But MLM is Legal!

Pink Truth Critics and other pro-MLM zealots often cite the “legality” of MLM in support of their arguments. But it’s legal! If there was anything wrong with it, our government would have shut them down! There is a difference between illegal pyramid schemes and MLM, which is legal!

There is a lot riding on this legality claim. If MLM is legal, then success in Mary Kay  is all due to hard work and following the system, just like legal businesses. Failure in MLM is therefore just a normal part of business, where there are market forces at work, or (more likely) the fault of those who lose. (They didn’t work hard enough, didn’t follow the system, quit too soon, etc.)

Governments in the U.S. (federal, state, local) almost completely avoid legal action against MLMs. The FTC’s action against Herbalife was an aberration. And in terms of scale, it’s almost meaningless. The top 100 MLMs by amount of revenue for 2017 adds up to over $82 billion. Herbalife is $4.5 billion of that total, but remember that the $82 billion happens year after year. The FTC did one relatively little action against Herbalife once.

So we could argue about whether or not there are laws that make MLM illegal. Our government simply doesn’t protect consumers against MLM and chooses to not take legal action against these companies. They operate with almost no oversight.

Unfortunately, many consumers believe that inaction by our government means that MLM is fine. But whether or not there are laws that allow MLM to exist, and whether or not the government ever goes after an MLM… that doesn’t change the fact that MLM inflicts financial harm on consumers. Nearly everyone loses money.

6 Comments

  1. Char

    “But MLM is legal”, and so are these:

    Smoking cigarettes until you get lung cancer.
    Chopping off your own arm.
    Overdosing on Tylenol resulting in a stomach pump.
    Contracting rabies.
    Suicide.

    Just sayin….

  2. raisinberry

    From Wikipedia: (Regarding the Direct Selling Association and it’s power)

    Political lobbying
    The DSA serves as a public relations and lobbying group acting on behalf of its member companies.[3][6] The DSA played a role in petitioning the Federal Trade Commission (FTC) to exempt multi-level marketing companies from consumer protection regulations outlined in the FTC’s 2006 proposed Business Opportunity Rule, encouraging people to write 17,000 form letters complaining about the rule from 2006 to 2008.[5][12][13] The law was passed in 2012, with most multi-level marketing companies considered exempt.[12]

    The DSA supported and allegedly drafted much of the language of the “Anti-Pyramid Promotional Scheme Act” introduced by US Representative Marsha Blackburn, and an amendment to the US House of Representatives’ omnibus Financial Services and General Government Appropriations bill for fiscal year 2018 by US Representative John Moolenaar that would have limited the ability of the FTC and other agencies to classify companies as pyramid schemes and to investigate whether MLMs are pyramid schemes.[14][15] The amendment would have disbarred the Treasury Department, the Judiciary Department, the Small Business Administration, the Securities and Exchange Commission, the FTC, or any other agencies from using any monies to take enforcement actions against pyramid operations for the fiscal year.[15] The Act would blur the lines between legitimate MLM activity and pyramid schemes established under the original 1979 FTC case by deeming sales made to people inside the company as sales to an “ultimate user,” thus erasing the key distinction made in the ruling between sales to actual consumers of a product and sales made to members of the MLM network that are used for recruitment of additional members or to qualify for commissions.[16][15][17] The amendment was opposed by a coalition of consumer interest groups including Consumer Action, the Consumer Federation of America, Consumers Union (the publisher of Consumer Reports magazine), Consumer Watchdog, the National Consumers League, and the United States Public Interest Research Group (US PIRG),[16] as well as Truth in Advertising (TINA.org) in its original incarnation.[17]

    The DSA also funds political candidates through its political action committee.
    BINGO.

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