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Overview
When consumers consider joining a multi-level marketing program (“MLM”) to make extra income, they should be able to rely on the claims that are made about how much money they stand to make as a participant. However, in many cases those recruiting for MLMs 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 earnings and related claims and to give the Commission the authority to seek refunds in federal court for injured consumers.
Proposals
In the Notice of Proposed Rulemaking (“NPRM”), the Commission is proposing an “Earnings Claim Rule Regarding Multi-Level Marketing” that would prohibit the following conduct in connection with the offering of MLMs:
- misleading earnings claims
- making earnings claims without having substantiation (or a reasonable basis) for those claims
- misrepresenting the opportunity to become an MLM participant as an employment opportunity; and
- making any misrepresentation or unsubstantiated claim to prevent consumers from benefiting from truthful information about earnings.
The proposed Rule would also require MLMs to provide their substantiation to anyone upon request, in the language of the earnings claim. It would require sellers to maintain records of the substantiation, and would prohibit providing participants with recruitment materials containing deceptive earnings claims. The Commission also proposes revising the Business Opportunity Rule to exempt MLM sellers.
The Commission has also issued an Advance Notice of Proposed Rulemaking, to seek comment on whether its proposed Earnings Claim Rule Regarding Multi-Level Marketing should contain additional prohibitions to further deter deceptive or unfair earnings claims, such as a required earnings disclosure, or a waiting or cooling off period, and whether it should address additional unfair or deceptive practices in the multi-level marketing industry, including making misrepresentations concerning benefits and expenses, making deceptive refund claims, and using non-disparagement clauses in contracts with multi-level marketing participants.
Submit a Comment on the NPRM
The Notice of Proposed Rulemaking asks a series of questions about the proposed rule. 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.
- Does the proposed Rule further the Commission’s goal of protecting consumers from deceptive or unfair acts or practices involving earning claims in the marketing of MLM opportunities? Why or why not?
- Should the Commission adopt the proposed Rule as a final rule? Why or why not? How, if at all, should the Commission change the proposed 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 proposed Rule. Regarding each provision, please include answers to the following questions:
- How prevalent is the act or practice the provision seeks to address?
- What would the provision’s impact (including any benefits and costs), if any, be on consumers and businesses, including existing businesses and those yet to be started? Are there changes that could be made to lessen any such burdens without significantly reducing the benefits?
- Would the proposed 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?
- Is the proposed Rule adequate and appropriate to address the harm caused to consumers by misleading or unsubstantiated earnings or job claims concerning MLMs? Why or why not? How can the proposal be improved?
- Are there any unfair or deceptive acts or practices not addressed by the proposed Rule that should be?
- Are there any alternatives to the proposed 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.
- In the cases the Commission has brought, we have repeatedly seen circumstances where earnings claims convey the impression that the represented earnings are typical. Are there circumstances where they do not? If so, describe such circumstances in detail. Provide all evidence that supports your answer.
- Are the proposed definitions clear? Should any changes be made to any definitions? Should the scope of any of the proposed definitions be expanded or narrowed, and, if so, why?
- In particular, 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?
- For any proposed definition, state whether the definition creates any gaps in coverage, and if so whether and how the language could be revised to close them, as well as whether the language should be revised to avoid ambiguity, overbreadth, or other concerns, and if so how. Provide all evidence supporting any potential ambiguity, coverage gaps, overbreadth, or other concerns you identify.
- Are any additional definitions needed?
- Are the proposed prohibitions in proposed sections 462.2 to 462.4 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 or representations to the detriment of consumers?
- In particular, are there any circumstances in which an act or practice would violate the proposed means and instrumentalities provision but not Section 5 of the FTC Act? If so, describe such circumstances in detail, and how the proposed text of the provision could be revised to align with the scope of Section 5. Also provide any evidence regarding how often such circumstances arise, and the cost to businesses and benefit to consumers that would be caused by any rule coverage that exceeds that of Section 5, either from the text as proposed in this NPRM, or from any revision you propose.
- Should proposed section 462.4 contain a knowledge requirement? If so, how should such a requirement be crafted? What level of knowledge should be required? 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.
