House bills aim to 'protect' future franchisees

House Democrats want to make sure franchisees have accurate financial information before buying a business.

Backed by Reps. Jared Huffman (D-Calif.) and John Conyers (D-Mich.), Rep. Keith Ellison (D-Minn.) introduced two bills on Friday — the Fair Franchise Act of 2015 and the Small Business Administration (SBA) Franchise Loan Transparency Act — that would force franchisors to write transparent franchise agreements and release business data.

The Fair Franchise Act of 2015 calls for transparent franchise agreements that prevent misleading or false information. The bill would prohibit mandatory arbitration and allow franchisees to not only discuss their experiences with the brand but join franchise associations.

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The SBA Franchise Loan Transparency Act would require any franchise business obtaining an SBA-guaranteed to receive average unit revenues and failure rates for the previous five years from the franchisor in their Franchise Disclosure Document.

“If we want an economy built on fairness, we must protect the Americans investing, hiring, and paying taxes in our communities,” Ellison said in a news release. “But the current model for franchising tilts the balance of power too strongly to the franchisor.” 

But the International Franchise Association called the legislation an unnecessary attempt to fix a problem that doesn’t exist.

“For five years running, franchising continues to outpace growth of the overall U.S. economy,” said IFA President & CEO Steve Caldeira said in a statement. “Representative Ellison’s new legislation is a misguided attempt to ‘protect’ franchisees by burdening them with new regulations and restrictions on how they run their businesses.” 

Caldeira said Ellison should focus on promoting policies that actually create jobs, instead of policies that stifle job growth.