Multilevel Marketers ‘Dead End Debt Traps’ Targeted by FTC

The Federal Trade Commission has proposed new rules to challenge what it calls “false profit claims,” ​​and multi-level marketing companies — many of which operate in the nutrition and dietary supplement industries — are specifically in the game. sight of the regulators.

In March, the agency announced potential new regulations regarding false, misleading and unsubstantiated tax returns. In a Release, FTC said that inflated success claims are “used to attract consumers, workers. and would-be entrepreneurs in risky business ventures that often turn into dead-end debt traps.

“Consumers, workers and would-be entrepreneurs are being bombarded with supposedly lucrative opportunities that promise the world but leave them deeply in debt,” said Samuel Levine, Director of .FTC’s Consumer Protection Bureau. “The FTC will use every tool in its toolbox to deter this economic exploitation and compensate those who have been duped.”

The agency said it would seek tough penalties against multilevel marketers, for-profit colleges and “gig economy” platforms. and others who have been accused of attacking people’s hopes for economic progress, should a rule be finalized.

The FTC’s March action opened a 60-day public comment period, and if the agency decides to propose a trade regulation rule after that, its next step would be to issue a notice of proposed rulemaking.

The Direct Selling Association, which represents many multilevel marketing companies and “millions of micro-entrepreneurs across the United States,” publicized his comments filed last week, and cited “already strong ethics and self-regulation in direct selling.”

DSA asserted. its direct selling self-regulatory board “has a strong track record of monitoring the market for potentially problematic claims and engaging in prompt and effective follow-up to address the relatively rare instances where it finds distributors making claims. questionable, usually in social media.”

The fallout from the Supreme Court decision

The FTC’s proposed new regulations come as the agency grapples with the aftermath of a U.S. Supreme Court ruling last year that the FTC lacks the power to obtain a monetary relief in court under Section 13(b) of the FTC Act.

In his . announcement about the proposed regulations and potential penalties, the agency said the Supreme Court’s decision “hindered the FTC’s ability to seek monetary relief for consumers,” but it highlighted some of its concerns. “aggressive law enforcement action” that has netted consumers hundreds of millions caught up in what the FTC calls schemes. The FTC’s first example cited lawsuits and settlements with two multi-level health and wellness marketers.

The agency sued multi-level marketing companies Herbalife and AdvoCare, alleging they promoted high earnings even though most participants earned little or no money. In settlements with .FTC, Herbalife OK to pay $200 million and AdvoCare agreed to reimburse consumers $150 million.

In 2016, Herbalife CEO and President Michael Johnson said in a statement, “The agreements are a recognition that our business model is strong and underscores our confidence in our ability to move forward successfully, otherwise we would not have accepted the conditions”. The company then pledged to restructure the way it operates and promised that at least 80% of Herbalife product sales would involve sales to legitimate end users.

In a statement following the announcement of AdvoCare’s refunds, AdvoCare CEO Patrick Wright said the company “strongly disagrees” with the 2019 settlement with the FTC and “still valid”.[s] strong with US consumers on the reputation of our much-loved health and wellness products and we have been successful in our new business model. As part of their settlement, AdvoCare was banned from multi-level marketing.

FTC Commissioner Christine S. Wilson in another statementsaid she supports the idea of ​​public comment on possible new rules, although she “remains[s] skeptical that a tsunami of regulations will unleash to combat common unfair or deceptive acts or practices.

Regarding misleading tax returns, she cited a FTC 2020 Data Spotlight on income scams that reported the median loss associated with business and work-from-home opportunities was $3,000.

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