Every year, far too many unsuspecting Americans fall victim to pyramid schemes. Sold on the hopes of economic freedom that direct selling can deliver, many find themselves stuck with unmovable inventory and mountains of debt. Worse, operating under the guise of a reputable direct selling business, these schemes often target the most vulnerable among us such as single parents, immigrants and retirees. I have long said that the fundamental goal of American government is to protect the people and to make sure they are provided with the environment to succeed. These illegal, get-rich-quick schemes hurt unsuspecting consumers and aspiring entrepreneurs, and they need to be stopped.
Small businesses in towns across the country drive the American economy. They embody the spirit of this country – personal entrepreneurship and the desire to leverage hard work for a better life. They allow Americans the opportunity to craft and live their own American Dream. Direct selling is a part of that culture and has been providing Americans with the ability to start their own, personal small business for decades.
I was a direct seller. To help pay for college, I sold books for Southwestern Company, out of Nashville. I was thrilled to have the opportunity to work on commission and to decide how much I wanted to work and how much I wanted to earn. I learned very quickly that the harder I worked, the smarter I worked; and the more diligent I was, the better my chance of closing sales and earning more money.
It had a tremendous impact on my life and my understanding of the business process. The experience has helped me in every aspect of my life – starting my own small business, running for public office and raising a family. Across the country, there are countless stories like this of people using direct selling as a stepping stone, a launch pad, an educational experience or a life-changer.
This is an industry today that offers a business opportunity to over 20 million people, including over 280,000 Tennesseans, and pumps tens of billions of dollars into the American economy each year. Unfortunately, like many Americans, I’ve also seen instances over the years where a few bad actors have engaged in fraudulent pyramid schemes and abused the trust that consumers have with direct selling.
While many states, including Tennessee, have already taken measures to fight back against pyramid schemes through legislation, it might surprise many to learn that no such legislation currently exists at the federal level. This gap should be addressed and that’s why I’ve introduced the bipartisan Anti Pyramid Promotional Scheme Act of 2017 along with Rep. Marc Veasey (D-Texas).
Our bipartisan bill will correct this oversight by adding a definition to federal law so that direct selling participants will better understand the difference between a legitimate business and a predatory scheme. Principally, it will define a pyramid scheme as an organization where participants are primarily compensated from recruiting new members, not from selling actual products. It will help ensure that participants are encouraged to only use and sell products in reasonable quantities, discouraging “inventory loading” and other practices that entice people to overbuy products to maintain perks and benefits. Finally, it will help protect participants from financial risk by requiring direct selling companies to buyback unused, marketable inventory at 90 percent of the original cost.
The direct selling industry in America was responsible for retail sales of $35.53 billion in 2016. It provides millions with a means to earn a steady income, the ability to self-employ and economic opportunities that may not otherwise be available. The government should be doing everything possible to support these small business entrepreneurs, while at the same time protecting consumers and targeting the bad actors.
I was not a victim when I sold books for Southwestern, and my customers were not victims when they bought books from me. This bill protects aspiring business owners against predatory pyramid schemes, provides the federal government with a legal standard and enforcement authority to prosecute bad actors, and makes the marketplace safer for consumers. For the millions who benefit from direct selling, I am hopeful the Anti Pyramid Promotional Scheme Act will be passed this year.
Blackburn represents Tennessee’s 7th District in the U.S. House of Representatives.
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