Clear Definition on Pyramid Schemes Will Prevent Fraud, Protect Consumers


There has been much talk this election season about the entrepreneurial spirit in today’s economy.  Ironically, one of the fastest growing business models is also one of the oldest – direct selling.  This flexible and entrepreneurial pursuit, where independent consultants sell products from every facet of retail face-to-face, primarily in a home setting, provides opportunity to many, including veterans, stay-at-home moms, caregivers, early retirees and many others.

However, preventable confusion in the marketplace is jeopardizing these opportunities, because federal statute does not currently provide a clear definition of a pyramid scheme. As a result, bad actors in the marketplace may masquerade as direct sellers, harming consumers and direct selling companies. In addition, lack of guidance at the federal level has led to a misclassification of many legitimate direct selling operations that in reality boast sound business practices and a commitment to the highest level of marketplace ethics.

Pyramid schemes – operations that pay salespersons primarily for recruiting members into a network rather than selling products – are illegal business operations that should be prosecuted to the fullest extent of the law. Yet consumers and the upstanding businesses who abide by the law to serve them, may be punished unfairly due to the absence of a clear, sanctioned definition of a pyramid scheme at the federal level.

H.R. 5230, a bipartisan bill introduced by U.S. Reps. Marsha Blackburn (R-TN) and Marc Veasey (D-TX), would provide a simple, yet critical step to help consumers avoid illegal scams and provide definitive guidance to direct selling companies on acceptable, ethical business practices. Importantly, the legislation does nothing to change FTC’s existing enforcement authority against schemes.

The idea for this legislation is not new. Nearly every state in the country has adopted enforceable statutes – tried-and-true measures that define and prosecute against schemes.

It’s in everyone’s interest to curb confusion about direct selling in the marketplace. Let’s focus on setting a standard that will identify and prosecute the bad actors who are defrauding innocent consumers, and protect the hard-earned income of millions of law abiding people involved in direct selling and their families.

Joseph N. Mariano is president of the U.S. Direct Selling Association, a national trade association for companies that offer entrepreneurial opportunities to independent sellers to market and sell products and services, typically outside of a fixed retail establishment. 

Morning Consult