Latino entrepreneurs have emerged as a driving force for the U.S. economy, strengthening communities and inspiring future generations of Americans. While these entrepreneurs pour their blood, sweat and tears into their businesses, however, they - and consumers across the country - face threats from proposed legislation that would give pyramid schemes free reign to prey on existing and aspiring Latino business owners and cheat working families out of their hard-earned savings.
H.R. 5230, the Anti-Pyramid Promotional Scheme Act, does exactly the opposite of its name: it guts the current legal standard for identifying a pyramid scheme, making it virtually impossible for federal regulators to prosecute these scams and enforce essential consumer protections.
A chief supporter of this bill is the Direct Selling Association, the lobbying group that represents the questionable interests of its members, including energy drink company Vemma, shut down by the Federal Trade Commission in 2015 for running a pyramid scheme, and nutritional supplement giant Herbalife, which the FTC found has been operating illegally to incentivize recruitment over genuine retail sales and ensnare consumers with deceptive marketing practices. No doubt that such efforts to deliver justice to consumers would be severely impeded were this legislation enacted.
Now that the FTC has ordered Herbalife – known to target Latinos – to “start operating legitimately” and restructure its business, it is crucial that the terms of its settlement with the company be enforced. The successful prosecutions of Vemma, BurnLounge, and similar schemes underscore the importance of combatting attempts to weaken laws that protect consumers and help to ensure fairness in the marketplace.
Regrettably, the Chairman of the Latino Coalition, Hector Barreto, called on Hispanic leaders to act against their best interests and support the bill (“Support Sensible Safeguards for Latino Small Businesses”). On behalf of Hispanic women nationwide, many of whom have been susceptible to these types of get-rich-quick-schemes, we must speak up and disagree in the strongest terms possible.
Barreto’s arguments for H.R. 5230 have not convinced any of the nation’s top consumer watchdog advocates. The National Consumers League, the Consumer Federation of America, Consumer Action, Consumer Watchdog, and U.S. PIRG have lined up in opposition to the bill, writing to House Energy and Commerce Committee leadership that it is “designed to make it harder for the FTC to challenge illegal pyramid schemes, placing consumers seeking small business opportunities at grave risk of being taken for a ride.”
Leading pyramid scheme experts also oppose the legislation, including former FTC economist Dr. Peter Vander Nat, who argued that “the bill would essentially eliminate prosecution of all except the most simplistic and blatant forms of pyramid schemes,” and that it “fails to enhance entrepreneurship of benefits to American society.”
If leaders in the direct selling industry are truly committed to consumer education and fraud protection, they should distance themselves from companies that rely on deceptive business practices to pervert the direct selling model. A good first step would be to abandon these efforts to hoodwink Congress and the American people with a bogus bill aimed at making it easier for unethical companies to profit. Latino business ownership should be supported and protected under the law, not exploited by legislation that gives a free pass to pyramid schemes at the expense of consumers.
Hinojosa is president and CEO of MANA, A National Latina Organization. MANA’s mission is to empower Latinas through leadership development, community service and advocacy.
The views expressed by authors are their own and not the views of The Hill.