DOVER – Recognizing the economic harm and deceptive practices often associated with multi-level marketing (MLM) programs, the House passed legislation Tuesday to strengthen consumer protections for individuals who participate in them.
House Substitute 1 for House Bill 162, sponsored by Rep. Melanie Ross Levin and Sen. Stephanie Hansen, would ensure people are fully informed before signing up for MLMs and provide protections that would help participants exit without experiencing devastating financial losses.
“We have plenty of data that shows multilevel marketing sellers often target women in economically vulnerable positions: stay-at-home moms, military spouses, or women with caretaking responsibilities looking for flexible work. Unfortunately, the truth is that most of them end up losing money in these schemes,” said Rep. Melanie Ross Levin
“I am grateful to my colleagues for voting to pass this legislation, which will put some basic but important consumer protections in place so people can get the facts up front and have some recourse if things go wrong.”
An MLM is a business model where participants sell products or services directly to consumers, often through personal networks, and earn money from their own sales and from the sales of people they recruit.
The vast majority of people who join MLM programs or companies do not earn a profit. In fact, a report from the Federal Trade Commission (FTC) found that 99% of MLM participants lose money.
HB 162 (S) would help to protect those participants by requiring sellers to provide them with clear and conspicuous disclosures that include detailed information about the seller, earnings claims and statistics, buy-back terms, and the percentage of participants who earn more than they invest.
Additionally, the bill would allow the participant to cancel their contract for any reason in the first three months and require the seller to buy back at least 90% of any unsold inventory purchased by the participant if they choose to cancel the contract.
MLM companies often target economically vulnerable women, particularly those in situations requiring flexible work arrangements that don’t align with traditional job schedules. However, many MLMs require a fee to begin working and almost a third of participants admit to financing this startup fee on a credit card.
“Too many individuals are lured into multi-level marketing schemes by promises of financial independence, only to face hidden costs and unrealistic earnings expectations,” said Sen. Stephanie Hansen.
“HB 162 is about transparency, accountability, and fairness. It ensures that people, especially those in economically precarious situations that seek out these opportunities, have the information they need to make informed choices and the protections they deserve.”
HB 162 will now go to the Senate for consideration.
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