ISSUE: The Disclosure Document(UFOC or Rule Format) cover page should be changed to better reflect the role of the Federal Trade Commission (FTC) and the affected State Laws and Regulations.
RATIONALE: The current language on the front page of the disclosure document is confusing and misleading to a prospective franchisee that is not familiar with the laws and regulations a franchisor is subject to. Although the boiler plate language indicates that the FTC has not checked it and does not know is correct, a prospective franchisee assumes that this document is in compliance with the regulations (it has an statement of the FTC that states: 'To protect you ... et seq.". This assumption and inference of legitimacy, reliance and veracity of the information contained in the Disclosure document is further assumed by the fact that the Disclosure document may be filed in some State or Federal office that has jurisdiction over this type of business.
Since there is no private right of action for a violation of the franchise rule, the only resource a franchisee has, in case of litigation, is to enforce the franchise rule under the State unfair trades practice laws or Little FTC Acts. Although the State courts will consider violation of the franchise rule under their "unfair trade practices laws", the majority of the States that do not have their own franchise laws are not prepared to handle complaints and litigation regarding franchise matters. After all, it is a federal law, a federal regulation. I don't understand why the States that do not have Franchise laws, wouldn't adopt by reference the Franchise Rule 16 CFR 436. 1.
As we all know, the FTC has plenary authority to enforce the franchise rule, however in the majority of the franchise cases (complaints that the FTC receives), the chance of the FTC to be involved and send a notice of violation and issue a consent order is very slim (almost non existent) due to their limited resources. In order for the FTC to take an action against a franchisor or justify a finding of unfairness the consumer injury must satisfy three tests: 1) it must be substantial ( this is the most difficult to meet since franchisees complain one at the time in contrast with a wide spread business opportunities or a pyramid schemes where there are large numbers of consumers affected. Ironically, a single franchisee or a handful of franchisees will lose a total amount of money equal to or greater than thousands of consumers involved in business opportunities or pyramid schemes) ; 2) it must not be outweighed by any countervailing benefits to consumers or competition that the practice produce; and 3) it must be an injury that consumers themselves could not reasonably have avoided.
REVISED PAGE: I propose the following wording to be used in the first and second page of the franchisor's disclosure document (UFOC or Rule format).
INFORMATION FOR PROSPECTIVE
Internet Address: www.ftc.gov
Pennsylvania Avenue and Sixth Street, NW
Washington, DC 20580
Franchisors doing business in the U.S [includes foreign franchisors doing business in U.S and U.S franchisors doing business in foreign countries (international franchisor)] are subjected to the following regulations: Federal law: Section 5 of the FTC Act, 15 U.S.C., Section 45., Unfair or Deceptive Acts or Practices. Specifically, the Franchise Rule or 16 CFR 436.1
State Law: Unfair Trade Practices Law ("Little FTC "or "Baby FTC" Acts for States that do not have franchise laws and State Franchise Laws (for States that have enacted franchise specific laws) along with State Administrative Code regulations.
TO INFORM YOU, WE HAVE REQUIRED YOUR
FRANCHISOR TO GIVE
THE FEDERAL AND STATE GOVERNMENT
HAS NOT REVIEWED THIS
ENFORCEMENT OF THE FRANCHISE RULE
IF YOU FIND ANYTHING THAT IS MAY BE WRONG OR ANYTHING IMPORTANT THAT'S BEEN LEFT OUT, YOU SHOULD LET US KNOW ABOUT IT. IT MAY BE AGAINST THE LAW.
HOWEVER, WE WANT TO ADVISE YOU THAT THERE IS NOT A PRIVATE RIGHT OF ACTION FOR VIOLATION OF THE FRANCHISE RULE
In order for the FTC to take an action against a franchisor or justify a finding of unfairness, the consumer injury must satisfy three tests: 1) it must be substantial; 2) it must not be outweighed by any countervailing benefits to consumers or competition that the practice produce; and 3) it must be an injury that consumers themselves could not reasonably have avoided.
CONSULT YOUR FRANCHISE LAWYER TO ADVISE YOU ABOUT LAWS AND REGULATIONS OF THE STATE A LITIGATION MAY TAKE PLACE
FILING OF DISCLOSURE DOCUMENT
THE FTC DO NOT RETAIN A COPY OF THIS DISCLOSURE DOCUMENT
The FTC does not require filing of this document and the majority of the States do not require filing either. There are only 15 States that have enacted franchise laws (they may require either registration or filing or both). There are States with Business Opportunity laws (they may require registration and filing or both or no registration or filing at all). Please call your local States Agencies that administer the Consumer Protection Laws to know your rights prior to signing your franchise agreement.
LAWS AND REGULATIONS
The franchisor shall be required to give you with this disclosure document the FTC Franchise Rule or 16 CFR 436.1 Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunities Ventures along with applicable laws and regulations of its home State (since they will be subject to the laws and regulations of that State) and the prospective franchisee home State laws and regulations (where you will be doing business). Since a prospective franchisee may be facing a "choice of law" before signing the Franchise Agreement, it is wise to know your rights. You should know the applicable laws before investing in the event of a dispute that requires litigation after you sign your Franchise Agreement.
THE FRANCHISE AGREEMENT STATES THAT CERTAIN STATE LAWS MAY GOVERNS THE AGREEMENT, AND THOSE LAWS MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU SHOULD COMPARE ALL APPLICABLE LAWS.
FOR FURTHER INFORMATION AND TO FIND OUT ABOUT LAWS AND REGULATIONS, YOU MAY CONTACT THE FTC WEB SITE AT WWW.FTC.GOV. OR ANY STATE AT WWW.STATE. (type the two initial for the state you want to search i.e., www.state.FL. us). US.
IN ADDITION, YOU MAY WISH TO CONSULT OTHER WEBSITES. BE AWARE THAT IN THE FRANCHISE INDUSTRY YOU ARE GOING TO ENCOUNTER A LOT OF PUBLICITY AND ADVERTISING ABOUT BUYING, OWNING AND OPERATING A FRANCHISE. DO YOUR DUE DILIGENCE. DO AS MUCH RESEARCH AND INVESTIGATION AS YOU CAN ABOUT THE FRANCHISE OPPORTUNITY THAT YOU ARE INTERESTED IN PURCHASING
Respectfully submitted by Teresa Heron
2712 Charleston Ct