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Date
Matter Number
R511993
Notice of Proposed Rulemaking

Overview

When consumers consider a money-making opportunity, be it a training or mentoring program, a new business, or an investment, they should be able to rely on the claims that are made about how much money they stand to make. But in many cases, sellers of money-making opportunities make claims about income that they can’t back up.

The Federal Trade Commission is asking the public to weigh in on whether new rules are needed to prevent consumers from being harmed by deceptive money-making opportunity offers and to give the Commission the authority to seek money back for injured consumers in federal court.

Proposal

The Notice of Proposed Rulemaking proposes expanding the Business Opportunity Rule to cover other money-making opportunities, such as business coaching and investment opportunities, and require such opportunities to comply with the prohibitions on material misrepresentations and the Rule’s recordkeeping and substantiation requirements. The amendments would also clarify the scope of the Rule’s provisions relating to earnings claims by adding a definition of “earnings,” and by revising the definition of “earnings claims” and the prohibition on deceptive earnings claims, and would re-title the rule the “Business and Money-Making Opportunity Rule” to reflect its revised scope.

Submit a Comment

The Notice of Proposed Rulemaking asks a series of questions about the proposed amendments and money-making opportunities. The topic areas and the questions are listed below. Anyone from the public can submit a comment weighing in on the rulemaking, the general topics, or a specific question.

  • Do the proposed revisions to the Rule further the Commission’s goal of protecting consumers from deceptive or unfair acts or practices involving earning claims in the marketing of products, services, or other purported opportunities to obtain earnings? Why or why not?
  • Should the Commission finalize the proposed revised Rule as a final rule? Why or why not? How, if at all, should the Commission change the proposed revised Rule in promulgating a final rule?
  • Please provide comment, including relevant data, statistics, consumer complaint information, or any other evidence, on each different provision of the Rule that this NPRM proposes to add or revise. Regarding each provision, please include answers to the following questions, as well as all evidence supporting your answers:
    • How prevalent is the act or practice the provision seeks to address?
    • What would the proposed revisions’ impact (including any benefits and costs), if any, be on consumers and businesses, including existing businesses and those yet to be started, and in particular, small businesses? Are there changes that could be made to lessen any such burdens without significantly reducing the benefits?
    • Would the proposed revisions to the Rule, if promulgated, have a significant economic impact on a substantial number of small entities? If so, how could it be modified to avoid a significant economic impact on a substantial number of small entities?
    • What alternative proposals should the Commission consider?
    • What additional information, tools, or guidance might the Commission provide to assist businesses in meeting extant or proposed requirements efficiently?
  • Are the proposed revisions to the Rule adequate and appropriate to address the harm caused to consumers by misleading or unsubstantiated earnings claims in the marketing of money-making opportunities? Why or why not? How can the proposal be improved?
  • Are there any unfair or deceptive acts or practices not addressed by the proposed revisions to the Rule that should be?
  • Are there any alternatives to the proposed revisions to the Rule that the Commission should consider? For each, provide all evidence that supports your answer, including any evidence that quantifies the benefits to consumers, and the costs to businesses, and in particular small businesses.

