FTC Staff Issue Report on Multi-Level Marketing Income Disclosure Statements
Staff reviewed income disclosure statements in February 2023 that were publicly available on the websites of a wide array of MLMs, from large household names to smaller, less well-known companies, according to FTC attorneys. “These statements are sometimes provided to consumers who are considering joining MLMs, and often purport to show information about income that recruits could expect to receive.”
According to the report, FTC staff found a number of issues with the statements they reviewed, including that most omit key information when calculating the earnings amounts they present. Specifically, the report notes that most of the reviewed statements do not include participants with low or no earnings in their display of earnings amounts and also don’t account for the expenses faced by participants, which can outstrip the income they make. The report notes that these omissions are often not plainly disclosed in the income statements.
The report also notes that most statements emphasize the high earnings of a small group of participants, and many entirely omit or only inconspicuously disclose key information about the limited earnings made by most participants. In addition, the staff report notes that most of the disclosure statements staff reviewed present earnings information in a potentially confusing way, “like giving average earnings amounts for groups that could have very different actual incomes, or using annual income figures that aren’t based on what an actual group of participants made for the year.”
The report also notes based on staff’s analysis of data in the income disclosure statements, including information included in fine print, that many participants in those MLMs received no payments from the MLMs, and the vast majority received $1,000 or less per year—that is, less than $84 per month, on average.
“The FTC staff report documents an analysis of 70 publicly available income disclosure statements from a wide range of MLMs — big and well-known to smaller companies. The report found that these income disclosure statements showed most participants made $1,000 or less per year — that’s less than $84 dollars per month. And that may not account for expenses. In at least 17 MLMs, most participants didn’t make any money at all.”
- Emphasizing the high dollar amounts made by a relatively small number of MLM participants.
- Leaving out or downplaying important facts, like the percentage of participants who made no money.
- Presenting income data in potentially confusing ways.
- Ignoring expenses incurred by participants — even though expenses can, and in some MLMs often do, outstrip income.
Richard B. Newman is an FTC compliance attorney at Hinch Newman LLP.
Informational purposes only. Not legal advice. This article is not intended to and should be construed as a complete summary or discussion of the Rule and all of its obligations and restrictions. May be considered attorney advertising.
