FTC Releases Business Guidance for Multi-Level Marketing

Multi-level marketing has its own unique set of challenges, from networking to finding flexible merchant services (e.g. MLM merchant account). Unlike a traditional business, a MLM company is derived from a non-salaried workforce (also known as, salespeople, consultants, distributors, independent businesses owners, etc.). While there are countless multi-level marketing companies that are legitimate and profitable, there are others that have controversial policies.

The Federal Trade Commission recently released the Business Guidance Concerning Multi-Level Marketing in an effort to clear up frequently asked questions to assist multi-level marketers in evaluating their business practices. In short, the aim of the FTC Act, according to the Federal Trade Commission, is to:

  • (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce;
  • (b) seek monetary redress and other relief for conduct injurious to consumers;
  • (c) prescribe rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices;
  • (d) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and
  • (e) make reports and legislative recommendations to Congress and the public.

The Business Guidance Concerning Multi-Level Marketing expands on several of the above principles of the FTC Act to provide more clarity for MLMs. It also assures that FTC staff will be diligent in assessing whether a company has successfully followed through and has avoided committing unfair and deceptive acts or practices of the FTC Act. Some of the key points of The Guidance include:

Internal Consumption – In some cases, purchases from participants in the business opportunity may be permissibly counted as genuine retail sales. However, each case will be based off a fact-specific inquiry.

Receipts – While retaining and validating receipts is not a requirement, the FTC does recommend that sufficient documentation is maintained to ensure that actual sales are made to real customers.

Buyback Provisions – The FTC says buyback provisions are helpful in preventing unfair and deceptive acts like inventory loading and unlawful conduct, but such policies do not prevent the potential for unlawful conduct altogether.

Claims – The Guidance explains that lifestyle and earning claims that are only attained by a small subset of participants – not the typical participant – are misleading. In addition, representations about the capacity to “fire your boss” or “become stay-at-home parents” and full-time income can present compliance issues.

Compliance Program – The FTC makes it clear that it is not enough to nominally adopt a compliance program. MLMs must ensure that the company develops, maintains, and complies with the policies.

All in all, the principles laid out in the Guidance is not new information for most MLMs. Rather, the Guidance seeks to remind MLMs that compliance inquiries do involve gray areas and are multi-faceted. For new and established MLM companies, it is critical that they establish and evaluate their business practices and compliance programs considering the Guidance.

Author Bio: Electronic payments expert, Blair Thomas, co-founded eMerchantBroker in 2010. His passions include writing/producing music, and travel. eMerchantBroker is America’s No. 1 MLM merchant account company, serving both traditional and high-risk merchants.