  • Are the proposed new and revised definitions clear? Should any changes be made to any of these definitions? Should the scope of any of these definitions be expanded or narrowed, and, if so, why?
    • In particular, should any of the alternative proposals by the Commission to defining “money-making opportunity” be adopted, such as:
      • Limiting money-making opportunities, business coaching opportunities, and/or investment opportunities to those that make earnings claims;
      • Defining the term “business”;
      • Replacing “business” with “new business” in the definition of business coaching opportunity;
      • Excluding from the definition of “money-making opportunity” any educational program participating in the Title IV, Higher Education Act, federal student aid program, 34 CFR Parts 600 and 668; and
      • Replacing “business coaching opportunity” with “coaching opportunity,” defined as any program, plan, or product that is represented to train or teach a person how to make or increase earnings.
    • Should the definitions of “money-making opportunity,” “business coaching opportunity,” or “investment opportunity” be modified in any other way, such as to avoid covering industries in which deceptive earnings claims are not prevalent, or where the burden of complying with the proposed amended Rule would outweigh the benefits to consumers and competition?
    • Should the Commission exempt from the definition of investment opportunity conduct regulated by another federal agency, such as the Securities and Exchange Commission or the Commodity Futures Trading Commission, or by an entity duly recognized as a regulatory entity by such an agency, such as the Financial Industry Regulatory Authority or the National Futures Association?
    • Should the definition of investment opportunity be narrowed in any way to ensure clarity and appropriate scope?  If so, how? Provide all evidence that supports your answer.
    • How should “MLM” be defined? Should the Commission adopt one of the three alternatives proposed herein? If so, could the language be improved? If so, how?
    • Should the definition of “earnings” or “earnings claim” be altered in any way to ensure clarity and appropriate scope? If so, how? Provide all evidence that supports your answer.
    • Are there any circumstances in which the proposed revisions to the definition of “earnings claim” and/or the proposed definition of “earnings” would alter the obligations of business opportunities under the current Rule’s other provisions? If so, would such changes increase the cost or other burden on such business opportunity sellers? If so, explain how, the extent of such increase, and what businesses would be so affected. Provide all evidence that supports your answer.
    • If you would alter any of the proposed new or revised definitions, provide alternative rule text.
  • How many businesses would meet the definition of “money-making opportunity” under the proposed § 437.1(n)? How many are small businesses? If you propose altering the proposed definition in any way, answer this question for your proposed alternative definition as well. Provide all evidence that supports your answer.
  • The proposed revisions would exempt MLMs from the definition of money-making opportunity. Should this proposed exemption be altered in any way? Why or why not, and if so, how? Provide all evidence that supports your answer. Provide proposed rule text for any changes you propose.
  • Are any additional definitions needed in the Rule?

  • Are the prohibitions in proposed § 437.6 clear, meaningful, and appropriate? Should the scope of any of the proposed prohibitions be expanded or narrowed and, if so, how and why? Would any of the proposed prohibitions inadvertently discourage truthful advertising to the detriment of consumers?
  • The proposed revisions would subject money-making opportunities to some, but not all, of the Rule’s prohibitions on misrepresentations. Specifically, the proposed revisions state that it is a violation of Section 5 of the FTC Act for any seller of money-making opportunities to:
    • Make a false or misleading earnings claim, explicitly or implicitly;
    • Disseminate industry financial, earnings, or performance information unless the seller has written substantiation demonstrating that the information reflects, or does not exceed, the typical or ordinary financial, earnings, or performance experience of purchasers of the opportunity being offered for sale;
    • Fail to make available to prospective purchasers, and to the Commission upon request, written substantiation for the seller’s earnings claims;
    • Misrepresent how or when commissions, bonuses, incentives, premiums, or other payments from the seller to the purchaser will be calculated or distributed;
    • Misrepresent the cost, or the performance, efficacy, nature, or central characteristics of the opportunity or the goods or services offered to a prospective purchaser;
    • Misrepresent any term or condition of the seller’s refund or cancellation policies;
    • Misrepresent that any governmental entity, law, or regulation prohibits a seller from furnishing earnings information to a prospective purchaser; or
    • Misrepresent any material aspect of any assistance offered to a prospective purchaser.
  • As to each prohibition listed above, please answer each of the following:
    • Should any money-making opportunities be subject to the prohibition?
    • Why or why not?
    • If yes, should all money-making opportunities be subject to the prohibition, or only certain types?
    • Provide all evidence that supports your answer, and proposed rule text for any changes you propose.

