Considering Purchasing A Work-At-Home Program? The FTC's Business Opportunity Rule Is Here To Help
by Steve Rhode
The Federal Trade Commission (FTC)'s Business Opportunity Rule has been approved for changes that will ensure consumers have information needed when considering buying a "work-at-home" program or other similar business opportunities.
Now simplified are the disclosures that business opportunity sellers must provide to prospective buyers. The disclosures will help consumers considering a purchase of such a program to asses the risks of buying a business opportunity and minimizing compliance burdens on businesses.
The Final Rule will be effective March 1, 2012 and applies to business opportunities previously covered under the Rule but will now effect and apply to work-at-home offers such as envelope stuffing and craft assembly opportunities.
The final Rule requires business opportunity sellers to give consumers specific information to help them evaluate a business opportunity. Sellers must disclose five key items of information in a simple, one-page document:
You have to list your company's name, business address, and phone number; the sales person's name; and the date you gave the document to the prospective buyer.
You have to disclose whether your company or certain key personnel have been the subject of civil or criminal actions involving misrepresentation, fraud, violation of the securities laws, or any unfair or deceptive practices "including violation of any FTC rule" within the past ten years. If the answer is yes, you have to attach a list of the actions to the Disclosure Document.
Cancellation or Refund Policy
You have to check a box to say if you have a cancellation or refund policy. If you do, you have to attach to the Disclosure Document a statement describing your policy.
You have to check a box to say if you've stated "or implied" how much money a prospective buyer can earn. If you have, you must attach an Earnings Claim Statement to the Disclosure Document.
If you make a claim expressly or by implication about how much money a person can earn from your business opportunity, you have to put the claim in writing. Furthermore, it's illegal to make an earnings claim unless you have written materials on hand that back up what you're saying. You have to make those materials available to a prospective buyer or to the FTC if they ask for them.
If you make an earnings claim, you have to give the prospective buyer a separate document that clearly says across the top EARNINGS CLAIM STATEMENT REQUIRED BY LAW. What has to be on that document?
The name of the person making the claim and the date;
The specifics of the claim;
The start and end date those earnings were achieved;
The number and percentage of your buyers who got at least that result;
Any information about the buyers who got those results that might vary from prospective buyers for example, where they're located;
A statement that prospective buyers can get written proof for your earnings claims if they ask for it.
What about earnings claims made online, on TV or in newspapers, or in other media? The Rule is clear: You must have written proof on hand that supports your representations, and you have to disclose certain information when you're making the claim for example, the start and end dates the earnings were achieved and the number and percentage of your buyers who got at least that result. What if you make general statements about earnings or talk about the performance statistics in the industry? You'll need to have written proof on hand showing that the results for the opportunity you're selling are at least as good. Read the Rule for the specifics.
What if the information you previously provided to a prospective buyer in the Earnings Claim Statement substantively changes? You have an obligation to let the prospective buyer know what those changes are, in writing, before the prospective buyer sign a contract or pay you any money. And like the Disclosure Document, if you promote your business opportunity in a language other than English, your Earnings Claim Statement has to be in that language, too.
On the Disclosure Document, you have to list contact information for at least 10 people who have bought a business opportunity from your company. If more than 10 people have bought a bizopp, you may list the 10 who live closest to the prospective buyer. If fewer than 10 people have bought the bizopp, you have to list everyone. Also, you have to update the list every month, until 10 people have bought the bizopp. In addition, the Disclosure Document must say clearly and conspicuously: "If you buy a business opportunity from the seller, your contact information can be disclosed in the future to other buyers."
Misrepresentations and omissions are prohibited under the Rule, and for sales conducted in languages other than English, all disclosures must be provided in the language in which the sale is conducted.
Consumers should use the disclosure document and supplementary information to fact-check sellers' sales pitches. This information will be helpful to consumers like Teresa Yeast, a stay-at-home mother who purchased a craft-assembly work-at-home program from a company called Darling Angel Pin Creations. The FTC filed a law enforcement action against that company in February 2010 for allegedly claiming that consumers could make hundreds of dollars assembling angel pins at home. "It's important to be skeptical and to be cautionary when you're approached with ... a business opportunity," Mrs. Yeast said. "I saw an opportunity that looked great, and took it. They took my money."
The announcement of a final Business Opportunity Rule completes the process that started when the Commission published an Initial Notice of Proposed Rulemaking and proposed creating a Business Opportunity Rule separate from the Franchise Rule. The FTC issued a Revised Proposed Business Opportunity Rule and conducted a public workshop, and the staff issued a Staff Report. At every stage of the Rule amendment proceeding, the Commission solicited comment on the economic impact of the Rule, as well as the costs and benefits of each proposed amendment. In issuing the final Rule, the Commission has carefully considered the comments received and the costs and benefits of each amendment.