H.R. 3409

 

Bipartisan Consumer Protection Legislation Combats Pyramid Schemes

H.R. 3409, the Anti-Pyramid Promotional Scheme Act of 2017, bipartisan consumer protection legislation introduced 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 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.

 

 

H.R. 3409: The Facts

  • Pyramid schemes are illegal and should be prosecuted to the fullest extent of the law. However, there is currently no set definition of a pyramid scheme in federal statute. 
  • H.R. 3409, the Anti-Pyramid Promotional Scheme Act of 2017, is bipartisan consumer protection legislation introduced by Reps. Marsha Blackburn (R-TN) and Marc Veasey (D-TX).
    • This proposal would clearly 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 help consumers avoid illegal scams and provides definitive guidance to direct selling companies on acceptable, ethical business practices.
    • In the 114th Congress, H.R. 5230 — the previous iteration of the bill — garnered support from more than 30 members of Congress, including members of the Congressional Hispanic Caucus, Congressional Black Caucus, Direct Selling Caucus, and Energy & Commerce Committee, as well as a variety of industry and non-profit organizations.
  • H.R. 3409 will provide clarity to consumers by defining a pyramid scheme for the first time in federal statute, making it clear that:
    • Evidence of a pyramid scheme exists when participants are compensated primarily for recruiting other participants, as opposed to retail sales;
    • It is a legitimate business practice, not evidence of a pyramid scheme, when participants purchase reasonable amounts of products for their own use; and
    • Individual direct sellers are protected from financial risk by requiring all direct selling companies to repurchase unused, marketable inventory at 90% of the original net cost. This provision is already enforced by the Direct Selling Association (DSA) and its member companies.
  • None of the key provisions of H.R. 3409 are overly complicated. The legislation simply says that a scheme exists when compensation is based primarily on recruitment rather than retail sales, and that personal use of products by salespeople is a legitimate business practice in direct selling.
  • This legislation does nothing to change the Federal Trade Commission’s (FTC) existing enforcement authority against schemes. Instead, it would provide a federal definition of a pyramid scheme under federal statute. Pyramid schemes are clearly defined in all 50 states.
  • If passed, this legislation would ensure that individual direct sellers are protected from financial risk by requiring all direct selling companies to adopt the same gold standard buyback policy as is already required under DSA’s rigorous Code of Ethics that all member companies must adhere to.
  • Currently, DSA member companies must buy back unused merchandise at 90 percent or more of the original net cost. This legislation would make non-compliance with this a federal offense, an unparalleled consumer protection not seen outside of the industry.

 

Your help is needed in support of this vital consumer-protection legislation. Visit DSA’s Direct Selling Advocacy Center to learn more.


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