Channel watchdog counsels companies, maintains dialogue with regulators
By: David Bland
For the cases that get to the level of a DSSRC referral, usually there’s an issue of systemic patterns of behavior that are going on—particularly with the claims; it is rarely a one-off post, and, with respect to earnings claims, in particular, it’s often the tip of the iceberg that leads the FTC to a much deeper rabbit hole.
— Peter Marinello, Vice President at BBB National Programs and Director of DSSRC
In 2019, the direct selling channel officially became a self-regulated business sector. Two years on, and the channel is reaping the benefits. Founded by the Direct Selling Association (DSA) and administered by BBB National Programs, the Direct Selling Self-Regulatory Council (DSSRC) is an independent, non-profit organization that is continuing its mission of oversight through monitoring, investigation, and enforcement of the regulations and ethics standards that have been set in place for direct sellers by the Federal Trade Commission (FTC) and the DSA.
The DSSRC recently released its fifth Activity Report, summarizing the actions of the Council from January through July 2021. The report details the general casework initiated during this time, as well as inquiries specific to COVID-19-related claims.
The report also provides updates about the Council’s independent monitoring during these seven months, culminating in an award from the International Council for Advertising Self-Regulation (ICAS). The report includes a summary of its inaugural Direct Selling Summit, which took place in July, followed by an update on the DSSRC’s recent communications with both state and federal government agencies.
2021 DSSRC Actions
The Activity Report states that 82 inquiries were initiated in the seven months since January 2021, with 80 of the inquiries originated from the DSSCR’s independent monitoring of the channel and two inquiries initiated from submissions made to the DSSRC by non-governmental organizations (NGO). In both of the 2021 NGO cases, the organization that initiated the DSSRC referrals was Truth In Advertising (TINA.org).
Of the 82 inquiries, 58 were either closed or in the process of being closed at the time of the report. A company has 15 business days to take action after receiving the DSSRC’s opening letter.
Providing more detail about the 82 inquiries, the report states that the DSSRC flagged 340 specific claims in the opening letters sent to direct selling companies. Of the 340 claims, 184 were product claims and 156 business were opportunity/earnings claims, including earnings, implied earnings, and lavish lifestyle representations.
Only four of the 82 inquiries to date were not addressed or adequately resolved by the targeted company, and they were subsequently referred to the FTC, FDA, and/or State Attorneys Generals. These companies are:
UWell Life Inc. – Referred to the FTC in March 2021 for product performance claims, including coronavirus claims, made by distributors and on the company’s website.
Bulavita – Referred to the FTC in April 2021 for health-related product claims, including COVID-19 claims, as well as income claims made by its field on social media.
Alliance in Motion Global Inc. – Referred to the FTC in July 2021 for health-related product claims, including COVID-19 claims, as well as earnings claims made on the company’s website and by its distributors on social media.
ByDzyne – Referred to the FTC in August 2021 for earnings claims.
Peter Marinello, vice president at BBB National Programs and the director of the DSSRC, tells SSN that he sees some things in common with companies that get to the government referral stage.
“For the cases that get to that level of a DSSRC referral, usually there’s an issue of systemic patterns of behavior that are going on—particularly with the claims; it is rarely a one-off post and with respect to earnings claims, in particular, it’s often the tip of the iceberg that leads the FTC to a much deeper rabbit hole to go down,” Marinello says.
A lack of responsiveness is another common theme when analyzing the companies that get referred to the FTC.
“Self-regulation is really predicated on voluntary cooperation,” Marinello explains. “It’s not going to work unless somebody comes to the table and is willing to work with us. We must have some flexibility in terms of the dialogue that we have with the companies. We want to work with them. Again, education is a key piece. We want to explain to them, ‘Here are the rules of the road. You need a reasonable basis to support certain claims.’ Sometimes that evidentiary threshold gets heightened when we’re dealing with health and safety claims to reliable and competent scientific evidence.”
Marinello observes that it is usually the smaller, less established, or transitional companies that end up on the government referral list.
“I think there are two layers of this industry. The top companies—like Herbalife, Nu Skin and Amway—are very acquainted with the rules. They want to do things the right way. They have had a footprint in this industry for half a century or more. Whereas a lot of the small players, the fly-by-night players, can be problematic because they are not well-acquainted with the general rules of claim substantiation.
“However, I don’t want to paint the smaller guy, the new entry into this space, with a broad brush as the bad guy. A number of the smaller companies are also committed to meaningful compliance and oversight. DSSRC is here to assist all of the companies regardless of the size.”
Most Inquiries Quickly Resolved
The official DSSRC website at bbbprograms.org documents in detail each new inquiry, providing screenshots of problematic claims or other issues and provides updated progress on resolutions via communication with the targeted companies.
