Delaware House Bill 162, defining and regulating multilevel marketing companies, has cleared the state’s House of Representatives. The bill, officially titled “An Act to Amend Title 6 of the Delaware Code Relating to Multilevel Distribution Companies,” aims to provide greater consumer protection for individuals entering into such programs.
The legislation formally defines a multilevel distribution company and its associated marketing program. It mandates specific disclosures from these companies to potential participants. These disclosures are designed to give recruits a clear picture of the business structure and its financial realities.
A key provision requires that multilevel marketing companies cannot compel participants to purchase goods or services, or pay any other fee, to join the program. This is contingent on the company agreeing to repurchase unsold inventory under defined conditions. This buy-back clause offers a degree of financial security against accumulating unwanted stock.
Violations of the disclosure requirements can result in civil penalties. Furthermore, the bill grants individuals a private right of action to sue for breaches of the repurchase obligation. Prevailing plaintiffs in such cases are eligible for treble damages, along with attorney's fees and court costs.
For potential recruits, companies must furnish a detailed disclosure statement within 48 hours of signup. This document must include a disclaimer stating that the State of Delaware has not reviewed or endorsed the multilevel marketing program. It must also list the full company name, including affiliates.
The compensation plan must be described completely, with any inventory purchase requirements clearly outlined. Companies must also detail the services they will perform for the recruit, a point of potential ambiguity within the bill. When income claims are made, an earnings disclaimer stating "no guarantee of earnings or range of earnings can be made" is mandatory.
Additionally, if specific income figures are presented, the company must disclose the total number of participants who achieved those earnings in the past three years. The total number of participants who have joined the company over the last three years must also be provided.
The bill requires a full description of any training offered. It also mandates disclosure of services provided alongside product purchases. The exact nature of any product buy-back program must be precisely detailed. Information on the number of other company promoters operating within Delaware is also required.
Companies must disclose the percentage of promoters who purchased products and subsequently earned more than they spent on initial signup and product acquisition. The median and typical earnings of all individuals involved in the program must be reported. The mandatory purchase of products by participants is flagged as an immediate concern in the legislation.