Bipartisan Consumer Protection Legislation Combats Pyramid Schemes

The Anti-Pyramid Promotional Scheme Act of 2017, H.R. 3409, bipartisan consumer protection legislation introduced July 26 by Reps. Marsha Blackburn (R-TN) and Marc Veasey (D-TX), will help consumers avoid illegal scams, and provide definitive guidance to direct selling companies in the industry on acceptable, ethical business practices.

H.R. 3409 is based on dozens of state laws, judicial decisions, and Federal Trade Commission (FTC) guidance on legitimate business practices. Clarifying what constitutes a scheme would not alter the FTC’s existing enforcement authority regarding pyramid schemes [Section 5, FTC Act (15 U.S.C. 45)].

Pyramid schemes have been prosecuted successfully under federal law for decades. These schemes seek to mislead and defraud consumers by masquerading as direct selling companies, creating confusion about legitimate and illegitimate business practices in the marketplace. Greater clarity in federal law will help consumers steer clear of pyramid schemes and give direct selling companies more guidance on ethical business practices.

H.R. 3409 would define a pyramid scheme for the first time in federal statute, using the same definition as codified by 21 state legislatures and in numerous court decisions. It would also require all direct selling companies to adopt the same gold standard buy-back policy as required under DSA’s Code of Ethics.

Providing Clarity to Consumers

H.R. 3409 makes clear that:

  1. Evidence of a pyramid scheme exists when participants are compensated primarily for recruiting other participants, as opposed to retail sales;
  2. It is a legitimate business practice, not evidence of a pyramid scheme, when participants purchase reasonable amounts of products for their own use; and
  3. All companies are required to protect individual direct sellers from financial risk by repurchasing unused, marketable inventory at 90% of the original net cost.

Roadmap from State Law, Judicial Decisions, FTC Guidance

H.R. 3409 is based on dozens of state laws, judicial decisions, and Federal Trade Commission (FTC) guidance on legitimate business practices. Clarifying what constitutes a scheme would not alter the FTC’s existing enforcement authority regarding pyramid schemes [Section 5, FTC Act (15 U.S.C. 45)].

This legislation is a roadmap that can help consumers steer clear of scams.

“At the end of the day, this is all about protecting American consumers,” said DSA President Joseph N. Mariano. “DSA is committed to continually pushing the industry towards greater self-regulation and transparency, and has long worked to promote strong consumer protection legislation at the state and federal level. DSA and over 150 of our member companies strongly support a federal statute to provide a sanctioned definition of a pyramid scheme.”

DSA appeals to all direct selling company executives and salesforce members to contact their Members of Congress to support this legislation. Through DSA’s Direct Selling Advocacy Center, you can transmit letters in support of the legislation. There are also options to share your support on a variety of social media channels.

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.