FTC Issues Proposed Rulemakings Related to Deceptive Earnings Claims

By Leonard L. Gordon & Nicole Yapp

As part of a flurry of activity before the change in its leadership, the Federal Trade Commission (FTC) announced proposed rulemakings regarding deceptive earnings claims by multilevel marketers and money-making opportunity sellers. Whether a Republican-led agency will finalize these proposals is far from clear. The proposed rulemakings include the following:

• A Notice of Proposed Rulemaking proposing amendments to the FTC’s Business Opportunity Rule (BOR)
• A Notice of Proposed Rulemaking proposing a new rule addressing deceptive earnings claims in the multilevel marketing industry (ECR)
• An Advance Notice of Proposed Rulemaking asking whether the FTC should propose additional rule requirements that would apply to the multilevel marketing industry

According to the FTC, the proposed changes to the BOR and the proposed ECR would work in tandem to allow the FTC to seek stronger relief from covered companies making deceptive earnings claims.

The proposed changes to the BOR would expand the rule to cover money-making opportunities, such as business coaching and investment opportunities. Other proposed amendments to the rule include clarifying the scope of its provisions relating to earnings claims by adding a definition of “earnings” and revising the definition of “earnings claims.”

Both the proposed BOR and ECR call for a broadened definition of “earnings claim.” In the proposed ECR, the definition of “earnings claim” is modified to mean a representation of “a specific level or range of actual or potential sales” or earnings. Although this proposed definition closely resembles the “earnings claim” definition in the current final BOR, the FTC believes the modified definition is drafted more directly and broadly to capture a wider variety of claims regarding the potential for financial gain in the multilevel marketing industry.

If finalized, the proposed rulemakings would require companies to possess written substantiation for any earnings claims made to prospective purchasers, maintain records of the substantiation for a period of years, and disclose the substantiation upon request to prospective purchasers and FTC. According to the FTC, an earnings claim is substantiated if there is a reasonable basis supporting the claim. Under the proposed rules, at the time the claim is published, the facts known to the marketer must reasonably support the claim as it is likely to be understood by a reasonable consumer to whom the claim is directed.

The agency voted 3-2 to approve the issuance of proposed rulemakings, with Commissioners Andrew Ferguson and Melissa Holyoak in dissent. In his dissenting statement, Ferguson, who is set to become chair next week, wrote, “as I have said repeatedly, the time for the Biden-Harris FTC to issue or propose new rules ended the morning after the presidential election.” He continued, “the voters decisively rejected the Biden-Harris FTC’s onerous regulatory agenda at the ballot box” and said that “lame-duck Biden functionaries” will not make decisions about any of these proposals. Rather, Ferguson noted, the second Trump administration will decide “whether they will ever become final rules.”

FTC is seeking comment on each proposal. The comment period will close 60 days after the proposed rulemakings are published in the Federal Register.

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