The page also provides an opportunity for each company to make a statement once the issues are resolved. These statements provide a window to the constructive nature of this resolution process:
“… is grateful for the work of the DSSRC to help police and clean up the direct sales industry and accepts the recommendations made by the DSSRC in full.”
“… is profoundly grateful to the Direct Selling Self-Regulatory Council (“DSSRC”) and the outstanding DSSRC representatives with whom it has worked. Working with the DSSRC has been a tremendously beneficial process for us. We greatly respect the insights, position and guidance of the DSSRC regarding the matters involved in this inquiry and consider its input to be absolutely invaluable.”
“… appreciates the DSSRC’s mission for improving direct selling industry standards. We take the feedback from the DSSRC seriously and will work diligently to improve operations to improve our compliance.”
Social Media Remains a Fertile Ground for Problematic Claims
According to the Activity Report, approximately 85 percent of the claims flagged by the DSSRC came from distributors’ social media postings, with Facebook accounting for over three-quarters of these.
Fifteen percent of the inquiries included videos uploaded to YouTube that were deemed to be in violation of DSSRC standards.
The DSSRC’s independent monitoring of salesforce social media posts and company websites through a third-party monitoring company has revealed a 76 percent increase over the past 12 months in claims posted to video platforms such as YouTube, with Marinello attributing some of this increase to advances in the technology of the monitoring company.
The report indicates that cooperation between some of the social media platforms and the DSSRC may be on the horizon. In February 2021, the Council established a dialogue with Annabel Brody, the associate manager of consumer and advertising product policy at Facebook, to discuss the protocols that the DSSRC should use when reporting Facebook content that is in violation of a direct selling company’s intellectual property rights.
Marinello tells SSN that he is hopeful for more direct communication and cooperation with social media platforms.
“Particularly with this new FTC administration, that seems to be heavily tech-focused, I think it is certainly perking up the ears of some of the tech companies—Google, YouTube, Facebook. And maybe there is room for the creation of a tertiary path, where we can go right to them with a problematic claim or an unauthorized representation, where they may be able to address our concerns a little bit more expeditiously. That would be fantastic for everyone involved.”
Decrease in COVID-19 Claims
Highlighting one area of improvement in the channel during the first seven months of 2021, the DSSRC’s independent monitoring of COVID-19 claims reveals a 64-percent decrease compared to the same time period in 2020. The Council speculates that this improvement may be due to the FTC’s and DSSRC’s continued vigilance in reporting and actioning these violations as well as companies’ increased efforts at educating their field about the importance of avoiding COVID-19-related messaging.
The DSSRC report confirms that it initiated 34 coronavirus-related inquiries from January through July 2021, three of which resulted in formal action against the companies.
Positive Communication with Regulators
The DSSRC’s Activity Report also documents the ongoing communication it is maintaining with the FTC. In April, the Council spoke with multiple divisions at the Commission, including the Divisions of Financial Practices, Enforcement, Privacy and Identity Protection, Advertising Practices, and Marketing Practices.
After Lina Khan’s appointment as FTC chairwoman, BBB National Programs met with Samuel Levine, the acting director of the FTC’s Bureau of Consumer Protection to discuss the ongoing self-regulation of several industries, including the direct selling industry.
“They’re a great sounding board for what’s going on, what we are seeing, and reports from boots on the ground. It’s an informal relationship that we have with them. There is a lot of constructive dialogue going back and forth between not just the FTC associate directors at the Division of Ad Practices and Marketing Practices, but even with the commissioners.
“A big part of my job is to go back to the regulators and say, ‘This is what we’re doing collectively to try to make this space a better one,’ whether it’s through education or through the casework. I make sure they understand that this industry is not just sitting around, but rather is making a concerted effort to improve business practices.
“There’s a lot of positive work going on in the space, and it’s really a good, committed industry, and it’s my job to let the regulators know this,” Marinello says.
Feedback from the Channel Drives DSSRC Improvements
Looking to the future, the DSSRC continues to engage with members of the direct selling industry to hone its guidance practices. Topics that are currently being considered for a renewed focus are improvements to income disclosure and bonus statements, new educational initiatives, and a second look at the earnings claims guidance document that was distributed in 2020.
“We want to take a look with fresh eyes at our earnings claims guidance that was published last year, to provide some updated and nuanced examples. We hope that these revisions will reflect not only the ongoing issues from companies that DSSRC is seeing, but also the things that we are hearing now from regulators. It’s a great opportunity to tighten the belt a little bit and show the regulators, the state AGs, and the FTC, that direct sellers are committed to the idea of self-regulation without the need for excessive regulation and intervention from the government.”
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