlock and COVID-19 delays, Alvaro M. Bedoya was confirmed as Federal Trade Commissioner on May 11 by the U.S. Senate. Vice President Kamala Harris broke the 50-50 party-line vote to secure Bedoya as Rohit Chopra’s replacement to the five-person Commissioner’s table, which gave the Democrats a 3-2 majority vote.
Senate Commerce Committee Introduces Bill to Restore FTC’s 13(b) Authority
Senate Commerce Committee Chair Maria Cantwell (D-Washington) introduced legislation to reconstitute the FTC’s ability to return money to consumers under Section 13(b) of the FTC Act by restoring the Commission’s monetary authority to seek redress on behalf of wronged consumers. This authority was unanimously nullified by the Supreme Court in the AMG Capital Management v. FTC decision handed down in April 2021.
FTC Closes in on Updates to Endorsement Guidelines
In its continued effort to crack down on false and misleading advertising, the Federal Trade Commission (FTC) once again sought public comment on whether to make changes to its Endorsement Guides. This comment period came just two years after the previous call for public input. The Endorsement Guides provide guidance to businesses and others to ensure that advertising using endorsements or testimonials is truthful. The Guides state, among other things, that advertisers need to be up front with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product.
Direct Selling Critics Meet for 2nd Virtual Anti-MLM Conference
On June 11–12, critics of the direct selling channel gathered for a second year in a row for their virtual conference—Multilevel Marketing: The Consumer Protection Challenge. Hosted by The College of New Jersey School of Business and organized by William Keep, a professor of marketing and former dean of business at the college, the conference saw the return of several long-time detractors of multilevel marketing as well as first-time appearances by speakers from a wide range of professions and connections to direct selling. Once again, the conference excluded direct selling advocates, industry partners and the Direct Selling Association (DSA).
FTC Handed Major Courtroom Setback in Anti-Pyramid Case
The FTC took swift action against Financial Education Services Inc., a Michigan-based direct selling company that offers credit repair services, when it issued a motion to shut it down and freeze all assets. Just over a month after the closure, a judge reversed this order allowing the company to continue operating under the observation of a monitor. After hearing oral arguments in the U.S. District Court for the Eastern District of Michigan, U.S. District Judge Bernard A. Friedman issued an order on June 30 denying a motion for preliminary injunction, vacating the temporary restraining order he issued on May 24 to the company and some of its executives.
EU Direct Sellers Adjust as Major Consumer Protection Directive Is Implemented
The direct selling companies of the European Union (EU) prepared for adjustments and adaption to new rules as the implementation of a major consumer protection directive coincided with the significant disruptions resulting from the economic downturn, the war in Ukraine, and continued fallout from the COVID-19 pandemic. As the EU’s member states continued the process of transposing, adopting and applying the new directives from 2020’s landmark Enforcement and Modernization Directive, known as the Omnibus Directive, the European Direct Selling Association (SELDIA) was busy working with member organizations and government representatives to ensure a smooth transition and to provide guidance for direct sellers.
Republican FTC Commissioner Noah Phillips to Resign
Noah Phillips, a Republican commissioner on the Federal Trade Commission (FTC), announced his plans to step down in the fall. With Phillips as one of just two Republicans sitting on the commission, the timing of his leaving before midterm elections could swell the existing division between political parties as they battle over his replacement. Still, precedent would likely still see a Republican in his seat.
FTC Turns Attention to Dark Patterns and Gig Worker Mistreatment
On Sept. 15, the FTC released two reports: the first, a staff report summarizing an April 2021 workshop on digital “dark patterns,” and the second, a policy statement on gig work enforcement. Coming on the heels of the release of the FTC’s Strategic Plan for Fiscal Years 2022-2026, which included the strategic priorities of protecting the public from unfair or deceptive acts as well as anticompetitive practices in the marketplace, the September pronouncements provided a clear view into the Commission’s goals. It showed a push for increased scrutiny of online sales and marketing practices as well as those companies that utilize independent contractors—putting direct sellers, among other marketers, in the crosshairs once again.
Direct Sellers Make Major Moves in 2022
New business models emerged as a result of regulatory pressures and shifting customer demands, leading many direct sellers to explore other direct-to-consumer channels to survive in the market. Inflationary trends, ongoing pandemic effects, the war in Ukraine, and a slew of warning letters and actions doled out by the Federal Trade Commission (FTC) aimed at direct selling companies over the last few years—all are commonly noted by company executives as leading factors in their decisions to downsize or restructure. Declining sales are forcing many direct sellers to consider redefining their businesses and trimming the fat in order to operate on leaner budgets, while others have filed for bankruptcy.
Bankruptcy and Asset Sale of NewAge Inc. Fraught with Allegations of Deception, Extortion, and Fraud
NewAge, a Utah-based health and wellness direct seller, has endured a turbulent year as bankruptcy filings, lawsuits and regulatory scrutiny have plagued the company over the past several months. The company was recently sold to a “stalking horse” bidder for $28 million. The U.S. bankruptcy court approved the sale in late September 2022. However, just days after taking ownership, the new owner of NewAge hit former executives of the company with a lawsuit outlining a myriad of grievances.
FTC Sets Stage for New Rule on Fake Reviews and Deceptive Endorsements
On Oct. 20, the FTC released an Advanced Notice of Proposed Rulemaking (ANPR) to seek public comment on the benefits of a new rule to combat the harms from deceptive or unfair product reviews and endorsements. The ANPR represented the Commission’s first official step in evaluating the need for and the shaping of a new rule.
Link to share this article: https://socialsellingnews.com/link/2022-a-year-in-social-selling-news-5264/