In July, a Bill referred to as H.R. 3409 was presented to the House of Representatives that would raise the bar on all direct selling companies while cracking down on those that take advantage of the direct selling business model. Often, direct selling and pyramid schemes can closely mimic one another. While direct selling is completely legal and standardized with specific rules, a pyramid scheme is an illegal scam that bases compensation on recruitment. The proposed Bill states it is,
“To amend the Federal Trade Commission Act to prohibit pyramid promotional schemes and to ensure that compensation is not based upon recruitment of participants into a plan or operation, but on sales to individuals who use and consume the products or services sold, and for other purposes.”
Direct selling has become one of the most popular ways to make money without having to step foot into an office. A few notable direct selling companies are Mary Kay, Pampered Chef, Avon, AdvoCare and LuLaRoe. According to the Direct Selling Association, a record 20.5 million people were involved in direct selling in the United States in 2016. Direct selling is a method of marketing and retailing goods and services directly to consumers from home or away from permanent retail locations. In most cases, the company will require the seller to purchase a “starter kit” of training materials.
When considering joining the direct selling industry, the Direct Selling Association offers the following list of requirements to verify the legitimacy of the company. The company must:
- “Provide accurate information about the company, its products and what one can expect as a seller of the company’s products and services.
- Charge a nominal fee for a starter kit – the median cost for the start-up kit is $99 and usually includes items such as samples, catalogs, order forms and other tools that help the seller begin selling.
- Base compensation primarily on the sale of products and services to the ultimate user. Compensation can be generated from either your own sales or the sales of others you have recruited.”
- Beware of promises of instant wealth with little to no effort required.
- Walk away from programs that require you to invest hundreds or even thousands of dollars in wealth-building books, dvds, or a large inventory of products up front.
- If the primary source of promised income requires you to recruit a large number of people into your downline, rather than sell products, then the program is most likely a pyramid scheme.
Source: Direct Selling Association and Congress.gov
For more information on the proposed Bill, visit H.R. 3409 – Anti-Pyramid Promotional Scheme Act of 2017