The MLM industry has, during the last 20 years, developed positive working relationships with regulatory agencies such as attorneys general and the FTC (Federal Trade Commission). There was a time, however, back in the 1970s, when the FTC challenged the legitimacy of the direct selling industry as being a pyramid scheme. They accused Amway of operating illegally and Amway prevailed in a very famous 1979 case [below] where it was held that the network marketing industry is a legitimate business model and the business opportunity is not a pyramid scheme.

No legal ruling has been more impactful on the direct sales industry than The Landmark Amway Case.

Afterwards, regulatory agencies and the industry went quiet until the 1990s when it was questioned whether or not product-using consultants were a legitimate end-destination for products or whether consultants were simply retail customers. There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations. The industry, with the cooperation of attorneys generals in more than a dozen states, were able to amend legislation in those states to recognize that personal use of product by distributors is a legitimate end-destination, just as if it were a retail sale.

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When you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations.

When you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations.

Part Two

The net result gave rise to the FTC amending its proposed rule to carve out an exception for direct selling/MLM companies. Direct selling companies would not be included in the rule. This was a victory for the network marketing industry since it didn’t want onerous rules inhibiting the more than 15-16 million people in the U.S. industry from operating a legitimate MLM business.

At this time, we are in a fairly good regulatory environment. Every direct selling company at any one time, however, is being sent questions of inquiry from regulatory agencies such as the Federal Trade Commission and attorneys general. This is simply part of doing business in this industry. So, when you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations. The regulatory agencies are just doing their job.

In the end there is always a balance of regulation that needs to be reached. Direct selling companies do it best when they take some initiative on their own to promote consumer protection by looking out for both their consumers and consultants. The reason the FTC ratcheted back on the business opportunity is because of the large influx of comments that flooded in from industry leaders, including MLMLegal.com and the DSWA. Industry-leading groups have been able to mobilize large groups of people who are passionate about the network marketing industry which helps our industry and serves a great purpose.

MLMLegal.com keeps you updated on changes being made in the direct sales regulatory environment. Visit our network marketing news pages or MLMLegal.com for the latest information on the network marketing industry.

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On March 1, 2012, a three decade rulemaking process of the FTC (Federal Trade Commission) will result in the implementation of the final FTC Business Opportunity Rule. Although the FTC’s summary of the Rule explicitly states that it is not the intent of the Rule to apply to companies that offer opportunities in the channel of distribution alternatively referred to as MLM/Multilevel Marketing/Direct Selling/Network Marketing, the actual Rule seemingly covers many areas of support provided by MLM companies, leaving the FTC rhetoric at odds with the actual Rule that has been adopted. The quasi- assurance of MLM industry exemption, granted in the summary text of the Final Business Opportunity Rule, is unfortunately taken back in the “footnotes” to the Rule and the Rule itself.

Read more about it HERE.