Commissioners outline an aggressive new strategy with direct sellers in their sights.
The Federal Trade Commission is in the midst of a sea change—a change in leadership, a change in ideology and a change in philosophy. Signaling the most significant course correction of the past 40 years, the Commission is reversing a self-imposed disarmament from the 1980s deregulation era while at the same time asking Congress to strengthen its powers under the FTC Act. This revitalized Commission has also released a target list, and direct selling is on it.
Below is a timeline of statements from the Commissioners and officials of the FTC that illustrates the rationale and methods by which it is pursuing a large-scale, and potentially multi-pronged, crackdown on the direct selling channel as a whole.
October 22, 2020
In a letter signed by all five FTC Commissioners to the Chairman and Ranking Members of both House and Senate Commerce Committees, the Commissioners asked Congress to enshrine in law the FTC’s ability to:
- Seek monetary relief under Section 13(b) of the FTC Act
- Seek injunctions against companies for previous actions that are no longer ongoing
“ …we urge Congress to take quick action to amend Section 13(b) to make clear that the Commission can bring actions in federal court under Section 13(b) even if conduct is no longer ongoing or impending when the suit is filed and can obtain monetary relief, including restitution and disgorgement, if successful. “
Signed by former Commissioner Joseph J. Simmons and current Commissioners Rohit Chopra, Noah Phillips, Rebecca Kelly Slaughter, and Christine Wilson.
October 29, 2020
FTC Commissioner Rohit Chopra and his former Attorney Advisor, Samuel A.A. Levine (now Acting Director of the Bureau of Consumer Protection), wrote a widely quoted article in the University of Pennsylvania Law Review titled, “The Case for Resurrecting the FTC Act’s Penalty Offense Authority.” In this article, Chopra and Levine specifically target direct sellers as one of five areas where the FTC’s Penalty Offense Authority should be deployed.
“There are numerous final, litigated orders in which the Commission has determined that deceptive practices by multilevel-marketing companies are unlawful under Section 5. If these orders were served on major multilevel marketers today, they would be on notice that they face substantial civil penalties for engaging in any of the prohibited conduct.”
“The agency can shed its self-inflicted paralysis by using the dormant powers granted by Congress. Regardless of how the Supreme Court rules, the Commission must close the chapter on its overreliance on Section 13(b), and deploy a broader set of tools to meet its mission. By deploying these tools, the Commission can reemerge as a vigorous watchdog, detecting and deterring systemic harm instead of playing whack-a-mole against small scams.”
February 10, 2021
Samuel A.A. Levine, co-author of “The Case for Resurrecting the FTC Act’s Penalty Offense Authority,” joined a conference call with the Capitol Forum to discuss his article. The transcript of this call was posted to the FTC.gov website. In this discussion, Levine emphasizes his desire to see the Commission initiate a widespread use of civil penalties to target the income claims of non-pyramid direct sellers rather than focusing solely on anti-pyramid scheme actions.
“So Commissioner Chopra and I proposed with respect to multilevel marketers that are operating as illegal pyramids or multilevel marketers generally is to target some of the worst practices in the industry around misleading prospective recruits about how much they expect to earn. “The FTC has repeatedly found in administrative orders that it’s a deceptive practice to promise someone, “join my MLM and you’re going to be able to retire by the end of the year.” Yet, we see practices like this year after year after year, especially during economic downturns like we’re going through right now. “What we argue is that we should protect consumers more proactively and earlier by targeting those income misrepresentations and ensuring companies have to pay a real penalty if they continue to engage in them. If we want to bring a full-blown litigation about whether an MLM constitutes a pyramid scheme, we can do so. But what the Penalty Offense Authority allows us to do is move quickly to shut down some of the most pernicious practices in this industry.”
March 25, 2021
Acting FTC Chairwoman Rebecca Kelly Slaughter announced the creation of a new rulemaking group in the Office of General Counsel tasked with increasing the Commission’s rulemaking capacity and agenda for unfair or deceptive practices and unfair methods of competition. Chairwoman Slaughter’s announcement officially began a new era for the FTC, as it prepared to strengthen and redeploy a weapon it has not used in decades.
“I believe that we can and must use our rulemaking authority to deliver effective deterrence for the novel harms of the digital economy and persistent old scams alike. Our rulemaking power under section 18 has gotten a bad reputation for being too hard to use, but long standing FTC rules, such as the Funeral Rule and the Eyeglass Rule, have provided significant benefits to consumers.
