This is a question that might take one thousand pages to answer. You will find endless articles and videos at www.mlmlegal.com and www.mlmattorney.com on differentiating a legitimate direct selling company from a pyramid scheme.

Key features of a legitimate compensation plan include a program which offers quality product/service at a reasonable price, which is purchased by ultimate users (of end-consumers), who use the product/service and who purchased it because they want it. The product stands on its own in the marketplace as opposed to purchases or payments that where the predominant intent is merely to buy into the program. Pyramids are characterized by bogus products (think wishes and prayers), high investment from consultants to buy-in to the company, inflated pricing, inventory loading and where the primary intent of the compensation plan is to cause individuals to pay money for the right to qualify for the program, causing others to do the same and so on.

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The fact is that there is a de minimis return percentage makes it so any customer satisfaction policy just looks good and is good customer relations.

The language on the front and back of a retail customer product form is FTC mandated statutory language for person-to-person sales away from a fixed place of business, of goods or services for household use, of more than $25. It is inapplicable to mail order or internet sales, but can be used at the discretion of the seller.

It is not a refund or return policy. Rather, it is designated as a right to rescind a contract or order. It is often referred to as the “Cooling Off Rule,” which is intended to address any high pressure tactics in person-to-person sales and to offer an “out” to “buyer’s remorse.” The notice of cancelation gives the purchaser three days to cancel the transaction, and if they have taken possession, then they must return the goods to the seller. It is a transaction by transaction right of cancelation. It does not apply to previous transactions. Since the language is FTC statutory, companies should stick with the language.

Most companies go far beyond the three day right of cancelation, and further offer customers a 30 days customer satisfaction policy in which the customer has 30 days to notify the company that they are not satisfied and return merchandise for a complete refund. This is not statutorily mandated. It is just good business!

In actuality, it is rare to ever see anyone exercise the three day cooling off opportunity, or for that matter, a 30 day refund offer. And if they do return merchandise, it is often just destroyed for safety purposes. The fact is that there is a de minimis return percentage makes it so any customer satisfaction policy just looks good and is good customer relations.

And, if it may provide comfort to companies, it is rare that direct selling companies have seen any regulatory challenge on this compliance issue.

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