The Critical Components for Self-Regulation in Direct Selling
May 11, 2021 by Peter Marinello, Vice President, Direct Selling Self-Regulatory Council
At a recent conference involving multi-level marketing, FTC Commissioner Noah Philips expressed his support for independent industry self-regulation and the work being done by BBB National Programs’ Direct Selling Self-Regulatory Council (DSSRC) to monitor and review product and earnings claims disseminated by direct selling companies and their salesforce members.
Commissioner Philips commended both BBB National Programs and the Direct Selling Association (DSA) for reinforcing the important message that, because product and earnings claims made by salesforce members are attributable to direct selling companies themselves, it is incumbent upon those companies to educate their salesforces about best practices with respect to product and earnings claims and to monitor the claims being made by salesforce members.
Following Commissioner Philips’ remarks, the former Director of the FTC’s Bureau of Consumer Protection, Andrew Smith, provided a regulatory perspective of the direct selling industry on a panel with several other international thought leaders. Mr. Smith echoed the comments of Commissioner Philips that meaningful and effective self-regulation can be of significant benefit to reputable businesses that are committed to providing truthful and accurate information to consumers.
The comments of both Commissioner Philips and Mr. Smith alluded to two critical components of effective industry self-regulation that have been the focus of DSSRC’s efforts in working with the direct selling industry.
- Transparency: For a self-regulatory program to gain the trust and confidence of both consumers and competitors in the space, it is paramount that the case decisions and guidance provided be public so that industry members can learn both the fundamental principles and contextual nuances at issue. As Mr. Smith noted during his presentation, the determinations of all DSSRC inquiries – from formal written decisions to administratively closed summaries to government referrals – are made publicly available.
- Ongoing Industry Education: DSSRC has emphasized the importance of providing guidance to the direct selling industry through initiatives such as last year’s publication of DSSRC’s Guidance on the Use of Earnings Claims, our upcoming Direct Selling Summit, and our continual engagement with direct selling legal and compliance teams as part of our case work. These resources reflect feedback from industry members regarding the challenges and issues companies face when training salesforce members on the importance of truthful dissemination of product and earnings claims to consumers.
Similarly, DSA, the industry’s trade association, provides the direct selling industry with a plethora of educational resources including, among other things, conferences, webinars, meetings with legislators, and a Code of Ethics that, to remain in good standing, its members must adhere to.
Direct selling – when done correctly – can benefit distributors and consumers. Unfortunately, it only takes a few bad actors to compromise the integrity of an entire industry. The dissemination of unsupported claims and the over-embellishment of the amount of money that can be earned through a direct selling business opportunity is problematic. Left unchecked, bad actors can undermine consumer and regulatory confidence in the work being done by reputable direct selling companies that have committed to compliant business practices.
Though the industry has made significant strides to curtail the dissemination of unsupported claims regarding income potential by discouraging references to terms such as “financial freedom” and “replacement income” and deterring the use of lavish lifestyle depictions, there is still a great deal of work ahead of us to assure that the product and earnings claims communicated to consumers and potential salesforce members are truthful and accurate.
The direct selling industry faces difficult and important challenges in enhancing consumer and regulatory confidence in the marketing of its products and services. Successful and effective self-regulation has often been described as a marathon and not a sprint and, as such, requires ongoing commitment and participation from industry. Since our inception in 2019, DSSRC has been encouraged by the engagement and receptivity of the industry to our self-regulatory efforts, as well as the public support expressed by government agencies like the FTC and leaders such as the DSA to make the space a better one for salesforce members and the consumers they reach.