September 22, 2016
Contact: NCL Communications, Cindy Hoang, email@example.com, (202) 207-2832
Advocates urge Congress to reject legislation that promotes fraud in the direct selling industry.
Washington, DC—At a briefing held today for members and staff of the U.S. House of Representatives, a national consumer advocacy group, two Latino organizations, and a leading marketing industry expert urged opposition to H.R. 5230, the so-called “Anti-Pyramid Promotional Scheme Act of 2016,” which would significantly weaken federal protections against get-rich-quick scams known to target immigrant communities and minorities.
“The Federal Trade Commission is the critical cop on the beat, protecting consumers from pyramid schemes posing as legitimate multi-level marketing or business opportunity scams,” said John Breyault, National Consumers League (NCL) Vice President, Public Policy, Telecommunications and Fraud. “Were this bill to become law, it would decimate the FTC’s ability to take action against all but the most blatant pyramid schemes, leaving millions of consumers vulnerable to fraud.”
Leaders from NCL, the League of United Latin American Citizens (LULAC), and MANA, a national Latina organization, joined marketing professor William “Bill” Keep, Dean of The College of New Jersey’s School of Business, to discuss how many direct-selling companies profit from the illegal and unethical recruitment of vulnerable consumers rather than selling products to actual retail customers.
“H.R. 5230 would allow product based pyramid schemes to count the financial losses of the people they trick into the scheme as retail sales,” stated Brent Wilkes, LULAC National Executive Director. “It essentially legalizes pyramid schemes in which the recruitment of victims is the ultimate objective.” [See LULAC’s post on The Hill .]
As shown by its action to shut down energy drink seller Vemma in September 2015 and its settlement with nutrition company Herbalife, the FTC’s ability to bring effective enforcement actions against pyramid scheme behavior is critical for consumer protection. H.R. 5230, introduced in May 2016 by Rep. Marsha Blackburn (R-TN), would create an impossible standard for the FTC to meet in order to stop unfair and deceptive acts and practices by companies like Vemma and Herbalife.
“Pyramid schemes do great financial and social harm, create hundreds of thousands of victims in the United States annually, and fraudulently obtain many millions of dollars," added Bill Keep. "This legislation reverses decades of regulatory action and codifies permission for purchase and recruiting behaviors the courts have already identified as endemic to illegal pyramid schemes.
[See Bill Keep’s open letter to Congress on H.R. 5230.]
Supporters of H.R. 5230 claim that it would strengthen consumer protections. However, in June 2016, five national consumer organizations raised significant concerns about the bill. Writing to House Energy & Commerce Committee leadership, the groups stated that H.R. 5230 would “provide numerous carve outs and exemptions for all but the most blatant pyramid schemes.”
Amy Hinojosa, Executive Director of MANA, said: “Latina entrepreneurs should be supported and protected under the law, not exploited by legislation that gives a free pass to pyramid schemes.” [See MANA’s op-ed.]
About the National Consumers League
The National Consumers League, founded in 1899, is America's pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.