As the coronavirus continues to spread, the FTC (and state attorneys general) has/have devoted significant resources to investigating and prosecuting those offering business coaching services and work-from-home opportunities. Simply put, the Federal Trade Commission considers consumers seeking such opportunities to be a category of vulnerable people who warrant additional government protection.

What are the red flags that attract the attention of the FTC

If the program carries any express or implied representations of guaranteed income, big returns, or a “proven system,” chances are you are, or soon will be, on a regulator’s radar. Additionally, free or low-cost “systems” for starting a business that end up incurring large outlays for mentoring or other services that promise – but usually don’t deliver – results are often the basis for regulatory investigations. and enforcement measures.

Consider online business coaching where promoters claim a consumer can make a lot of money with no experience. Additionally, there are references in marketing materials and/or communications to “experts” who will teach people a “proven method” to building a successful internet business. Many even claim to be affiliated with well-known online vendors.

Regulatory attention grabbers:

  • Be your own boss

  • Learn from experts, coaches or mentors

  • Guaranteed income

  • Follow a proven system

  • Deposit checks

  • Make money with little time or effort

  • Making money with little or no experience

  • Recruit more people to earn big money

  • Affirms that a detailed understanding of the business is not required

What about the information communicated to consumers?

Tiered memberships with different service levels and prices also tend to attract regulatory scrutiny. For example, leading consumers to believe that they will receive useful, valuable, and/or proprietary marketing information to help them earn money that is – in fact – freely available online often puts promoters in hot water. . If the majority of consumers who have signed up for such programs have not, in fact, made a functional income online or earned (finding themselves in debt), the FTC will be keenly interested if it comes to the attention of the ‘agency.

Does the FTC’s Business Opportunity Rule apply?

Yes. In fact, various states have their own legal regulations that govern coaching services and work-from-home opportunities.

The FTC’s Business Opportunity Rule requires those who offer business arrangements where a seller solicits a potential buyer to enter into a new business, the potential buyer makes a required payment, and the seller – expressly or by implication – makes certain types of claims . For example, opportunities that a seller says will help the buyer start or run the business.

Consult with an FTC CID attorney to determine if the business opportunity rule fits the definition of the offering you are promoting.

What is required of a transaction falls under the business opportunity rule

If the transaction falls under the business opportunity rule, the buyer must receive a disclosure document within seven days of the buyer signing a contract or paying money for the business opportunity.

The disclosure document should list five key pieces of information and is a standard form. It should include the company name, business address, phone number, seller’s name, and the date the document was provided to the potential buyer. It must also disclose whether the company or certain key personnel have been the subject of any civil or criminal actions involving misrepresentation, fraud, violation of securities laws or any unfair or deceptive practice – including violation of any FTC rule – within the last ten years. . If the answer is yes, the seller must attach a list of actions to the disclosure document.

The disclosure document should also address the cancellation or refund policy. The seller must check a box to indicate if they have a cancellation or refund policy. If the seller does so, it must attach to the disclosure document a statement describing its policy.

The seller must also check a box indicating whether they have indicated (or implied) how much money a potential buyer can make. If the seller has done so, they must attach a tax return to the disclosure document.

Additionally, on the disclosure document, the seller is required to list the contact details of at least ten people who have purchased a business opportunity from the seller. If more than ten people have bought a bizopp, the seller can list the ten who live closest to the potential buyer. If less than ten people bought the bizopp, the seller must list everyone.

In addition, the seller is required to update the list every month, until ten people have purchased the bizopp. Additionally, the disclosure document must state clearly and prominently: “If you purchase a business opportunity from the seller, your details may be disclosed to other buyers in the future.”

With regard to the information document, the potential buyer must sign, date and return the form to the seller. The seller must ensure that he has attached all other documents required by the Business Opportunity Rule. The seller must update the form quarterly and if he is promoting a business opportunity in a language other than English, the disclosure document – ​​as well as the required information – must be in that language.

If a seller makes express or implied representations about the amount of money someone can earn from a business opportunity, the seller is required to put the claim(s) in writing. It is important to note that it is illegal to make tax returns unless there is (prior to their release) reasonable evidence such as written documents that support such representations. And, the seller is obligated to make these materials available to a potential buyer or the FTC if requested.

If a seller makes an earnings claim, they must provide the prospect with a separate document that clearly states at the top EARNINGS CLAIM STATEMENT REQUIRED BY LAW. The document must state who is making the claim and when, details of the claim, start and end dates when the claimed winnings were made, number and percentage of shoppers who achieved at least that result, any information about buyers who obtained these results which may differ from potential buyers (for example, where they are located) and a statement that potential buyers can obtain written proof of income claims upon request.

For revenue claims made online, on television, in newspapers, or in other media, the seller must have written evidence on hand that supports the claims and must disclose certain information when the claim is made. For example, the start and end dates when earnings were made and the number and percentage of buyers who achieved at least that result.

How about making general statements about earnings or talking about performance stats in the industry? You will need to have written proof that the results of the opportunity you are selling are at least as good. Read the rule for details.

If the information that a seller has previously provided to a prospective buyer in the income claim statement changes materially, the seller is required to notify the prospective buyer of those changes, in writing, before the prospective buyer sign a contract or pay money. Also, like the disclosure document, if a seller promotes a business opportunity in a language other than English, your tax return must also be in that language.

If a potential buyer is informed of anything in person, in an e-mail, by telephone or in any other advertisement or promotion, the seller must ensure that the foregoing does not contradict what is stated in the written disclosures, including the information document and the income. Statement of Complaint.

Business Opportunity “Do’s” and “Don’ts”

Sellers should be careful not to include anything in the disclosure document or income claim statement other than what the Business Opportunity Rule specifically allows. Sellers should never mislead people about what other buyers have won, what they might win, or the help that will be provided to them.

It is illegal to mislead people either expressly or by implication. And, even if what a business opportunity salesperson says is literally true, it could still be misleading in context.

For example, a claim may be misleading if relevant information is omitted or if the claim implies something that is not true. The Business Opportunity Rule also requires a seller to keep certain records and make them available to the FTC for three years. For example, and not limited to, each buyer’s signed disclosure receipt, all signed written contracts, and evidence supporting revenue claims.

What else should sellers of coaching services and work-from-home opportunities know?

Regulators have demonstrated that they will not hesitate to add allegations of illegal telemarketing operations. For example, the telemarketing sales rule. In addition, many such offers do not deliver on their promises.

If consumers are expected to work long hours without pay, advertisements should disclose this clearly and prominently. Costs should be disclosed upfront.

Most, but not all, companies that attract unwanted attention from regulators make unsubstantiated tax claims. Always have a reasonable basis for all express and implied statements, including income claims. Always be prepared to share documents with regulators that prove your claims are true.

Also, if the “coaches” are actually commission-based salespeople and consumers are not fully aware of this fact, this could be a problem.

The FTC is also often interested in programs where consumers are told, after paying, that to be successful they will have to pay more for additional services. Always list the total cost of a work-from-home program, including supplies, equipment, and membership fees.

Carry

The Federal Trade Commission and state attorneys general have been extremely aggressive with marketers offering business coaching and work-from-home programs. Especially those who promise to make a living working from home, with little effort. Consult with an experienced advertising compliance attorney to ensure compliance with applicable federal and state legal regulations.