On January 10, Federal Trade Commission (FTC) Senior Attorney Lesley Fair posted a commentary on the Commission’s business blog: Redress checks and compliance checks: Lessons from the FTC’s Herbalife and Vemma cases. The commentary acknowledges that the settlements of those cases apply only to the companies involved, but that the principles underlying the settlements are instructive to all “multilevel” direct selling companies — a perspective DSA shares, for the most part.

The commentary closely echoes remarks made by FTC Chairwoman Edith Ramirez at the DSA Business and Policy Conference last October.

DSA supports the principles that Ms. Fair and Chairwoman Ramirez maintain are essential to an MLM company’s success and legitimacy, namely: 

• False and unsubstantiated earnings claims violate the FTC Act. 
• Companies should monitor claims and actions of their independent salespeople. 
• “Real retail sales,” as Fair puts it — in other words, sales to actual users of the product — is the foundation of an MLM company’s legitimacy. DSA agrees that compensation should be based on sales and not on recruitment.

That being said, DSA notes with concern that included in Fair’s commentary is the mistaken implication that direct sellers themselves cannot be “real customers,” to borrow Fair’s terminology. Product purchases by direct sellers for their own personal use should not be used as evidence of deceptive practice, any more than the purchase by sales clerks of products they sell in a retail store should be considered illegitimate. Conversely, if product purchases are made only to become eligible for compensation based on recruitment of salespeople, and claims of personal use are untrue, such practices should be evaluated as potential violations of DSA’s own Code of Ethics and relevant law.

Salespeople commonly use the products they sell. Court decisions[1], state laws[2] economic analysis[3], and common sense confirm that practical reality. Industry observers and government agencies responsible for consumer protection should have a full understanding of the state of the law and this legitimate, realworld practice. Toward that end, DSA has worked with these agencies, including the FTC, to ensure understanding of this important aspect of direct selling, as well as the protections that direct sellers undertake to ensure that compensation is based on sales to real purchasers of the product.

DSA encourages and supports industry-wide efforts to demonstrate convincingly to industry enthusiasts and skeptics the legitimacy of product purchase and use by “real customers” of all types. And we continue our efforts to promote broad understanding among government, the press and the public of the ample legal and practical precedents that acknowledge the legitimate personal use of DSA member companies’ products by their salespeople. DSA welcomes the opportunity to continue to work with the FTC and others to ensure the public can distinguish between recruitment scams and legitimate direct selling companies.

[1] Federal Trade Commission v. BurnLounge (2014);

[2] 18 states validate that personal use of products by the salesforce is legitimate: AZ, GA, ID, IL, KY, LA, MD, MT, NE, NM, ND, OK, SD, TN, TX, UT, VA, WA.

[3] NERA Economic Consulting: An Economic Analysis of the Criteria Used to Distinguish Legitimate Direct Sellers from Pyramid Schemes (2015)