Thursday, October 28, 2010

FTC Should Expand Coverage, Streamline Disclosures of Business Opportunity Rule: Staff

This posting was written by John W. Arden.

The Federal Trade Commission should expand coverage of its Business Opportunity Rule to cover work-at-home businesses and streamline required disclosures in an “easy-to-read” document, the FTC staff recommended in a report released today.

The proposed changes are intended to make it easier for legitimate business opportunity sellers to comply with the rule, while continuing to protect business opportunity purchasers from fraud, according to the report.

Text of the 174-page staff report, a news release, and the Federal Register notice appears on the FTC website. The Commission solicited public comment on the staff report through January 18, 2011.

Franchise Rule Revision

On January 23, 2007, the FTC approved the first revision of the 1979 franchise disclosure rule (16 CFR Part 436, “Disclosure Requirements and Prohibitions Concerning Franchising”). At the same time, the agency issued an interim rule for business opportunity ventures (16 CFR Part 437, “Disclosure Requirements and Prohibitions Concerning Business Opportunities”). Previously, the franchise rule covered the sale of both franchises and business opportunities.

Notice of Rulemaking

The FTC had published a Notice of Proposed Rulemaking for a separate, narrowly-tailored trade regulation rule covering business opportunity sales (“Business Opportunity NPR,” 71 Federal Register 19054, April 12, 2006).

The agency received more than 17,000 comments, the overwhelming majority from the multi-level marketing industry, which expressed concerns about the burdens the proposed rule would have on them. The Commission also received 187 comments from individual consumers and consumer groups in favor of the proposal.

It published a revised Notice of Proposed Rulemaking in 2008 (73 Federal Register 16,110, March 28, 2008) and conducted a public workshop on June 1, 2009 on the proposed amended disclosure requirements.

Contents of Report

The report summarizes the rulemaking record to date, analyzes the alternatives, and sets forth the staff’s recommendations for the proposed rule and the disclosure form to be used under the rule. The report has not been endorsed or adopted by the Commission.

Staff recommendations included that the Commission should retain the business opportunity rule, that enforcement history demonstrated a need for the rule, compliance with the proposed rule is less burdensome than compliance with the current rule, and that the proposal avoids broadly covering all multi-level-marketing companies.

Under the proposal, business opportunity sellers would be required to make disclosures of information to potential buyers in a one-page document in English or Spanish. The information includes identifying information of the seller, an indication of whether the seller was making earnings claims, legal actions within 10 years, any cancellation or refund policy, and contact information of 10 business opportunity purchasers within the last three years.

The proposed disclosure document appears in English and Spanish on the FTC website.

Public Comments

Interested persons may submit comments on the staff report through January 18, 2011. Comments filed in electronic form should be submitted here. Comments filed in paper form should be mailed or delivered to: Federal Trade Commission/Office of the Secretary, Room 113, Annex S, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580.

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