Amway Corporation, 7575 Fulton Street, East, Ada, Michigan 49355-0001
July 1, 1997
Ms. Myra Howard
Subject: Comment/Trade Regulation Rule on Disclosure Requirements and Prohibitions
Dear Ms. Howard:
We understand the Federal Trade Commission is accepting comment concerning proposed rulemaking on the Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 CFR 436. Amway would like to make the following comment.
By way of background, Amway Corporation is a manufacturer and marketer of a wide variety of home care and personal care products, sold by independent distributors who are independent contractors. These distributors sell products to family, friends and neighbors while interesting others to do the same. Amway distributors do business in all 50 states as well as over 75 countries and territories around the world. Amway was founded in 1959 and had global sales of $6.8 billion at estimated retail for the fiscal year ending August 31, 1996. Certainly, Amway is concerned about preserving the marketplace for legitimate businesses as well as protecting consumers who participate in that marketplace.
We would like to respectfully raise several concerns and offer several suggestions. First, should the Commission decide to adopt a separate definition of "business opportunity," Amway urges that this definition be fully consistent with existing state business opportunity laws. The Illinois Business Opportunity Sales Law of 1995, the most recently enacted state business opportunity law, would be an excellent place to start when examining the type of a definition to adopt on the federal level.
Further, the Illinois law, mirroring the current federal Rule as well as all the 22 states which have specific state business opportunity laws, clearly and explicitly recognizes that direct selling opportunities involving a small up-front payment should not be covered. The Illinois law does this by using a safe-harbor threshold which protects small income earning opportunities from coverage. In similar fashion, the federal Rule and all state business opportunity laws contain exemption thresholds.
Second, Amway strongly urges the FTC to raise the Rule's current $500 threshold to $1,000. Such a change would be fully consistent with the Rule's original intent in setting a realistic and fair threshold for small income-earning opportunities. Raising the threshold would properly adjust the 1978 figure for inflation, a figure which has been reduced in actual buying power to under $200 in the nearly two decades since the Rule was promulgated. It is imperative that small direct selling businesses continue to be protected from burdensome regulation which is simply not necessary in their case. Raising the coverage threshold to $1,000 would accomplish this objective.
Third, Amway firmly believes that coverage under a business opportunity definition should take place only when payments in excess of the threshold figure are required. When payments are made on a voluntary basis subject to a bona fide refund policy there is simply no need for coverage under the law. Such provision is used in nearly all state business opportunity laws.
Fourth, Amway suggests that the Trade Regulation Rule be consistent with the Illinois Business Opportunity Law in another area, excluding payments made at a bona fide wholesale price for a reasonable amount of inventory. We also suggest that any business opportunity definition specifically exclude payments for the not-for-profit sale of sales demonstration equipment, materials or samples, an exclusion found in virtually all state business opportunity laws.
Fifth, and finally, Amway suggests that the Commission create an exclusion from business opportunity coverage for companies offering a buy-back (inventory repurchase plan). Such an exclusion would be available when companies offer to repurchase on reasonable commercial terms currently marketable inventory, including sales aids, when a distributor leaves the business. "Reasonable commercial terms" would include the repurchase of unused marketable inventory within twelve (12) months from the sales person's date of purchase at not less than 90% of the salesperson's original net cost, less appropriate set-offs, if any.
Such language would encourage companies to offer bona fide buy-back policies and offer increased protection to the consumer. This provision has been adopted recently in both Texas and Oklahoma anti-pyramid laws (1995) and in the recently enacted Louisiana anti-pyramid law (1997).
Ms. Howard, on behalf of Amway Corporation, thank you for the opportunity to provide this comment.
Dirk C. Bloemendaal, Corporate Counsel