Individuals in the MLM, network marketing, direct selling industry often express an interest in knowing the origin of state regulation and in understanding the current state of regulation in regards to direct selling. Industry regulation followed in the aftermath of the 1960s pyramid schemes of Dare To Be Great, a program in which recruits paid $5,000 to attend a seminar where they were taught to recruit others to pay $5,000 and so on. The program was shut down by state and federal regulators. Prior to that time, we saw pyramid schemes regulated by securities laws, but after Dare To Be Great most states adopted pyramid laws.
State pyramid laws are rather ambiguous; however, they made it illegal for companies to require distributors to pay a consideration for the right to go out and recruit others. They also made it illegal when remuneration was based on just the movement of money. The statutes are fairly broad and we’ve seen considerable litigation over time.
We have worked with attorney generals across the country for more than 25 years. What we have seen is the development of the understanding and acknowledgement that direct selling is an important industry. It’s an industry that involves more than 15 million people, doing more than $30 billion in sales, and we have many stellar success stories in our industry, from Primerica to Avon, from Herbalife to Pampered Chef, and so the states have began working with the industry.
As a matter of fact, in the 1990s and in the early 2000s, when the industry was facing pressure from the Federal Trade Commission (FTC) on the issue of personal use, one state after another, at the request of the industry, has modified its MLM and pyramid statutes to recognize personal use by distributors of products as a legitimate end destination of products and not a part of some elaborate pyramid scheme. The industry views this as “extraordinary cooperation” by state governments, and for the most part right now, enjoys a very good and continuously-improving relationship with state governments.
For more information on state regulation, visit MLMLegal.com, where you can read about MLM Law in 50 States. Or, view the companion video to this blog post: What is the Direction of State Regulation of MLM?
And as always, visit mlmlegal.com, the best MLM resource on the web.