- Should proposed section 462.4 apply to all persons, acting directly or indirectly? Alternatively, should the provision apply only to MLMs, or only to MLMs and persons who act in concert or participation with them? For each, identify the persons and conduct it would cover, whether it could leave gaps in coverage or be overly broad, and how it would affect the provision’s costs to businesses or benefits to consumers. Provide all evidence that supports your answer, including all evidence of any potential gaps or overbreadth, and any evidence that quantifies the benefits to consumers, and the costs to businesses, and in particular small businesses.
- Should MLM sellers be required to provide substantiation for any earnings claim to anyone who requests it? 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.
- Alternatively, should MLM sellers be required to provide substantiation for any earnings claim to the government or to any actual or potential recruit who requests it? 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.
- If the requirement to provide substantiation to requesting consumers should be limited as suggested in the prior question, should the limitation be to requests by “any actual or potential recruit,” or “any participant or prospective participant”? Why? Is there a difference between the scope of coverage of the two phrases? If so, explain in detail. 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, of choosing one formulation over the other.
- Alternatively, should MLM sellers be required to provide substantiation for any earnings claim to the government or to anyone to whom the seller makes an earnings claim and who requests it? 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.
- The proposed Rule would impose a six-month time limit on MLM sellers’ obligation to provide substantiation for earnings claims upon request to requestors other than the Commission. Should it include such a time limit? Why or why not? If it should include a time limit, what is the appropriate period of time? Further, as written earnings claims may be disseminated long after they are initially published, should the Commission make clear that the date “the claim is made” refers to any dates that a particular claim is (a) provided to an individual to read, or (b) available for viewing, such as on a website page or social media? 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.
- The proposed Rule would require that, when sellers provide substantiation for an earnings claim, it must be provided in the language in which the earnings claim is made. Should the Rule include this requirement? 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.
- Are the proposed recordkeeping requirements clear, meaningful, and appropriate?
- Should the scope of any of the proposed recordkeeping requirements be expanded or narrowed, and if so, how and why?
- Would the specified records be appropriate to verify compliance with the proposed Rule? Are any of the specified records unnecessary to verify compliance with the proposed Rule? If the records listed are not required to be retained, how would such compliance be verified?
- Should the proposed 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.
- Is the three-year record retention period appropriate? Why or why not? If not, what period is appropriate? Provide all evidence supporting your answer.
- Alternatively, is a five-year record retention period appropriate? Why or why not? Provide all evidence supporting your answer, including the marginal cost to store records for an additional two years.
- What are the current record retention policies and practices of MLMs with respect to the records specified in proposed § 462.5?
- What benefits would the proposed Rule’s recordkeeping requirement provide to consumers and businesses? Please quantify those benefits whenever possible.
- What costs would MLMs and other MLM sellers incur to comply with the proposed recordkeeping requirements? Please quantify these costs wherever possible.
- What volume of records would have to be maintained by each covered entity to comply with the proposed Rule? What would be the cost to the covered entity to maintain such records?
- How much do MLM sellers currently pay to retain records?
- What options for record retention are available to persons who would be covered by the proposed Rule, and what do those options cost?
- Are there other costs associated with complying with the proposed recordkeeping requirements?
- Should MLM sellers be required to provide all material information about an earnings claim, 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?
- How many companies offer MLM opportunities in the United States? Provide all evidence that supports your answer.
- How many MLMs are small businesses for purposes of the Regulatory Flexibility Act? How many MLM participants or other persons to whom the proposed Rule would apply are small businesses for purposes of the Regulatory Flexibility Act? Provide all evidence that supports your answer.
- What is the economic impact of MLMs in the United States? Provide all evidence that supports your answer. For example:
- How many consumers purchase MLMs’ products for their own use (on an annual basis or otherwise)? What is the total dollar value of such purchases (on an annual basis or otherwise)? For dollar-value estimates, please make clear the manner in which purchases are valued (e.g., distributor wholesale cost, suggested retail price, other methods).
