FTC Proposes New Rule Targeting Deceptive Income Claims in MLM Industry

Many people who become involved in multilevel marketing express regret. If only they had been told the truth about their actual chances of success with the “business opportunity,” they might have chosen a different path.

In recent years, as targeted enforcement and self-regulation have failed to stem the near-universal use of deceptive income claims in the MLM industry, TINA.org has urged the FTC to take further action to make sure potential distributors aren’t misled about their prospects and have what they need to make an informed decision about whether to join an MLM, which often requires a significant upfront investment.

As part of these efforts, TINA.org in January 2022 filed a comment with the FTC requesting the agency implement a deceptive earnings claims rule that prohibits the marketing of atypical income claims, whether they are expressed (such as representations that distributors will earn a specific amount of money in their first few months of business) or implied (such as images of luxury cars or brand-new homes purchased with MLM earnings).

Three years later, the FTC announced this week that it was proposing a new rule that would specifically address false or misleading earnings claims in the MLM industry.

“Deceptive earnings claims are a widespread problem in this industry, and they have caused significant financial and other harm to consumers,” the FTC said.

Over the years, TINA.org has identified more than 13,000 instances of MLM companies and their distributors using atypical income representations in their marketing materials. Despite claims of attaining “financial freedom” or earning “career-level income,” few distributors are able to make a living with their MLM business. About half of distributors actually lose money, as they struggle to recoup their initial investment through further spending on inventory, training and marketing, leading to loss of savings, debt accumulation and – not infrequently – bankruptcy.

Under the proposed new rule, MLM companies and their distributors would be prohibited from making material misrepresentations, including about earnings, and required to have written substantiation to support any earnings claims and make that substantiation available to consumers upon request. The FTC is also exploring whether it should propose additional rule requirements for the MLM industry, such as requiring MLMs to provide information about typical earnings whenever they make earnings claims, or imposing a waiting period before recruits can join or pay any money to an MLM.

The agency also announced this week that it was proposing to expand its 2012 Business Opportunity Rule to cover “money-making opportunities,” such as business coaching and investment opportunities, but not MLMs, which TINA.org has argued should be included in the rule.

The FTC is asking the public to weigh in on all three issues by filing a comment (check back for updated information about filing comments).

Commissioners voted 3-2 to approve the issuance of the proposals. The commissioners who voted no did not object to the proposals on their merits but rather took issue with the timing of the proposals during a lame duck session with a new administration soon to take over.

TINA.org is hopeful that the new earnings claim rule is finalized and able to be enforced in order to help correct the informational imbalance that exists between prospective distributors and the MLMs recruiting them and hold deceptive marketers accountable.

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