October 02, 2017
H.R. 3409: A Bill to Protect All
by Joseph N. Mariano
I am proud of how direct selling truly is open to all, with its low risk and ease of entry, no requirement for formal qualifications or training or high capital investment, and with ease of exit should a participant decide it’s not for them. Direct selling can offer a route to entrepreneurialism to anyone who might otherwise lack another opportunity; as such, direct selling is thriving in all our communities and is increasingly representative of the rich diversity of the United States.
African-American and Hispanic-American entrepreneurs, particularly, recognize direct selling as an attractive, affordable way to start and build a business, in a manner of their choosing and conducive to their economic, family and social priorities. U.S. Direct Selling Association (DSA) figures show that a record 20.5 million people were involved in direct selling in the United States in 2016, a 1.5 percent increase from the previous year. Of those, approximately 9 percent are African-American and some 22 percent Hispanic-American.
People from all walks of life have forged significant businesses with direct selling. But for many, particularly from minority, immigrant and other underserved communities, direct selling serves as a vital supplement to a meager family income or, indeed, the only income for a single mom. Direct selling is a lifeline for those struggling to put themselves through school, or needing to stay close to home to care for sick or elderly family members. All these entrepreneurs deserve the strongest protection possible from bad actors.
Pyramid schemes target vulnerable populations. Masquerading as legitimate direct selling operations, they take advantage of those striving to better themselves and improve the lives of their families. Pyramid schemes offer no protections or safeguards to those involved; rather, they often impose high startup costs and convince unsuspecting participants to buy large amounts of products or services that cannot be easily sold or returned. Pyramid schemes harm consumers and legitimate direct selling companies. Pyramid schemes must be stopped.
All 50 states have laws defining and prohibiting pyramid schemes. However, despite these important protections in the states, no such legislation exists at the federal level, exposing entrepreneurs and consumers to the threat posed by pyramid schemes. The Anti-Pyramid Promotion Scheme Act of 2017, H.R. 3409, introduced by Representatives Marsha Blackburn (R-TN) and Marc Veasey (D-TX), is bipartisan legislation that provides a clear definition of pyramid fraud, making it easier to identify and prosecute these pernicious schemes.
H.R. 3409 will strengthen the Federal Trade Commission’s (FTC) ability to prosecute bad actors by formally banning inventory loading and by requiring all direct selling companies to guarantee individual sellers the right to sell back unsold inventory at 90 percent of the original net cost (a provision already enforced by the DSA Code of Ethics Administrator). When enacted, the FTC will be empowered to prosecute any company that fails to institute such a policy.
H.R. 3409 is a critical safeguard that protects direct selling—a provider of opportunity for all Americans, including recent immigrants, minorities, and other vulnerable members of our society. Above all, H.R. 3409 strengthens protections for entrepreneurs and their customers from the harm posed by pyramid schemes.
Direct selling will continue to be one of the most available routes to business ownership for minorities and recent immigrants. DSA strongly supports H.R. 3409 and urges all direct selling companies, individual company executives, and independent salespeople to do the same. Please visit DSA’s Direct Selling Advocacy Center at www.dsa.org/advocacy/direct-selling-advocacy-center to urge your elected representative to co-sponsor the Anti-Pyramid Promotion Scheme Act of 2017, H.R. 3409.
Joseph N. Mariano is President of the U.S. Direct Selling Association and the Direct Selling Education Foundation.