- How many consumers make such purchases through another person who is an MLM participant? What is the total dollar value of such purchases (on an annual basis or otherwise)? For dollar-value estimates, please make clear the manner in which purchases are valued (e.g., distributor wholesale cost, suggested retail price, other methods).
- Of the people who purchase an MLM’s product(s) for their own use, through another person who is an MLM participant, how many would not have made such purchase(s) if the MLM participant through whom they purchased had not been an MLM participant (on an annual basis or otherwise)?
- What is the total dollar value of such purchases (on an annual basis or otherwise)?
- What portion, if any, of this amount does not constitute a loss of consumer surplus? For example, are any such purchases driven by factors unrelated to the product(s) purchased, e.g., a desire to assist, or avoid giving offense to, an MLM participant with whom one is in a social or familial relationship? If so, what proportion of consumer purchases are driven by such non-product-related factors?
- How many people in the United States are participants in an MLM? How many people join an MLM each year in the United States? Provide all evidence that supports your answer.
- Of the people who join an MLM in the United States each year, how many would not have done so but for being misled about their likely earnings? How would this amount change if the proposed Rule goes into effect? Provide all evidence that supports your answer.
- Of the people who join an MLM in the United States but who would not have done so but for being misled about their likely earnings, answer the following questions, and provide all evidence that supports your answers:
- How long do they engage as participants in the MLM? For example, on average, how many months do they engage as participants in the MLM?
- How much time do they spend working as participants in the MLM? For example, on average how much time to do they work per week, pursuing the MLM opportunity?
- What are the typical expenses they incur? Please describe all sources of expenses, including those paid to the MLM and to third parties.
- What financial returns do such participants realize from their work as an MLM participant? How much gross income do they receive, and what is their net accounting profit/loss (i.e., their net profit/loss from pursuing the MLM business, excluding the value of their time)?
- If they had not joined an MLM, how would such people spend the time that they otherwise devote to working as an MLM participant?
- Would they engage in other efforts to generate income?
- If so, how much income would they realize from such efforts?
- If so, would the efforts yield greater or less consumer surplus than would have been generated as MLM participants? By how much?
- Would they instead use the time to pursue other activities, such as caring for children or other family members? How should the value of such efforts be measured?
- What are the potential indirect effects of the proposed Rule on individuals who otherwise would have been misled into participating in an MLM that uses deceptive earnings claims? For example, the increase in lifetime earnings that is foregone by a consumer who drops out of college to pursue an MLM opportunity due to deceptive earnings claims, or the returns from starting a new business that are foregone by a consumer who instead uses their assets to invest in an MLM opportunity due to deceptive earnings claims, and who does not reap sufficient income to recover those assets and so cannot start the new business?
- What is the extent of the time-savings that the proposed Rule would provide to people seeking paying work but who are not interested in an MLM opportunity? As discussed above, MLM opportunities are sometimes misrepresented as employment opportunities, and evidence shows that in response to such misrepresentations, some people spend time pursuing an opportunity they would not have pursued absent the deception, such as by going to an interview, where they learn the opportunity is with an MLM and reject it. Even though they may not have invested any money, such people have lost time due to deception. How much such wasted time would the proposed Rule prevent? How should the value of such time be measured, and what is it worth? Provide all evidence that supports your answer.
- To what extent would the proposed Rule avert social and psychological harm, or other types of harm not covered by the above questions? As discussed above, evidence suggests that not only can deceptive MLM earnings claims lead to monetary losses, but, by themselves or in combination with monetary losses, they can also lead to other harms. Describe whether and to what extent the proposed Rule would reduce the harm caused by each of the following. Quantify your answers to the extent possible and provide all evidence supporting your answers.
- Adverse impact on personal relationships;
- Adverse impact on emotional or psychological health;
- Adverse impact on physical health;
- Debt and related consequences such as bankruptcy, lower credit rating, and lifestyle disruption or changes due to loss of tangible assets;
- Any other harms not addressed above (please describe).
