A typical component of an FTC lawsuit against an MLM company is deceptive or unfair earnings claims.

Last year the Supreme Court, in a decision that
sided with payday loan scammers
, limited the FTC’s ability to regulate MLM fraud.

Specifically, the FTC was barred from seeking “equitable monetary relief under section 13(b) of the FTC Act “.

For decades, injunctions obtained via Section 13(b), has seen the FTC recover ill-gotten gains from scammers and impose additional monetary penalties.

In light of the Supreme Court’s AMG decision leaving it unable to do so within the existing framework of the FTC Act, the regulator is exploring ways it can continue to effectively regulate fraud.

As part of those efforts, the FTC is seeking public comment on a proposed “Earnings Claims” rule.

Deceptive of unfair earnings claims is where an MLM company and/or promoters, make unfair/deceptive representations about income related to the MLM opportunity.

For MLM companies this is typically misrepresentations about potential income, relative to average earnings inside the company.

For promoters, typically top earners within the company make claims to lure new recruits in.

A particularly egregious form of deceptive income claims is rank marketing. This is when a “new” signup boasts about hitting a significant rank within a company, and the accompanying earnings, without disclosing they cut a deal with the company, and/or brought over a downline from another company.

This is obviously not a representation of typical earnings available to consumers who sign up, hence deception.

In their proposal, the FTC tenders creation of “a rule prohibiting the use of misleading earnings claims”.

The FTC states such a rule

would enhance deterrence and help the Commission move quickly to stop illegal conduct.

Such a rule also may further clarify for businesses what constitutes a deceptive earnings claim and what it means to have substantiation for an earnings claim.

In addition, a rule would enable the Commission to seek monetary relief for consumers harmed by deceptive earnings claims, as well as civil penalties against those who make the deceptive claims.

Basically we’d go back to the FTC steamrolling scammers in court, circumventing the Supreme Court’s Rule 13(b) roadblock.

The rule would be designed to deter the use of misleading earnings claims, inform market participants of their legal obligations by spelling out prohibitions plainly, and ensure the Commission can seek monetary relief for consumers deceived by misleading earnings claims.

There are existing rules through which deceptive of unfair earnings claims can be addressed (the Business Opportunity Rule, Telemarketing Sales Rule and Franchise Rule are cited), but the FTC claims

the scope of coverage of these rules is limited.

Numerous different types of enterprises that do not clearly fall under the scope of these existing rules continue to use misleading earnings claims to deceive consumers.

The fina

🤖 Quick Answer

What is the FTC's proposed "Earnings Claims" rule addressing?

The FTC is developing a proposed rule on earnings claims to address deceptive or unfair income representations in MLM companies. This initiative responds to a Supreme Court decision limiting the FTC's authority to seek equitable monetary relief under Section 13(b) of the FTC Act, restricting its enforcement capabilities against fraudulent schemes.

How has the Supreme Court's AMG decision impacted FTC enforcement?

The Supreme Court's AMG decision barred the FTC from seeking equitable monetary relief under Section 13(b), eliminating a primary enforcement mechanism. For decades, this provision enabled the FTC to recover fraudulently obtained gains and impose additional penalties on scammers, particularly in MLM litigation cases involving deceptive earnings claims.

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