Following a September 2024 report outlining findings from public income disclosure statements of multi-level marketers (MLM), the FTC announced on January 13, 2025 two Notices of Proposed Rule Making (NPRM) and one Advanced Notice of Proposed Rulemaking (ANPRM) focused on multi-level marketing programs and money-making opportunities. The Commission voted 3-2 along partisan lines to issue these three notices. The proposals would enable the FTC to seek enhanced penalties from covered companies making deceptive earnings claims.
NPRM on Business Opportunity Rule
The NPRM expands the Business Opportunity Rule to cover additional “money-making opportunities,” such as business coaching opportunities and investment opportunities, for which a purchaser makes a required payment. Business coaching opportunities would be defined as “any program, plan, or product that is represented to train or teach a person how to establish or operate a business.”
Under the NPRM, sellers of money-making opportunities would be prohibited from making material misrepresentations and would have to maintain records of and substantiate earnings claims. The NPRM defines “earnings” as gross or net sales, income, profit, appreciation, or other financial gain. The NPRM exempts MLMs from the scope of this rule in light of the NPRM on the new Earnings Claim Rule Regarding Multi-Level Marketing (discussed below). Finally, the NPRM proposes re-titling the rule to “Business and Money-Making Opportunity Rule” to properly reflect its modified scope.
NPRM on Earnings Claim Rule Regarding Multi-Level Marketing
The NPRM would prohibit MLMs from making deceptive earnings and related claims and misrepresenting the opportunity to become an MLM participant as an employment opportunity. Similarly to the NPRM on the Business Opportunity Rule, MLM sellers would have to provide written substantiation for earnings claims and provide such substantiation to anyone upon request. The MLM seller would be required to maintain substantiation records for three years. Because this NPRM specifically addresses MLMs, the sellers covered under this Rule would be exempt from complying with the Business Opportunity Rule.
ANPRM on Earnings Claim Rule Regarding Multi-Level Marketing
The ANPRM seeks comments from the public on prohibiting MLMs from making misleading earnings claims and additional rule requirements for addressing related deceptive conduct, including:
- whether to require MLMs to provide earnings data to potential recruits and current MLM participants or to post such data on their websites;
- whether all MLM earnings claims should be accompanied by clear and conspicuous information about the earnings MLM participants can generally expect;
- whether there should be a waiting period before a recruit pays any money to the MLM or otherwise joins the MLM;
- whether to prohibit misrepresentations relating to expenses, benefits, or the compensation plan; and
- whether to prohibit MLMs from using non-disparagement or other “gag” clauses to prohibit participants from communicating truthful negative information to the Commission, potential recruits, or others.
Comments are due 60 days from when the proposals are published in the Federal Register.
Whether these rules progress through the rulemaking process depends on the decisions of the new Trump Administration. The White House could direct the Office of the Federal Register to refrain from publishing any pending rules, as previous presidential administrations have done soon after taking office. Additionally, Incoming FTC Chair Andrew Ferguson, joined by Commissioner Melissa Holyoak, previewed the fate of the NPRMs and ANPRM in their short dissenting statement. The two Republican Commissioners stated that the FTC should not be issuing or proposing new rules during the transition to the next Administration. It is possible for the FTC to rescind the rules, which would require a new vote of the Commission.
Copyright © 2025, Hunton Andrews Kurth LLP. All Rights Reserved.