- What economic burdens does the proposed Rule impose on MLMs or other covered persons, particularly small businesses? Provide all evidence that supports your answer. For example:
- For each of the following activities, state whether the proposed Rule would require any covered persons to engage in the activity to a greater extent than they do now. If so, identify which covered persons would be required to increase their efforts (e.g., all participants, all MLMs, MLMs that are small businesses, etc.), and quantify the extent of such new efforts, including the amount of time, the cost of that time, and any other costs.
- Regulatory familiarization and planning;
- Training employees;
- Reviewing company earnings claims;
- Preparing new substantiation documents;
- Updating participant training and promotional materials;
- Setting up infrastructure to handle substantiation requests and/or to retain substantiation materials;
- Responding to requests for substantiation; and
- Any other activities (if any, please describe in detail).
- Would the proposed Rule impose any burdens or costs not identified in your response to the first part of this question? If so, describe such burdens or costs in detail, including identifying who they would affect and quantifying, to the extent possible, the burden or cost.
- For each of the following activities, state whether the proposed Rule would require any covered persons to engage in the activity to a greater extent than they do now. If so, identify which covered persons would be required to increase their efforts (e.g., all participants, all MLMs, MLMs that are small businesses, etc.), and quantify the extent of such new efforts, including the amount of time, the cost of that time, and any other costs.
- Are there changes that could be made to lessen any of the costs or burdens you identify in response to the prior question without significantly reducing the benefits the proposed Rule would provide to consumers? If so, describe in detail, and, if relevant, provide alternative proposed rule text. Provide all evidence that supports your response.
- Are there other reasonable or significant alternatives to the proposed Rule that could potentially accomplish the stated purpose of the proposed Rule? If so, describe in detail the alternatives and provide all evidence that relates to your response, including any relevant sources of data that reflect the benefits and adverse economic effects of such alternatives.
- Does any portion of the proposed Rule duplicate, overlap, or conflict with any federal, state, or local laws or regulations?
- To the extent the Commission revises the Business Opportunity Rule to regulate additional money-making opportunities and this proposed Rule is adopted as proposed, should the Commission exempt MLMs and/or other MLM sellers from complying with the revised Business Opportunity Rule?
- If the Commission promulgates the Rule as proposed, should the Commission exempt MLMs from complying with the Franchise Rule, or the Telemarketing Sales Rule?
- The Commission invites comments on: (1) Whether the proposed information collection requirements should be altered to reduce burdens without reducing protections to consumers, and if so, what alteration should be made; (2) the accuracy of the agency’s burden estimates, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of maintaining records and providing the required information to consumers.
Submit a Comment on the Advance Notice of Proposed Rulemaking
The Advance Notice of Proposed Rulemaking asks a series of questions about potential additional rule provisions to address deceptive earnings claims regarding MLMs, other potentially deceptive or unfair practices used by those offering MLMs, and potential new rule provisions to address those other practices. 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.
- Should the Commission propose additional requirements prescribed for the purpose of preventing misleading and unsubstantiated earnings claims in the MLM industry? If so, describe the requirements. What are the benefits to consumers, and costs to businesses, and in particular small businesses, from such requirements? Would the requirement benefit competition? 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.
- To the extent the Commission proposes any additional rule provisions to deter MLMs, MLM participants, or other MLM sellers from making deceptive or unsubstantiated earnings claims, should any MLMs be exempted from these requirements? Why or why not? If so, how should the proposal define such an exemption, how many MLMs would qualify for this exemption, and how would the exemption impact consumers? Provide all evidence that supports your answer, including any evidence that quantifies the benefits to consumers and competition, and the costs to businesses, and in particular small businesses.
- What alternatives to regulations should the Commission consider to deter MLMs, MLM participants, or other MLM sellers from making misleading or unsubstantiated earnings claims? Would those alternatives obviate the need for regulation? Why or why not? Provide all evidence that supports your answer.
- Should the Commission propose a requirement for MLMs to provide objective data about the net earnings (income after expenses) of past and current participants to prospective recruits before they sign up? Why or why not? If the proposal mandates an earnings disclosure of some kind:
- How should it define or describe what data should be provided? This includes, for example, whether the Rule should permit any group of participants to be excluded from such data, such as those who have ceased to pursue the income opportunity, and if so, how such a group should be defined.
