| Comment Number: | 522418-10018 |
| Received: | 7/15/2006 4:03:19 PM |
| Organization: | Quackwatch |
| Commenter: | Stephen Barrett |
| State: | PA |
| Subject: | Business Opportunity Rule |
| Title: | Notice of Proposed Rulemaking |
| CFR Citation: | 16 CFR Part 437 |
| No Attachments |
Comments:
An effective Business Opportunity Rule would help millions of people and would be one of the most significant actions in the FTC’s history. Work-at-home plans, party plans, and multilevel marketing (MLMs) have some characteristics that are common and others that are not. Thought should be given to whether each part of the rule is applicable to all types of business opportunities and whether sections should be added that apply to only one or a few types of opportunities. The comments below are meant to apply only to MLMs. Since 1980, I have investigated more than 150 MLM companies offering health-related products and found that none gave a realistic picture of probable income. I recommend: 1. THERE SHOULD BE NO EXEMPTION OR THRESHHOLD FOR EARNINGS CLAIMS: Because the promise of high income is the cornerstone of MLM recruiting, all MLMs should be required to comply with the earnings-claim disclosure rules and no MLM company should be permitted to make "no earnings claims." For the same reason, the applicable threshold for coverage of the rule should be zero. Even a $100 threshold would exempt MLM companies who solicit millions of people every year. 2. DISCLOSURE MUST BE MEANINGFUL: All MLMs should be required to disclose the following in a clear and understandable format (such as easily interpreted percentile columns), and separate from all other materials furnished to prospective distributors: (a). Total company revenue from US-based distributors. (b). The total number of US-based distributors involved in the company for at least three years or since the company's founding if the company is less than three years old. (c). The number of terminations and the number of new recruits for each of the past three years in the United States. (d). The net increase (new ones less those who drop out) in the number of distributors in the various ranks of the upline as a percent of all who have been distributors for three years. (e). The percentile incomes of all who have signed up for a distributorship in the United States. (e.g., the top 10% averaged $___, the next 10% averaged $__, etc.) Percentile income is far more meaningful than "average" income (total company income divided by the number of distributors) because including the highest earners would make the reported average higher than most distributors make. Income data should not be limited to those a company would describe as active distributors. (f). Income should be defined as money the company pays to distributors minus all money distributors pay to the company. However, it should be disclosed that this does not take into account distributor expenses such as advertising, exhibiting, travel, purchase of sales aids from non-company sources, or other overhead. (g). The percentage of US-based distributor income derived from sales outside of the United States. 3. DISCLOSURE MUST BE CONSPICUOUS To ensure that the rules are conspicuous and to help the FTC monitor compliance, copies of all disclosures should be given to each distributor and posted on each company Web site. In addition, all distributor Web sites that solicit new distributors should either post the earnings statement or link to it on the company Web site. To facilitate comparison and further consumer education, the FTC should maintain a site that contains the final Business Opportunity Rule, the individual company disclosures, and other information that would assist prospective investors. The attached document contains additional suggestions. If you hold hearings, I would welcome an opportunity to testify. Sincerely yours, Stephen Barrett, M.D., Quackwatch, Inc.