Direct selling offers low startup costs and low-risk money-making opportunities for everyone. Stay-at-home spouses can earn money to contribute to a family vacation. Students learn skills to manage a business and also buy a new laptop. A retired person can supplement their savings for more financial security. This industry makes that possible.
These are all people who are working hard to realize the American dream, and they deserve protection from fraud.
These sellers deserve to know the difference between a legitimate direct-selling business and pyramid schemes, which is why I am supporting legislation to protect these entrepreneurs who are seizing the opportunity to own a small business.
Unlike legitimate direct sellers, pyramid schemes usually charge steep upfront costs, and the compensation is primarily focused on recruiting other victims of the fraud. By impersonating direct sellers, they deceive honest aspiring business builders, part-time sellers and personal consumers into assuming upfront expenses they can’t afford. Pyramid schemes also undermine the most valuable attribute of the relationship between direct sellers and their customer — trust.
Fifty states have anti-pyramid statutes, defining a pyramid scheme and allowing for prosecution by state law enforcement. Twenty-one states, including Utah, have adopted model anti-pyramid legislation recommended by the nonpartisan Council of State Governments. However, there is not a federal law on the books identifying and punishing pyramid schemes. That’s an oversight that Rep. Marsha Blackburn, R-Tenn., and Marc Veasey, D-Texas, are seeking to correct with HR3409, the Anti-Pyramid Promotion Scheme Act.
The Blackburn-Veasey bill defines pyramid fraud and makes it easier to prosecute. It distinguishes legitimate forms of direct selling, including personal consumption, from fraudulent imposters. Similar language was included in the Fiscal Year 2018 Financial Services and General Government Appropriations bill by Rep. John Moolenaar, R-Mich., that passed the full House in September. As a member of the Financial Services Committee, I’m responsible for protecting small and large businesses from being overburdened by regulations and government mandates. But this is an example where a lack of clarity in the law deprives honest businesses of much-needed guidance. And since many direct-selling companies operate internationally, it deprives international regulators of the guidance they often seek from U.S. law.
The Blackburn-Veasey legislation and Moolenaar amendment is a long overdue answer to these deficiencies. It will protect consumers from swindles, and honest, hardworking salespeople of every background and aspiration, as well as the companies they represent, from the financial and reputational harm done by being falsely associated with operators of pyramid schemes. That’s why I have agreed to co-sponsor HR3409 and support the Moolenaar amendment in the Fiscal Year 2018 funding bill.
The economic impact of direct selling in my state alone is more than $1 billion. Nationwide, direct selling generated more than $35 billion in retail sales in 2016 and 20.5 million Americans were engaged in some capacity with direct selling. I want to protect their interests. I hope my colleagues on both sides of the aisle will join me and expedite passage of this urgently needed consumer protection.