- How often should the proposal require that the data be updated?
- At what point before or during the recruitment process should the proposal require that the data be provided to recruits?
- What requirements should it impose on how the data is presented, so that prospective recruits will see and understand it?
- In what languages should a proposed rule require the data be provided? For example, 16 CFR Part 14.9 already requires that disclosures that have to be made clearly and conspicuously need to be made in the same language as marketing claims in print media. Should a proposed rule require the data be provided in the same language as any oral earnings claims made to a prospective participant?
- What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such a requirement? 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, including the cost to collect this information and provide it to prospective recruits.
- Should a proposed rule require that MLMs or others document prospects’ review of any mandated data disclosure? For example, should it mandate that potential recruits must sign a document attesting that they received objective data about net income from the MLM and the date it was received? Why or why not? Provide any evidence that supports your position, including any evidence that quantifies the benefits to consumers and the costs to businesses, and in particular small businesses from such a requirement.
- Should a proposed rule require MLMs to provide current participants with objective data about the net earnings (income after expenses) of past and current participants on an annual or other periodic basis? Why or why not? Answer each subpart of the above question regarding the content and format of the disclosure as to such a requirement.
- Should a proposed rule require MLMs to post objective data about the net earnings (income after expenses) clearly and conspicuously on their website(s)? Why or why not? Answer each subpart of the above question regarding the content and format of the disclosure as to such a requirement.
- Should a proposed rule require that all earnings claims concerning MLMs be accompanied by clear and conspicuous information about the typical net earnings (income after expenses) of participants? Why or why not? Answer each subpart of the above question regarding the content and format of the disclosure as to such a requirement.
- What information do MLMs commonly possess about the expenses incurred by their participants? Provide all evidence that supports your answer.
- To the extent that at least some MLMs do not know how much their participants spend on all expenses, describe all reliable method(s) that MLMs could use to gather sufficient data about expenses to provide a reasonable basis for claims about participants’ general or likely net earnings. For example, conducting a survey of current and recently exited participants, or requesting or requiring current and recently exited participants to disclose information about expenses to the MLM. For each such method:
- How effective will the method be at gathering the relevant information?
- What is the risk that the data produced will not accurately reflect participants’ experiences, or otherwise could lead to misleading representations about net earnings?
- What is the cost or burden to MLMs to employ the method to collect income and expense information they do not already have? Provide any evidence that quantifies the costs to businesses, and in particular small businesses, of each such method, and the benefit to consumers in being presented with this information before or after signing up for the opportunity.
- Should a proposed rule explicitly provide that any specific method of gathering income and expense data is or is not sufficient (in combination with information about income paid to participants by the MLM) to establish a reasonable basis for representations of net earnings? If so, identify the method(s) that should be deemed sufficient, and explain how the proposal should define them. Provide any evidence that quantifies the costs to businesses, and in particular small businesses, of such a proposed provision, and the benefit it would provide to consumers.
- To the extent at least some MLMs do not know how much their participants spend in total on all expenses, what information about expenses should be provided in an Earnings Disclosure Statement or similar document? Should MLMs be required to describe all the information known to them regarding participant expenses and to summarize any other expenses that participants typically incur? What are the benefits to consumers and costs to businesses, and in particular small businesses, from such a requirement? Provide all evidence that supports your answer, including any evidence concerning the net impression that such a statement would convey to consumers, or any evidence that quantifies the benefits to consumers and the costs to businesses, and in particular small businesses.
- Should the proposal require a waiting period before consumers may join an MLM or first pay money to an MLM? If so, how long should the waiting period be, and what should trigger the start of the waiting period? What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such a requirement? 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.
- Should a proposal require such a waiting period triggered by providing objective data regarding net income to a recruit? If so, how long should the waiting period be? What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such a requirement? 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 any empirical data or studies that relate to how much time MLM participants take before deciding to join the opportunity, whether and how frequently potential recruits are rushed to make a decision, and whether and how frequently MLM recruiting takes place in highly charged or emotional settings.
