FTC Issues Proposed Rule and Announces Possible Additional Rulemaking to Deter Deceptive Claims by Multi-Level Marketers
On January 13, 2025, the FTC issued a Notice of Proposed Rulemaking (NPRM) for a new Earnings Claim Rule Regarding Multi-Level Marketing (MLM). In the NPRM, the FTC asserts that “[t]he vast majority of MLM participants will not earn an income commensurate with full-time or part-time employment, and they actually will earn little or no income or lose money.” Citing the Commission’s review of public income disclosure statements from 70 MLMs, the FTC states that “nearly every MLM where the figure could be calculated from the data the MLM self-reported in its disclosure statement, the vast majority of participants made $1,000 or less annually, before expenses.” Noting that deceptive earnings claims and statements that misrepresent an MLM as an employment opportunity violate Rule 5 of the FTC Act, the FTC alleges that deceptive earnings claims are common and an Earnings Claim Rule is necessary to arm the FTC with additional tools to combat unfair and deceptive conduct.
The proposed new Rule would prohibit (1) misleading earnings claims, (2) making earnings claims without a reasonable basis, (3) misrepresenting MLMs as an employment opportunity, and (4) making any misrepresentations or unsubstantiated claims that prevent consumers from learning truthful information about earnings. Additionally, the Rule would require MLMs to provide substantiation about earnings to anyone who requests it. The NPRM includes a lengthy list of questions for comment. Comments will be due 60 days after publication of the Federal Register Notice.
In addition to the Earnings Claim NPRM, the FTC also published an Advanced Notice of Proposed Rulemaking (ANPRM) requesting public comment regarding additional rule provisions that would address deceptive earnings claims regarding MLMs as well as other potentially deceptive or unfair practices used by those offering MLMs that should be covered by potential new rule provisions. These additional questions broadly cover whether earnings disclosures should be required, whether current MLM participants should be provided with objective earnings data, whether a cooling off or waiting period should be required before a participant can join or pay money to an MLM, whether there is widespread deception around compensation plans, and whether there is widespread use of non-disparagement clauses that prevent current and former participants from speaking truthfully about their experiences with an MLM. As with the NPRM, comments will be due 60 days after publication of the Federal Register Notice.
We are happy to assist your company in preparing written comments on the NPRM, APRM, or both.