“These changes show the FTC is turning the page on decades of self-imposed red-tape and returning to the participatory and dynamic process for issuing Section 18 rules that Congress envisioned.”
April 27, 2021
In her opening statement to the U.S. House Subcommittee on Consumer Protection and Commerce meeting, titled “The Urgent Need to Fix Section 13(b) Of the FTC Act,” FTC Acting Chairwoman Rebecca Kelly Slaughter confirmed the Commission’s intention to use all available weapons at its disposal against its targets after the U.S. Supreme Court removed monetary relief under 13(b) from the FTC’s arsenal. In her opening statement to the U.S. House Subcommittee on Consumer Protection and Commerce meeting, titled “The Urgent Need to Fix Section 13(b) Of the FTC Act,” FTC Acting Chairwoman Rebecca Kelly Slaughter confirmed the Commission’s intention to use all available weapons at its disposal against its targets after the U.S. Supreme Court removed monetary relief under 13(b) from the FTC’s arsenal.
“Finally, a word about the FTC’s other authorities: We will use them all—administrative proceedings, penalty offense authority, more rule-violation cases, more rulemaking, more civil penalty cases where we have specific statutory authority. But, without Congressional action, none of these options will come close to protecting consumers and incentivizing compliance as much as our lost 13(b) authority. I hope you will move swiftly to restore it.”
April 30, 2021
FTC Commissioner Noah Joshua Phillips was the keynote speaker for a first-of-its-kind, anti-MLM conference hosted by The College of New Jersey. The two-day virtual conference included former and current members of the FTC, international consumer protection governmental representatives, U.S. state Attorneys General representatives, consumer advocates as well as anti-MLM lawyers, journalists, and bloggers.
While Phillips, one of two Republicans now in the minority on the Commission, was careful to distinguish between pyramid schemes and legitimate direct selling companies, he emphasized that going after direct selling companies for the earnings claim violations of their distributors would be a top priority.
“As you can see, the FTC is fully engaged in this area and is determined to protect hard-working consumers from losing money to illegal pyramid schemes or other business opportunities that make deceptive earnings claims. This is a top enforcement priority for me, and I hope the agency.”
June 14, 2021
In an official statement that threatens virtually every direct selling business plan, FTC Commissioner Rohit Chopra confirmed his intentions to push for a reversal to the direct selling exemption from the Business Opportunity Rule when this Rule is reviewed later in the year.
“There is no dispute that lying about earnings claims and other related practices is unlawful. By formally codifying these prohibitions into rules like the Business Opportunity Rule, the Commission can seek restitution and penalties against multilevel marketers, gig economy platforms, and others who cheat workers and entrepreneurs through false earnings claims, without imposing any new obligations on honest businesses.
“ There is no dispute that lying about earnings claims and other related practices is unlawful. By formally codifying these prohibitions into rules like the Business Opportunity Rule, the Commission can seek restitution and penalties against multilevel marketers, gig economy
platforms, and others who cheat workers and entrepreneurs through false earnings claims, without imposing any new obligations on honest businesses.”
July 9, 2021
Less than a month after being confirmed as the FTC’s new Chairwoman, Lina Khan led a 3-2 party-line vote to rescind certain Rules of Practice used in Section 18 rulemaking, rules that the Commission had imposed on itself in the 1980s to encumber the process to the point of functional suspension. This move clears the way for the creation of new rules
for the Commission to target entire industries and business sectors, including the direct selling channel.
“Self-imposed red tape has only created uncertainty and delay for the important business of this
Commission. The imposition of those requirements decades ago was the FTC’s signal to the business world that the brief era of Section 18 rulemaking had come to an end. With the adoption of these streamlined procedures we wish to signal a change in Commission practice and ambition: that we intend to fulfil our mission to protect against unfair and deceptive practices in commerce and provide consumers and businesses with due process, clarity, and transparency while crafting the rules to do so.”
July 28, 2021
FTC Chairwoman Lina Khan appears before the U.S. House Subcommittee on Consumer Protection and Commerce to urge Congress to pass legislation restoring monetary relief powers to Section 13(b) of the FTC Act.
“I am committed to using the full range of FTC’s tools to crack down on unlawful conduct. But restoring our full Section 13(b) authority is critical, and I am grateful that the full House has already acted on Congressman Cárdenas’s bill to rearm the Commission against these growing threats.”