- Should the proposal require a cooling off period during which consumers can change their mind after joining an MLM? If so, how long should the cooling off period be, and what refunds should be available to consumers at the end of the cooling off period? What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such a requirement? 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.
- To what extent do federal or state laws already impose a waiting period or cooling off period on MLMs or MLM participants? Would a proposed regulatory provision that requires prospective participants to wait a certain number of days before paying money or joining the opportunity overlap with these federal or state regulations? Why or why not? What evidence supports your answer? With reference to any asserted conflicts, should a proposed rule take these into account?
- How should any proposed rule provisions relating to waiting periods address sales that are covered by the FTC’s Cooling Off Rule, 16 CFR Part 429? 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.
- How widespread is the practice of making false or unsubstantiated claims about the MLM’s compensation plan, such as the eligibility requirements to earn certain types of compensation under the plan, or whether certain types of activities are required to earn money or certain categories of compensation? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
Many MLMs provide compensation plans to participants or prospective participants, which explain when and how they are eligible to earn certain types of compensation. In some cases, the compensation plans themselves may convey representations about likely earnings. In some cases, MLMs may seek to cure any misimpressions regarding earnings by directing prospective participants to the compensation plan. The Commission is interested in whether such uses of compensation plans contribute to the deception of consumers, or, alternatively, prevent it.
- Are MLM compensation plans understandable to consumers? In other words, do consumers who review such compensation plans understand when they are signing up for the MLM what they will need to do to earn certain amounts of money or certain types of compensation?
- If not, how widespread is the lack of understanding?
- Does such lack of understanding MLM compensation plans lead consumers to be harmed? If so, how and why, and what is the extent of such harm?
Provide any evidence, such as empirical data, consumer perception studies, or consumer complaints, that supports your answer as to each subpart of this question.
- How widespread is the practice of making false or unsubstantiated claims about the expenses incurred by MLM participants, including claims about what expenses are mandatory, claims about whether expenses are typically incurred, and claims about the amount of expenses typically incurred by participants? Provide any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices. Provide all evidence that supports your answer.
- In some instances, MLMs or their agents have made representations about earnings to prospective recruits, but failed to disclose material information about expenses that the recruits would be required or encouraged to incur if they became a participant. How widespread is this practice? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread is the practice of misrepresenting the benefits available to MLM participants (such as falsely representing that they could obtain a free car or vehicle, or go on a free trip)? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- Are there circumstances in which the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits would not be deceptive or unfair? If so, what are those circumstances? Should the Commission exclude such circumstances from the scope of any rulemaking? Why or why not? If so, how should the proposal define such an exclusion? Provide all evidence that supports your answer.
- Do any of the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits cause injury to consumers, and if so, how much? Do such practices cause injury to other businesses by unfairly disadvantaging them? Provide all evidence that supports your answer, including any evidence that quantifies or estimates these injuries if possible.
- Do any of the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits disproportionately target or affect certain groups, including communities of color or other historically underserved communities? If so, why and how? Provide all evidence that supports your answer.
- Is there a need for new regulatory provisions to prevent any of the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits? Why or why not? Provide all evidence that supports your answer.
- For each practice described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits, explain whether additional regulation is needed with respect to these practices assuming the rule proposed in the NPRM is finalized and, if so, how widespread such practices are. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How should a rule provision addressing the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits be crafted to maximize the benefits to consumers while minimizing the costs to businesses and in particular small businesses? What are the benefits to consumers and costs to businesses, and in particular small businesses, from such an approach? 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.
- Should the proposal contain additional requirements prescribed for the purpose of preventing any of the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits? If so, describe any such requirements. What are the benefits to consumers and costs to businesses, and in particular small businesses, from such requirements? 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.
- What alternatives to regulations should the Commission consider to address any of the practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits? Would those alternatives obviate the need for regulation? If so, why? If not, why not? Provide all evidence that supports your answer.
- Do existing state or federal laws and regulations covering practices described above regarding misrepresenting or omitting information about the compensation plan, expenses, or benefits affect businesses, particularly small businesses? If so, how? Provide all evidence that supports your answer.
