FTC Staff Offers Business Guidance Concerning Multi-Level Marketing

The Federal Trade Commission staff has released business guidance to help multi-level marketers (MLMs) understand and comply with the law.

Although there may be significant differences in how MLMs sell products or services, core consumer protection principles apply to all MLMs. Among other things, the business guidance explains how the FTC distinguishes between MLMs with lawful and unlawful compensation structures, how MLMs with unfair or deceptive compensation structures harm consumers, and how the FTC treats personal or internal consumption by participants in determining if an MLM’s compensation structure is unfair or deceptive. The guidance also addresses how an MLM should approach representations to current and prospective participants.

The guidance explains that an FTC determination as to whether an MLM violates the law involves a fact-specific evaluation and a careful investigation. It also states that orders against individual MLMs are not binding on the entire industry, but the provisions of these orders may provide useful guidance.

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