September 24, 2019 at 5:00 am ET
Last week distributors from Direct Selling Association (DSA) member companies headed to Capitol Hill to share stories about how the multilevel marketing industry positively affected their lives. But as members of Congress listened to these accounts of success, another side to the story was missing.
Distributors no doubt brought up the DSA’s oft-touted Code of Ethics, but what they failed to reveal is that over the years, the DSA has been unable to convince significant numbers of direct selling companies to abide by its Code. As such, DSA membership has dropped 45 percent since late 2007 — from a high of 222 member companies to just 122 members today. And while the DSA likes to boast that its rigorous ethical standards result in less than 50 percent of applicants being accepted as members each year, the flip side of the equation is that more than 50 percent of companies applying for DSA admission are, presumably, operating outside the bounds of the DSA Code of Ethics. There are other notable declines within the industry, including declining diversity since 2014 and a 13 percent decrease in the proportion of women involved in direct selling from 2008 to 2018.
Moreover, even within DSA membership ranks there are ethical issues. A 2016 investigation by Truthinadvertising.org found that 97 percent of DSA-member companies selling nutritional supplements were making illegal disease-treatment claims to sell their products. The next year, TINA.org found that 97 percent of DSA member companies were making false and unsubstantiated income claims to market the business opportunity. Deceptive marketing has become such a problem within the industry that the DSA established a third-party self-regulatory program to be administered by the BBB this year in the hopes of “rais[ing] the bar for the direct selling industry.”
What was even less likely discussed in these meetings is that since 2017, at least 28 federal class-action lawsuits have been filed against MLM companies alleging they are operating pyramid schemes, including eight against DSA-member companies. And from 2008 to 2018, the FTC has pursued four actions alleging MLMs were pyramid schemes, including two cases against DSA members. Washington state has also entered the fray filing a pyramid scheme lawsuit against a popular clothing MLM earlier this year.
On top of all this is the fact that the vast majority of individuals who join an MLM do not make any money. According to a 2018 AARP report, 74 percent of distributors report making no money or losing money. In fact, there are no published data to support the contention that the typical MLM participant earns a living wage. This is not to say that everyone involved in MLMs loses money. Quite to the contrary, some profit handsomely — individuals like Education Secretary Betsy DeVos, whose husband is the former CEO of Amway, for example.
So despite the stories of success that DSA distributors shared in the halls of Congress last week, it is important to keep in mind that direct selling is an industry in decline with the majority of distributors earning little to no money and many MLM companies operating unethically.
Bonnie Patten is the Executive Director of Truth in Advertising (TINA.org).
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