Congress should crack down on predatory ‘pyramid schemes,’ not look away
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Congress this summer is considering whether to pass legislation that would fundamentally damage the ability of the Federal Trade Commission to protect consumers from pyramid schemes. As one of the commissioners of the FTC, I have a much different view. Americans lose millions of dollars to certain deceptive, unfair, and illegal multi-level marketing (MLM) opportunities each year. These deceptive and unfair schemes have affected people across America and, in many tragic cases, have ripped away a family’s entire life savings.

The FTC’s 40-year enforcement history shows that deceptive companies act illegally and cause enormous economic harm. In some cases, companies’ deceptive and misleading advertisements entice consumers with promises of high salaries, flexible working hours, and the chance to sell attractive products or services to customers.

These claims are often far from reality. Members leave the programs quickly – but not before losing thousands of dollars in fees and unwanted products. Sometimes, the business model may be fatally flawed because there is no product or service to sell or, if there is a product or service, insufficient actual retail demand exists. The regularity with which fraudulent companies target particular groups of people – such as low-income individuals, communities of color, immigrants, and students – is particularly objectionable.

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This economic loss suffered by countless Americans each year compels the FTC to aggressively police the MLM industry. In 2016 alone, we secured settlements with Herbalife and Fortune Hi-Tech Marketing (FHTM) that totaled nearly $210 million for the hundreds of thousands of consumers harmed by these schemes.

 

Beyond the 2016 Herbalife and FHTM settlements, the FTC has also taken recent, successful enforcement action against Vemma, which targeted young adults, and BurnLounge, an online music sales scheme through which consumers lost $17 million. These cases are but a small sample of the FTC’s aggressive policing of unlawful MLMs.

Shockingly, because of language attached to an appropriations bill, without a hearing or prior consideration, the House of Representatives is poised to pass a bill that would entirely stop the FTC from shutting down these kinds of scams. It would also stop the FTC from getting money out of scammers’ hands and back into consumers’ pockets. This language would handcuff the FTC and enable deceptive and unfair MLM schemes to continue to victimize consumers. 

Despite statements to the contrary, the language of the bill is entirely inconsistent with established case law. Rather, it simply allows illegal actors to hang window dressing and creates a safe harbor that would bar law enforcement. By doing so, it would effectively cripple the FTC’s enforcement efforts in this area, allowing untold harm to hardworking Americans.

The FTC’s critical consumer protection mission should not be undermined. With this amendment, the direct selling industry and its allies are employing the same deception that they have used on millions of consumers over the years. Lawmakers should not let themselves be deceived as to the true impact of the bill.

Removing this rider from the final appropriation bill is just a start. Similar proposals have been advanced in stand-alone legislation, and model statutes are currently being peddled to unwitting state legislatures across the United States. Congress and consumer advocates must remain vigilant to these ploys.

What the FTC requires of MLMs is simple, and we have offered guidance on this issue. In short, these businesses should make truthful representations and be built on real sales to real people. That’s what capitalism is all about. Anything less simply won’t do.

Terrell McSweeny is a commissioner serving on the Federal Trade Commission.


The views expressed by contributors are their own and are not the views of The Hill.