Multi-Level Marketing & Accountability: A Call for Change in Regulation
Introduction to Multi-Level Marketing
Multi-Level Marketing (MLM) represents a $40 billion industry that captivates many with its promises of financial independence and health benefits. Yet, a troubling undercurrent persists—misleading claims made by individuals selling these products. Scholars urge lawmakers to enforce accountability for the exaggerated marketing tactics often employed in MLMs, particularly as they infiltrate our everyday social media feeds.
The Ascendancy of MLMs
More than 50% of Americans report being overwhelmed by posts promoting MLM products online. These posts often make dramatic promises, claiming rapid weight loss, homeopathic cures for serious conditions like autism and COVID-19, and the allure of working from home while achieving financial freedom.
Misleading Claims at the Core
Initiatives targeting such claims are critical, as MLMs operate by recruiting contractors who sell products and in turn, recruit others. Most sellers fail to turn a profit, which may lead to desperate measures, pushing them to make unsubstantiated claims just to sell a product.
A Call for Regulatory Action
The Contribution of Alexandra J. Roberts
In a forthcoming article, Alexandra J. Roberts from Northeastern University School of Law contends that current regulations fall short in holding MLM companies accountable for the misleading statements made by their sales representatives. Roberts strongly advocates for better enforcement of existing laws, asserting that deceptive marketing is an intentional aspect of MLM business strategies.
Recommendations for Change
Roberts suggests that agencies, social media platforms, and competitors should utilize existing false advertising laws to mitigate the rampant issue of misleading claims in MLM marketing.
Existing Regulatory Framework
FTC and FDA Regulations
Under the Federal Trade Commission Act and the Lanham Act, companies are strictly prohibited from making false claims in advertisements. The FTC has made it clear that both the sellers and the companies they represent may be held accountable for misleading advertisements disseminated online, including social media.
Labeling and Advertising Laws
The FDA primarily regulates prescription drug advertising but also asserts authority over product labeling. Wellness and personal care products, which represent nearly 50% of MLM sales in the United States, can claim to support bodily structure or function with prior notice.
Real-World Examples of Misleading Claims
- A distributor for Isagenix claimed that the MLM’s health supplements could "kill cancer".
- Another seller from YoungLiving promoted essential oils as treatments for serious diseases like lupus and diabetes. Such claims can lead to serious legal repercussions, as they violate the Food, Drug, and Cosmetic Act.
The Role of Social Media Platforms
Navigating Compliance
While many social media platforms prohibit misleading advertising, enforcement remains inconsistent. For instance, TikTok, despite rejecting numerous advertisements, still features accounts promoting MLM products and their benefits, often encouraging users to make purchases directly.
Need for Improved Awareness
Despite 59% of MLM sellers being informed about legal restrictions, the overwhelming majority still regularly make efficacy claims that could mislead consumers. This disconnect calls for heightened accountability measures, as well as education around the legal constraints governing MLM marketing practices.
Directions for Future Reform
Strengthening Regulatory Powers
Roberts asserts that the FTC should enforce compliance and impose substantial civil penalties against MLM companies perpetuating misleading advertising. Furthermore, she advocates for lawmakers to expand the FDA’s authority over health claims to safeguard against deceptive practices.
Call for Collective Action
Roberts emphasizes the need for social media platforms to create more efficient takedown processes for misleading advertisements, while also encouraging MLMs to adopt compliance software to monitor their sellers more effectively.
Conclusion: Shaping a Responsible Future for MLMs
As the landscape of multi-level marketing continues to evolve, it becomes imperative to adapt our regulatory frameworks to encompass the nuances of MLM practices. Although current laws may not fully address the complexities of diffuse content shared by lay salespeople, there are existing legal channels that can help protect consumers from manipulative tactics. The time for action is now. Ensuring accountability in the MLM industry not only benefits consumers but also upholds the integrity of marketing practices across the board.
For further insight into the ongoing discussion surrounding MLM practices, visit Consumer.ftc.gov and Truthinadvertising.org.