- How widespread among multi-level marketing companies is the practice of requiring new recruits to agree to contracts that explicitly or implicitly prohibit participants from making disparaging or negative comments about the MLM, the MLM opportunity, any participants, executives, and/or employees of the MLM, and/or the products of the MLM (“non-disparagement clauses”)? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread among MLMs is the practice of requiring participants to agree to contracts that explicitly or implicitly prohibit participants from providing honest but negative statements or opinions to federal or state governments about the MLM, the MLM opportunity, any participants, executives, and/or employees of the MLM, and/or the products of the MLM? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread among MLMs is the use of other contract provisions or agreements that may directly or indirectly restrict current and former participants from speaking about their experiences, such as confidentiality or non-disclosure clauses and goodwill clauses? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread among MLMs is the practice of using or attempting to use contracts that contain non-disparagement clauses or other contract provisions or agreements that may directly or indirectly restrict current and former participants from speaking about their experiences, to restrict or attempt to restrict honest but negative statements or opinions to the public, and, in particular, recruits? Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices. In particular:
- Identify all instances where MLMs, in the past ten years, have asked current or former participants to cease and desist from violating a non-disparagement clause or providing honest but negative statements or opinions concerning the MLM, the MLM opportunity, any participants, executives, and/or employees of the MLM, and/or the products of the MLM. Provide all evidence that supports your answer.
- Identify any and all lawsuits or arbitrations filed in the past ten years involving MLMs that relate to non-disparagement clauses. Provide all evidence that supports your answer.
- Identify any and all lawsuits or arbitrations filed in the past ten years involving MLMs that relate to both (a) current or former participants providing honest but negative statements or opinions concerning the MLM, the MLM opportunity, any participants, executives, and/or employees of the MLM, and/or the products of the MLM, and (b) other contract provisions or agreements that may directly or indirectly restrict current and former participants from speaking about their experiences. Provide all evidence that supports your answer.
- Describe what any MLMs, including their participants, have told current or former MLM participants about non-disparagement provisions and/or their efforts to enforce said provisions. Provide all evidence that supports your answer, including any empirical data, consumer perception studies, or consumer complaints.
- Describe what any MLMs, including their participants, have told current or former MLM participants about how other contract provisions or agreements may directly or indirectly restrict current and former participants from speaking about their experiences. Provide all evidence that supports your answer, including any empirical data, consumer perception studies, or consumer complaints.
- What do current and former MLM participants understand about their (a) contracts with the MLM that contain non-disparagement clauses and (b) other contract provisions or agreement that may directly or indirectly restrict current and former participants from speaking about their experiences? Provide all evidence that supports your answer, including any empirical data, consumer perception studies, or consumer complaints. For example, provide any evidence relating to how many MLM participants refrain from providing honest but negative statements or opinions to the public and/or recruits and the motivation for their actions.
- Are there circumstances in which the practices described above regarding non-disparagement or similar contract clauses would not be deceptive or unfair? If so, what are those circumstances? Should the Commission exclude such circumstances from the scope of any rulemaking? Why or why not? If so, how should it craft such an exclusion? Provide all evidence that supports your answer.
- Do the practices described above regarding non-disparagement or similar contract clauses cause injury to consumers, and if so, how much? Do such practices cause injury to other businesses by unfairly disadvantaging them? Provide all evidence that supports your answer, including any evidence that quantifies or estimates these injuries.
- Do the practices described above regarding non-disparagement or similar contract clauses disproportionately target or affect certain groups, including communities of color or other historically underserved communities? If so, why and how? Provide all evidence that supports your answer.
- Is there a need for new regulatory provisions to prevent any of the practices above regarding non-disparagement or similar contract clauses? Why or why not? Provide all evidence that supports your answer.
- How should a rule provision addressing the practices described above regarding non-disparagement or similar contract clauses be crafted to maximize the benefits to consumers and competition while minimizing the costs to businesses and in particular small businesses? 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.
