The Commission seeks public comment in latest ANPR
By: David Bland
On Nov. 17 the Federal Trade Commission (FTC) held an open virtual meeting to explore changes to the Business Opportunity Rule through an Advance Notice of Proposed Rulemaking (ANPR) and to invite public comment on a potential expansion of the Rule to include other types of money-making opportunities not currently covered by the current Rule. The Commission is also seeking the public’s opinion on the effectiveness of the existing Rule as well as whether it should be retained or eliminated.
Implemented in 2011, the Business Opportunity Rule requires sellers of business opportunities to provide prospective participants and buyers with specific information seven days before an agreement can be finalized, including a disclosure statement about the business.
At the time of the rule’s initial proposal in 2006, the potentially grave negative impact of the requirements on the direct selling model led to a forceful pushback from channel advocates, executives and distributors. The Commission ultimately agreed to provide direct sellers with an unofficial exemption made possible by amendments that excluded most direct selling companies.
Chopra’s Anti-MLM Legacy
Former FTC Commissioner Rahit Chopra, who left the Commission in 2021, was the most vocal advocate of withdrawing the MLM exemption to the Business Opportunity Rule. With the subsequent appointment of Chopra’s protege and former advisor, Lina Khan, to chair the Commission, direct sellers are closely watching the current proposals to expand the Rule.
While Chairwoman Khan’s official statement about the ANPR does not mention direct selling or multi-level marketing specifically, she emphasized her belief that the growth of e-commerce and work-from-home opportunities requires the consideration of expanding the rule.
Khan said, “The rule has served the public well over the years. But it’s written in a way that doesn’t necessarily capture some of the business models and practices that have become more widespread in the decade since it was last amended.
“That’s why I’m glad to see that the Commission is seeking public comment on whether to modify the Business Opportunity Rule. This is the first review since the Commission approved amendments to the rule in December 2011. A lot has changed since then.”
Channel Critics Push for Reversal of Direct Selling’s Exemption
While the text of the Business Opportunity Rule ANPR did not specifically address the direct selling model, it did solicit a resubmission of public comments made previously in regards to the ANPR Concerning Deceptive or Unfair Earnings Claims, which expressly included multi-level marketing in the list of business models under regulatory scrutiny.
Furthermore, the Commission’s open meeting on Nov. 17 included live statements from two individuals, including long-time channel foe, attorney Douglas Brooks, who argued that the Business Opportunity Rule exemption for multi-level marketers should be withdrawn.
“Multi-level marketing is still the Wild West. There’s no earthly reason why a legitimate business opportunity should not be required to provide very modest presale disclosures that the business opportunity rule requires and provide a seven-day waiting period before people sign a contract or pay any money,” argued Brooks.
John Villafranco, an attorney and partner at Kelley Drye & Warren LLP who specializes in FTC cases, summarizes the Commission’s indirect mention of direct selling in the current ANPR.
“It is notable that the ANPR states that the Commission may consider comments previously submitted in response to the ANPR on Earnings Claims given that those comments are related and that the FTC has ‘solicited and received comments about the following industries: multi-level marketers, for-profit schools, and gig platforms’ for that ANPR,” says Villafranco. “Beyond that, the ANPR does not otherwise specifically address direct selling companies, for-profit schools, and/or the gig economy, although it remains possible that revisions to the BOR could potentially sweep in practices of those groups.”
Public Comment Sought
To assist the public in submitting opinions and data regarding a potential change to or expansion of the Business Opportunity Rule, the Commission presented 14 questions in the text of the ANPR.
A few of these questions are shown below:
- Is there a continuing need for the Rule?
- What benefits has the Rule provided to consumers, and does the Rule impose any significant costs on consumers?
- What benefits has the Rule provided to businesses, and does the Rule impose any significant costs, including costs of compliance, on businesses and in particular small businesses?
- What modifications, if any, should the Commission make to the Rule to increase its benefits or reduce its costs?
- What potentially unfair or deceptive practices, related to business opportunities and not covered by the current Rule, are occurring in the marketplace?
- Should the Commission broaden the Rule to include business or money-making opportunities not currently covered?
- What modifications, if any, should be made to the Rule to account for current or impending changes in technology or economic conditions?
- Should the Rule be expanded to more broadly include coaching or mentoring programs, other investment opportunities, work-from-home opportunities, e-commerce or other types of business or money-making opportunities not currently covered by the Business Opportunity Rule?
- If the Rule is modified, should the Rule’s disclosure requirements be applied to any of the types of money-making opportunities or business opportunities described above?
ANPR Receives Unanimous Support of Commissioners
Although many recent votes by the Commission have broken along party lines, the decision to publish the Business Opportunity Rule ANPR to the Federal Register was a unanimous 4-0 vote. There is currently a vacancy at the Commissioner’s table, as Republican Commissioner Noah Phillips resigned on Oct. 14.
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