Thirty years as a consumer advocate taught me that it’s sometimes impossible to spot the difference between a legitimate business and a deceptive one. Consumers need help.
Tennessee once had the dubious reputation of “travel scam capital of the world.” Companies sent out postcards proclaiming a free vacation; thousands responded. The postcard seemed legitimate and the person on the phone sounded so honest.
But these were scams, and consumers didn’t realize until their money was gone. Legislation brought an end to this practice, created new consumer protections, and helped distinguish legitimate travel agencies from imposters. It can do so again.
Today, consumers have a new challenge: fraudulent offers to make money fast by selling a scheme to friends and neighbors. Unfortunately, such “pyramid schemes” are often confused with legitimate direct selling.
Direct selling has an incredible place in the history of commerce in this country. Last year, it was responsible for an $83 billion impact, with over $10 billion paid in federal, state, and local taxes.
More than 20.5 million people (some you know) love being involved in direct selling — buying products, working full- or part-time, or both. As a professor, I met many students who relied on direct selling to help them through college.
A legitimate direct selling company has tangible products to sell — jewelry, cosmetics, health products, household goods — and you are not required to bring in other people.
Then there are pyramid schemes that hook you in and require a substantial sum of money for over-rated merchandise that you don’t actually need to sell. All you’ve got to do, thhey tell you, is talk your friends into joining the scheme.
You won’t make any money, and neither will those you brought in. Pyramid schemes create financial hardships for consumers and headaches for law enforcement.
The Direct Selling Association (DSA) enforces a rigorous set of standards for its members. Companies must buy back any unused inventory at a minimum of 90 percent of the original cost. If a consumer decides to try direct selling, purchases a reasonable amount of product, and then decides it’s not for them for whatever reason, they will be refunded 90 percent of their investment.
This self-regulatory mandate has worked well. It gives consumers a benchmark for judging a direct selling company and differentiating the opportunity from a shady deal.
Earlier this year, consumer protection legislation was introduced in Congress by Reps. Marsha Blackburn (R-TN) and Marc Veasey (D-TX). It’s H.R. 3409, the Anti-Pyramid Promotional Scheme Act of 2017. The bill’s language is straightforward:
•It provides clear definition of a pyramid scheme in a federal law. (Many states have identical definitions; this bill ensures the federal government and state and local laws are consistent.)
•Individual sellers buying products for their own use does not signify the company is a pyramid scheme.
•A pyramid scheme can be identified when money is primarily made by recruiting others rather than selling products.
•ALL direct selling companies are required to abide by the standards DSA currently requires of its members: to buy back unused product from sellers at a minimum 90 percent of the money paid for them.
The best consumer protection laws are designed to protect consumers as well as legitimate business. This bill accomplishes both.
Elizabeth Owen is former director of the Tennessee Division of Consumer Affairs and served as executive director of the National Association of Consumer Agency Administrators. She is an adviser to the Direct Selling Association.