- Should a rule provision addressing the practices described above regarding non-disparagement or similar contract clauses contain any additional requirements prescribed for the purpose of preventing any of these practices? If so, describe the requirements. What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such requirements? 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.
- What alternatives to regulations should the Commission consider to address the practice described above regarding non-disparagement or similar contract clauses? Would those alternatives obviate the need for regulation? Why or why not? Provide all evidence that supports your answer.
- Do existing state or federal laws and regulations covering practices described above regarding non-disparagement or similar contract clauses affect businesses, particularly small businesses? If so, how? Provide all evidence that supports your answer.
- How widespread are deceptive or unfair refund policies among multi-level marketing companies? Are there certain business contexts in which the policies are prevalent, or certain business contexts in which they are not? If so, describe the relevant business context and the basis for your position. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such policies.
- How widespread are misrepresentations concerning real or purported earnings data or statistics concerning a particular industry in connection with multi-level marketing? Are there certain business contexts in which the practice is prevalent, or certain business contexts in which it is not? If so, describe the relevant business context and the basis for your position. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread are misrepresentations concerning the cost, or the performance, efficacy, nature, or central characteristics of multi-level marketing companies, the opportunity they offer, or the goods or services they offer? Are there certain business contexts in which the practice is prevalent, or certain business contexts in which it is not? If so, describe the relevant business context and the basis for your position. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread are misrepresentations concerning whether a particular MLM operates as a multi-level marketing company? Are there certain business contexts in which the practice is prevalent, or certain business contexts in which it is not? If so, describe the relevant business context and the basis for your position. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- How widespread is the practice of making misrepresentations, including unsubstantiated claims, relating to the relationship between work and success by an MLM participant? For example, this could include a deceptive claim that people who work hard are not going to fail at the business. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- For each of the “Other Deceptive or Unfair Practices” described above , explain whether additional regulation is needed with respect to these practices assuming the rule proposed in the NPRM is finalized and, if so, how widespread such practices are. Provide all evidence that supports your answer, including any evidence, such as empirical data, consumer perception studies, or consumer complaints, that demonstrates the extent of such practices.
- Are there circumstances in which any of the “Other Deceptive or Unfair Practices” described above would not be deceptive or unfair? If so, what are those circumstances? Should the Commission exclude such circumstances from the scope of any rulemaking? Why or why not? If so, how should it define such an exclusion? Provide all evidence that supports your answer.
- Do any of the “Other Deceptive or Unfair Practices” described above cause injury to consumers, and if so, how much? Do such practices cause injury to other businesses by unfairly disadvantaging them? Provide any evidence that quantifies or estimates these injuries if possible. Provide all evidence that supports your answer.
- Do any of the “Other Deceptive or Unfair Practices” described above disproportionately target or affect certain groups, including communities of color or other historically underserved communities? If so, why and how? Provide all evidence that supports your answer.
- Is there a need for new regulatory provisions to prevent any of the “Other Deceptive or Unfair Practices” described above? Why or why not? Provide all evidence that supports your answer.
- How should a rule provision addressing some or all of the “Other Deceptive or Unfair Practices” described above be crafted to maximize the benefits to consumers while minimizing the costs to businesses and in particular small businesses? 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.
- Should the proposed rule contain additional requirements prescribed for the purpose of preventing any of the “Other Deceptive or Unfair Practices” described above? If so, describe the requirements. What are the benefits to consumers and competition, and costs to businesses, and in particular small businesses, from such requirements? 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.
- What alternatives to regulations should the Commission consider to address the “Other Deceptive or Unfair Practices” described above? Would those alternatives obviate the need for regulation? Why or why not? What evidence supports your answer?
- Do existing state or federal laws and regulations covering the “Other Deceptive or Unfair Practices” described above affect businesses, particularly small businesses? If so, how? Provide all evidence that supports your answer.
- Are there other commercial acts or practices related to earnings claims that are deceptive or unfair that should be addressed in a proposed rulemaking? If so, describe the practices. How widespread are the practices? Provide all evidence that supports your answer, and please answer the questions posed above regarding the “Other Deceptive or Unfair Practices” with respect to the practices you identify.