Deceptive Income Claims – How Not to Market Your MLM Business
The law on income representations is really pretty simple: one cannot make an income claim that is not representative of what a typical distributor will earn. (Note: what the typical distributor earns is not the same as average earnings.) As a general matter, the typical distributor earns nothing – especially after taking expenses and costs into consideration – so most MLM income representations will violate FTC law.
In 2016, former FTC Chairwoman Edith Ramirez explained that:
multi-level marketers should stop presenting business opportunities as a way for individuals to quit their jobs, earn thousands of dollars a month, make career-level income, or get rich because in reality, very few participants … do have success of this type, testimonials from these rare individuals are likely to be misleading because participants generally do not realize similar incomes.
That means that even truthful testimonials from top-earning distributors are not acceptable. About three months after Ramirez’s statement, in January 2017, the FTC cautioned that (emphasis in original):
it’s unwise for MLMs to make earnings claims – expressly or by implication – that don’t reflect what typical participants achieve.
Since then, in January 2019, the Direct Selling Association (DSA) in conjunction with the BBB National Programs launched the Direct Selling Self-Regulatory Council (DSSRC), which primarily monitors the direct selling channel for inappropriate product and income claims. In July 2020, the DSSRC issued Guidance on Earnings Claims to “ensure all representations made by direct-selling companies or members of their salesforce comply with legal and self-regulatory standards.”
Further, since the COVID-19 pandemic the FTC has sent more than 10 warning letters to MLM companies concerning deceptive earnings representations. In those letters the FTC has noted that “claims about the potential to achieve a wealthy lifestyle, career-level income, or significant income are false or misleading if business opportunity participants generally do not achieve such results.”
Below is a compilation of misleading income claims derived from FTC letters, decisions, statements and guidelines, as well as DSSRC guidance and decisions. It is an authoritative list of unlawful income representations used to promote MLM businesses. While direct selling companies and their distributors should avoid making atypical income claims altogether, the following language and visual imagery is sure to get those using them in trouble:
- participants can be “set for life”
- you can “quit your job,” “fire your boss” or “retire from your job”
- make more money than you ever have imagined or thought possible
- make an incredible income
- no limit to the amount of money you can earn
- earn millions of dollars, “creating millionaires”
- earn substantial income or life-changing income
- “realize unlimited income,” or “earn the income that [you] want”
- become a stay-at-home parent
- achieve financial independence
- claims of “financial freedom,” “enjoy more time and financial freedom,” and six-figure earning potential
- earn a full-time income, replacement income, residual income, replace full-time salary or career-level income
- achieve an extraordinary level of success
- “This income will NEVER go away!”
- images of large checks (both in size and amount)
- pay for college
- pay off debt or student loans
- no student loan debt
- part-time work and full-time pay
- “financial security for 100 years”
- make enough cash for a new car, make car payments, buy a home or pay the mortgage
- “Connect with me to talk about earning $500-$1500 a month from home.”
- “turn a small investment into six figures”
- “made $100 yesterday just by following the plan”
- “make money during the quarantine”
- retire
- live life on your terms
- travel the world or incentive trip travel with the company
- have the time and money to enjoy the finer things in life
- images of a lavish lifestyle including but not limited to expensive houses and opulent mansions, luxury or exotic cars, private helicopters and jets, yachts and expensive vacations
- high-risk words or phrases used in hashtags such as #FinancialFreedom #ResidualIncome, #PassiveIncome, #6FigureIncome, #MillionaireMindset, #DebtFree
- atypical hypothetical earnings scenario
While some income and lifestyle claims may be permissible if they are accompanied by a clear and conspicuous disclaimer indicating what the typical distributor earns, many of the examples above highlight wealth that is so extraordinary that they cannot be effectively qualified by a disclosure of generally expected results. Which brings us back to where we started: MLMs and their distributors should generally not make income representations when promoting the business opportunity.
For more of TINA.org’s coverage of MLMs and income claims, click here.
One Response to Deceptive Income Claims – How Not to Market Your MLM Business
Leave a Reply
You must be logged in to post a comment.
This is a thorough but succinct analysis of the inevitably deceptive earnings claims by MLM promoters. Well done!
There is a “Catch-22” here: business opportunities like MLM “opportunities” do not get sold without the promoter making earnings claims; but MLM earnings claims are, as this article makes clear, inevitably deceptive. For decades, MLM companies have addressed this problem by having distributor “rules” that prohibit deceptive earnings claims, along with compliance departments tasked with enforcing these rules, while tacitly permitting their distributors to make such claims so long as they don’t get caught. The inevitability of deceptive earnings claims calls into question the wisdom of permitting MLM companies to exist. I realize that this may appear to be a radical suggestion, but my experience representing victims of MLM scams for close to 30 years leads me to raise the issue. Perhaps there is a way of disinfecting MLM (such as by prohibiting inventory purchase qualifications for earning commissions, as I have proposed elsewhere) but I doubt there is a solution that would be palatable to the MLM industry.