Op-Ed in The Hill by Mario Lopez: Anti-pyramid scheme legislation is necessary to protect consumers from fraud

November 13, 2017

Today, the Hispanic population in our country has more economic and purchasing power than ever before, and Hispanic small businesses are steadily on the rise. With annual revenues exceeding $660 billion, Hispanics entrepreneurs make up one-fourth of all new businesses in the U.S.

Direct selling is one avenue that many people have used to get a leg up in America, and start their own business. Setting your own hours and being in control of your own income is appealing to many who possess a strong work ethic and an entrepreneurial spirit. Many people also start a direct selling business as a second job, looking for a way to earn some extra money to contribute to their family’s income, save for retirement, or chip away at student loans. These hardworking Americans are looking for opportunity, and direct selling provides them with the empowerment and independence they are looking for.

A full one-fifth of the 20 million direct sellers in America are Hispanic men and women. A community dedicated to the entrepreneurial spirit and the American dream, these small business owners provide valuable products to their communities, to meet the demand of their customers.

Unfortunately, as with many other industries, there are scammers who abuse the trust that consumers have in the direct selling industry, and often successfully lure unsuspecting people into pyramid schemes that take their hard-earned money, sometimes even their life savings. 

Recently, state governments have tightened up their laws around direct selling. It is time for the federal government to follow-suit—it is inexcusable that there is no federal law defining a pyramid scheme, which would help consumers and anyone who would choose to enter the direct-selling industry.

The ugly truth is that in many cases, pyramid scheme operators target vulnerable groups like immigrants, single mothers, and retirees. They prey on people seeking opportunity and financial freedom, and lead them down a path to financial ruin until their bank accounts are drained and their dreams are shattered. Pyramid schemes make promises of exorbitant income and massive wealth, but participants soon see that this is unattainable. This is why we need strong federal laws to protect both consumers and direct sellers, so that these predatory schemes come to an end and are prosecuted to the fullest extent of the law.

Fortunately, important legislation called, the Anti-Pyramid Promotional Scheme Act of 2017 (H.R. 3409), has been introduced in Congress to help put a stop to pyramid scheme scams. Drafted by Rep. Marsha Blackburn(R-Tenn.) and Rep. Mark Veasey (D-Texas), this legislation would take virtually the same language used in over 20 states, and the European Union, to prosecute pyramid schemes, and elevate it to the federal level. This language, which provides a clear definition of a pyramid scheme is tried and true for shutting down these destructive operations.

Many direct selling companies are already household names. Some of the products in your home may be from a direct seller. In a legitimate direct selling operation, a seller’s income is tied to their sales. They set their own hours and sales goals, and are compensated based on product sales. Pyramid schemes, on the other hand, pay compensation for recruitment rather than for product sales. That is the hallmark of a pyramid scheme: instead of selling quality products to the consumer, the financial incentive is primarily based on the recruitment of others.

The Blackburn-Veasey legislation is a definitive action against pyramid schemes, but does not pre-empt any state consumer protection laws, or encroach on the Federal Trade Commission’s current authority. It creates a strong federal standard, without dismantling what is already there and harming millions of American entrepreneurs.  We need laws with real teeth that is both pro-consumer and pro-small business.

Consumers deserve the certainty of knowing that the companies they buy products from are reputable and honest. Those looking for job opportunities to support themselves and their families should be confident that the company they work with is fair and transparent. The framework for these safeguards already exists, having been successfully used at the state level. Now it just needs to be codified at the federal level.

Mario Lopez is president of the Hispanic Leadership Fund, an advocacy organization that works for public policy that strengthens liberty, opportunity, and prosperity for all Americans.

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