Next Step in the FTC’s Regulatory Package: Proposed Revisions to the Trading Opportunity Rule | Kelley Drye & Warren LLP
At today’s public meeting, the FTC voted unanimously to issue an Advance Notice of Proposed Rulemaking (ANPR) taking into consideration extensions and revisions to the existing Business Opportunity Rule (“BOR”). ) from the FTC. This will be the first revision of the BOR since its promulgation in December 2011. In her statement announcing the ANPR, Chairperson Khan noted that “[t]”rule had served the public well over the years”, but “several varieties of scams. . . fall outside the scope of the existing rule, [including] certain types of business coaching and work-from-home programs, investment programs, and e-commerce opportunities. In a familiar refrain from the FTC’s push for rulemaking, Chairman Khan argued that “case-by-case application has critical limitations, especially after the Supreme Court’s AMG decision.” concluding that the FTC had no authority to obtain equitable monetary relief under section 13(b). ).
Notably, the ANPR has not identified any specific proposals under consideration to broaden the scope of the rule, except to highlight work-from-home programs, investment coaching programs, and e-commerce opportunities like being generally outside the scope of the current BOR. ANPR also notes that the Commission may consider comments previously submitted in response to ANPR on income claims as an admittedly related undertaking (which we have discussed here) and noted that it “solicited and received comments on the following industries: multi-level marketers, for-profit schools and gig platforms” for this ANPR. Today’s ANPR does not specifically address direct selling companies, schools for-profit and/or the gig economy, although it remains possible that revisions to the BOR could potentially sweep away the practices of these groups.
What is the “Business Opportunity Rule”?
The BOR, as currently drafted, enforces a “business agreement” in which a “seller solicits a prospective buyer to engage in a new business”; the “prospective purchaser makes a required payment”; and “Seller expressly or by implication, orally or in writing, represents that Seller or one or more designees” (1) will provide locations for Buyer’s Equipment, such as a vending machine; (2) provide outlets, accounts, or customers for Buyer’s goods or services; or (3) repurchase some or all of the goods or services that Buyer manufactures or provides. The BOR was an offshoot of the original Rule on Disclosure Requirements and Prohibitions Regarding Franchising and Business Opportunity Businesses, which was later split into the Franchise Rule and the BOR.
The BOR requires sellers of business opportunities to provide a highly prescriptive disclosure document that includes information on possible earnings and related rationale, involvement in certain legal actions, cancellation or refund policies and related terms, along with a list of references who have purchased the business opportunity within the past three years. The current BOR also includes a list of prohibited claims and misrepresentations and prescribes requirements for sales in languages other than English.
What is the FTC seeking comment on?
ANPR invites comments on a range of specific and general questions related to the BOR, including:
- Whether the BOR or any specific provision of the BOR should be retained, eliminated or modified;
- Whether the BOR should be expanded to more broadly cover other types of money-making or business opportunities, including coaching or mentoring programs, e-commerce opportunities, and investment opportunities;
- If the BOR overlaps or conflicts with any other federal, state, or local laws or regulations;
- Whether changes are needed to address practices that disproportionately affect low-income communities, communities of color, and other historically underserved communities.
Interested parties will have 60 days after ANPR’s publication in the Federal Register to provide comments and feedback. Although Commissioner Wilson did not consistently vote for new ANPRs, she did vote for this ANPR and emphasized at the public meeting the need to correct market information symmetries and allow potential investors to take better decisions.