Anne T. Coughlan: Anti-Pyramid Scheme Bill Would Protect Consumers and Entrepreneurs

Anne T. Coughlan, Polk Bros. Chair in Retailing and professor of marketing at Kellogg School of Management at Northwestern University: The hallmark of a pyramid scheme is a plan that compensates participants for recruiting others into the plan. The Blackburn-Veasey legislation [Anti-Pyramid Scheme Protection Act of 2017 (H.R. 3409)] addresses this ill through prohibition against compensation based primarily on recruiting, combined with requirement for companies to repurchase inventory from distributors who leave the business. These provisions ensure that purchase and consumption of products by participants are voluntary, not forced as with illegal schemes. Research confirms that many who join direct selling companies as distributors do so after first trying and enjoying the products. Their purchase and consumption of products is no less an “ultimate sale” the day after becoming a distributor than it was the day before. From an economic and marketplace perspective, those are legitimate consumer purchases, and they should not brand a direct selling company as a pyramid or eliminate the sponsoring distributor’s right to earn compensation on those purchases. This proposed legislation imposes clear and reasonable obligations on direct selling companies and provides sensible protections for the consumer, while allowing the FTC to continue to enforce actions against pyramid schemes. Read more in the Morning Consult.

Direct Selling Association

Direct Selling Association

Direct Selling Association (DSA) is the national trade association for companies that manufacture and distribute goods and services sold directly to consumers.