  • The proposed revisions would not subject money-making opportunities to some of the Rule’s prohibitions against misrepresentations by business opportunities. Specifically, the proposed revisions state that it is a violation of Section 5 of the FTC Act for any seller of a business opportunity to:
    • Fail to provide prospective purchasers with a disclosure document as required by § 437.3 of the Rule;
    • Make an earnings claim and fail to provide prospective purchasers with an earnings claim statement as required by current § 437.4(a)(4) (proposed § 437.4(b)(1)) and supplemental information about the statement as required by current § 437.4(d) (proposed § 437.4(b)(3));
    • Make an earnings claim in the general media without the substantiation and disclosure required by current § 437.4(b) (proposed § 437.4(b)(2));
    • Disclaim, or require a prospective purchaser to waive reliance on, any statement made in any document or attachment that is required or permitted to be disclosed under this Rule (proposed § 437.6(b)(1));
    • Make any claim or representation, orally, visually, or in writing, that is inconsistent with or contradicts the information required to be disclosed by the disclosure document and earnings claims statement required by §§ 437.3 and 437.4 (proposed § 437.6(b)(2));
    • Include in any disclosure document or earnings claim statement any materials or information other than what is explicitly required or permitted by this Rule (proposed § 437.6(b)(3));
    • Misrepresent that any governmental entity, law, or regulation prohibits a seller from disclosing to prospective purchasers the identity of other purchasers of the opportunity (proposed § 437.6(b)(4));
    • Misrepresent the likelihood that a seller, locator, or lead generator will find locations, outlets, accounts, or customers for the purchaser (proposed § 437.6(b)(5));
    • Fail to provide a refund or cancellation when the purchaser has satisfied the terms and conditions disclosed pursuant to § 437.3(a)(4) (proposed § 437.6(b)(6));
    • Misrepresent a business opportunity as an employment opportunity (proposed § 437.6(b)(7));
    • Misrepresent the terms of any territorial exclusivity or territorial protection offered to a prospective purchaser (proposed § 437.6(b)(8));
    • Assign to any purchaser a purported exclusive territory that, in fact, encompasses the same or overlapping areas already assigned to another purchaser (proposed § 437.6(b)(9));
    • Misrepresent that any person, trademark or service mark holder, or governmental entity, directly or indirectly benefits from, sponsors, participates in, endorses, approves, authorizes, or is otherwise associated with the sale of the business opportunity or the goods or services sold through the business opportunity (proposed § 437.6(b)(10));
    • Misrepresent that any person:
    • Has purchased a business opportunity from the seller or has operated a business opportunity of the type offered by the seller; or
    • Can provide an independent or reliable report about the business opportunity or the experiences of any current or former purchaser (proposed § 437.6(b)(11)).
    • Fail to disclose, with respect to any person identified as a purchaser or operator of a business opportunity offered by the seller:
      • Any consideration promised or paid to such person. Consideration includes, but is not limited to, any payment, forgiveness of debt, or provision of equipment, services, or discounts to the person or to a third party on the person’s behalf; or
    • Any personal relationship or any past or present business relationship other than as the purchaser or operator of the business opportunity being offered by the seller (proposed § 437.6(b)(12)).
  • As to each prohibition listed above, please answer each of the following:
    • Should any money-making opportunities be subject to the prohibition?
    • Why or why not?
    • If yes, should all money-making opportunities be subject to the prohibition, or only certain types?
    • How would such a change alter the proposed revisions’ impact (including any benefits and costs), on consumers and businesses, including existing businesses and those yet to be started, and in particular small businesses?
    • Provide all evidence that supports your answer, and proposed rule text for any changes you propose.

  • Should money-making opportunity sellers be required to provide substantiation to prospective purchasers and the Commission upon request? (See proposed §§ 437.4(a), 437.6(a)(2), and 437.7(a).) Why or why not? Provide all evidence that supports your answer, including any evidence that quantifies the benefits to consumers, and the costs to businesses, and in particular small businesses. Provide proposed rule text for any changes you propose.
  • Should any businesses covered by the proposed definition of “money-making opportunity” but not the definition of “business opportunity” be required to comply with the affirmative disclosure requirements of proposed §§ 437.2, 437.3, and 437.4(b)? If so:
    • Identify them and explain why they should be required to comply with the disclosure requirements. Provide all evidence that supports your answer.
    • Provide proposed rule text to achieve such a change.
    • How would such a change alter the proposed revisions’ impact (including any benefits and costs), on consumers and businesses, including existing businesses and those yet to be started, and in particular small businesses? Provide all evidence that supports your answer.

