MLM & Affiliate Marketing

Does The FTC Franchise Rule Apply To MLM Offers?

Since the inception of the FTC Franchise Rule (16 C.F.R. § 436.1), the FTC has brought more than two hundred enforcement actions under the rule. The FTC has been particularly successful at stopping fraudulent business sales related to the sale of vending machines and rack displays. However, the FTC Franchise Rule has been unsuccessful at stopping many work-at-home and pyramid marketing schemes.
The FTC Franchise Rule seeks to prevent fraud by requiring franchisors and other business opportunity sellers to disclose material information to purchasers before consummating the sale. Under the Rule, a seller of a business, including a franchise, is legally obligated to disclose the following prior to a sale: 1) The seller’s name, address, principal place of business, type of business, and the name of parent company, if any; 2) The seller’s background, litigation history, and bankruptcy history; 3) The offer’s terms and conditions; 4) a statistical analysis of existing […]

Understanding The FTC Business Opportunity Rule

 
There are certain requirements to be followed for offering a franchise or a business opportunity. We have all seen the following types of claims on websites: “Be Your Own Boss!” …..“Work Part-Time from Home” …..“Earn $5,000 a month with our System”… “100% return on your investment guaranteed!” or “Quick and Easy!” …..“Start Earning Today.” These are all just a few examples of a typical ad by an affiliate or MLM that promote some form of business opportunity. All of these types of “opportunities” carry special and significant legal liability from a consumer protection standpoint.
 
The FTC Business Opportunity Rule
The FTC has a rule that governs offering business opportunities called the “Business Opportunity Rule” that is separate from the Franchise Rule. The FTC’s Franchise Rule used to cover both franchises and certain business opportunities until the interim rule was made effective. But, most business opportunities MLM’s and affiliates promote over the […]

MLM Income & Earnings Disclaimer Use 101!

 
Specific earnings and income claims entice the customer. These claims are often made in connection with offering business opportunities and with MLM plans online. Misleading earnings or income claims are deceptive and illegal in general under Section 5 of the FTC Act. But, they pose other concerns in connection with offering business opportunities and in selling MLM type plans.
The basic premise behind FTC endorsement disclosure requirements is that the advertiser cannot claim through an endorsement anything that cannot be claimed directly. Advertisers must have a reasonable basis and must be able to back up any specific claim made. Exaggerated earnings claims are deceitful and are always deceptive. Claiming extraordinary results by making a specific earnings or income claim that is not representative of the results achieved by a substantial number of consumers is deceptive. Advertisers are not free to make such direct claims without properly qualifying them through the […]

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