Legislation seeks stronger disclosure requirements for multi-level marketing companies
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PETROWICH: Multi-level marketing companies have been around since the late 1800s but began picking up real steam following World War II in the 1950s, 60s and 70s.
MLMs presented an opportunity for women to gain some financial independence as they became increasingly interested in entering the workforce, and MLM’s target demographic remains the same today – often single women with children looking for financial freedom.
Big MLM names like Mary Kay and Avon, both beauty cosmetic companies, operate through a network of consultants who purchase products at wholesale price and profit by selling them directly to customers at retail.
But consultants can expand their income by recruiting others to join their sales teams, earning additional commissions on their downline sales.
MLMs gained a second wind following the boom of social media, allowing companies to recruit at higher volumes and sell products more effectively, but the spike has also led to more women coming forward about negative experiences.
While MLMs are a legitimate business model, some operate closer to what’s referred to as a pyramid scheme, which focuses primarily on recruiting new members and less on products.
KELLY: I was only 18 years old with two brand new babies to raise, all on my own when I was recruited into Mary Kay – bright-eyed, eager and completely unaware of the financial trap I was stepping into. I was sold a dream of financial freedom, community and empowerment.
What I got instead was thousands of dollars in debt, hours of unpaid labor and the shame of having unknowingly roped in friends and family who trusted me.
PETROWICH: That’s Christina Kelly, who spoke in favor of State Rep. Melanie Ross Levin’s bill during its committee hearing.
It’s stories like Christina’s that inspired Ross Levin to write the bill, which would mandate MLMs to disclose a complete description of its compensation plan, including inventory purchase requirements, before an individual signs on.
It would also allow participants to cancel their contracts for any reason within 3 months, and upon cancellation, require the MLM to repurchase all unsold goods in reasonable condition at at least 90% of the original price.
ROSS LEVIN: A lot of times, you’re put under pressure to sign up, and you might have second thoughts. And I really want people to be able to financially recover from these situations, and be able to get out of these situations if they need to.
There’s really a huge disadvantage to the consultants versus the company. The company makes money not only by selling product, but largely by selling product to consultants, and that’s really why it’s problematic.
PETROWICH: Ross Levin’s bill initially included a 48-hour “cool-off period,” which would have required a participant to wait two days before they could sign on with an MLM.
ROSS LEVIN: That was something that we had really strong opposition to, and just going through committee and talking to some of my colleagues, that piece, which no other state does, was going to be hard to kind of get to the finish line.
PETROWICH: The original bill also included a provision that would have required MLMs to provide a disclosure statement that the state of Delaware does not approve, recommend, endorse or sponsor any multi-level marketing program.
Committee members felt this type of requirement was unusual, and Rep. Ross Levin has since introduced a substitute version of the bill that removes both provisions.
She says while not all MLMs are acting in predatory ways, she feels legislation like this is important to make sure the good actors remain good actors and the bad actors are held accountable.
Douglas Brooks is a semi-retired Massachusetts-based lawyer who has litigated a number of class actions against MLMs and served as an expert witness during the bill’s committee hearing.
Douglas explains other types of businesses, like franchises, are subject to pre-sale disclosure rules, but MLMs are exempt because the initial payment is often below the $500 threshold.
BROOKS: In 2012, the Federal Trade Commission passed what’s called a Business Opportunity Rule, similar to the Franchise Rule, it requires pre-sale disclosures, a waiting period before people sign on the dotted line. But the multi-level marketing industry heavily lobbied to get exempted from that rule, and they were exempted from that rule.
So where we are today is right now, multi-level marketing is the only type of business opportunity that is not subject to a pre-sale disclosure requirement. So I heartily support the Delaware bill, which would require pre-sale disclosures for prospective distributors.
I think that there’s really no legitimate argument why the multi-level marketing industry should not be subject to this type of rule that every other business opportunity is subject to.
PETROWICH: Brian Harrison opposed the bill during its committee hearing. He’s with the government affairs team for Amway – an MLM that claims to be the world’s largest direct selling company via personal care and home products.
Brian argues it’s no longer common practice for MLMs to have inventory requirements and that most companies already have buyback policies.
He took particular concern with how an MLM would calculate expected compensation, which would be a disclosure requirement under the new law.
Content retrieved from: https://www.delawarepublic.org/show/the-green/2025-06-13/legislation-seeks-stronger-disclosure-requirements-for-multi-level-marketing-companies.