  • The proposed revisions to the Rule (proposed § 437.7(a)) would extend the recordkeeping requirements of § 437.7 to money-making opportunities. Should they do so? Why or why not?
    • If yes, are any modifications of the requirements warranted, as to some or all money-making opportunities?
    • If so, why?
    • What should be modified?
    • Provide all evidence that supports your answers to the above.
    • Provide proposed rule text for any modifications that you propose.
  • How would extending the recordkeeping requirements of proposed § 437.7(a) to money-making opportunities alter the Rule’s impact (including any benefits and costs), on consumers and businesses, including existing businesses and those yet to be started, and in particular small businesses? Provide all evidence that supports your answer.
  • Should the proposed revisions to the Rule require retention of any additional records?
    • If so, what and why?
    • How would such additional record retention requirements impact businesses, and in particular small businesses?
    • How would such additional record retention requirements benefit consumers?
    • Provide all evidence supporting your answers to the above.
  • The Rule currently requires sellers of business opportunities to retain documents for three years. The proposed revisions would require sellers of money-making opportunities to retain certain documents for three years, as well.  Should the three-year record retention period be extended to five years, which is the limitations period applicable to claims for civil penalties under the Rule? Why or why not? Provide all evidence supporting your answer.
  • Under the existing Rule, sellers of business opportunities must provide mandatory disclosures and other information, including substantiation, in the same language in which they conduct the sale or offering. Should sellers of money-making opportunities be required to provide all material information about earnings, including substantiation, in the same language that the earnings claim is made? Provide all evidence that supports your answer, including any evidence that quantifies the benefits to consumers, and the costs to businesses, and in particular small businesses. Does this requirement adequately promote the Commission’s goal of protecting consumers in every community, including historically underserved communities, from deceptive earnings claims?
  • This NPRM provides estimates for the number of money-making opportunity sellers, including the number of investment opportunity sellers and business opportunity coaching sellers. If these estimates are materially incorrect, explain how. Provide all evidence supporting your answer.
  • This NPRM provides estimates for the new costs that sellers of money-making opportunities would incur to comply with the proposed revised Rule. If these estimates are materially incorrect, explain how. Provide all evidence supporting your answer. In particular:
    • How many investment opportunity sellers would incur new costs to comply with the proposed revised Rule?
    • How many business coaching opportunity sellers would incur new costs to comply with the proposed revised Rule?
    • What is the nature and extent of any new one-time costs that money-making opportunity sellers would incur to comply with the proposed revised Rule? In particular, what new costs would be incurred for:
      • Regulatory familiarization and planning;
      • Training;
      • Preparing substantiation documents for distribution and setting up infrastructure to facilitate recordkeeping and distribution of substantiation; and
      • Performing an additional review of existing advertisements.
    • What is the nature and extent of any new recurring costs that money-making opportunity sellers would incur to comply with the proposed revised Rule? In particular, what new costs would be incurred for:
      • Retaining substantiation documents; and
      • Making substantiation documents available upon request.
  • Describe and, to the extent possible, quantify the benefits to consumers and to competition that would be provided if the proposed revised Rule is finalized. Provide all evidence supporting your answer.
  • This NPRM provides estimates for the new costs that sellers of money-making opportunities that are small businesses would incur to comply with the proposed revised Rule. If these estimates are materially incorrect, explain how. Provide all evidence supporting your answer. In particular:
    • How many money-making opportunity sellers are small businesses?
    • On how many money-making opportunity sellers that are small businesses would the proposed revised Rule’s requirements impose a significant impact?
    • What actual and likely new costs would small businesses that are money-making opportunity sellers incur to comply with the proposed revised rule?
    • What potential competitive benefits would the proposed revised Rule provide if finalized?

  • Does any portion of the proposed revised Rule duplicate, overlap, or conflict with any federal, state, or local laws or regulations?
  • To the extent the Commission finalizes an MLM Earnings Claims Rule, and it goes into effect, should the Commission exempt MLMs and/or MLM sellers from complying with the revised Business Opportunity Rule? Provide all evidence that supports your answer, including any evidence that quantifies the benefits to consumers, and the costs to businesses, and in particular small businesses.
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