Facts, opinions, and the real story behind Mary Kay Cosmetics.

The Political Agenda of the Direct Selling Association

Robert FitzPatrick of Pyramid Scheme Alert, recently brought attention to the real political agenda of the Direct Selling Association (DSA).

The DSA is a organization to which multi-level marketing (MLM) companies like Mary Kay belong. Mary Kay cites their membership as proof of their legitimacy, although there are many of us who believe that the organization doesn’t really legitimize or police anything for the benefit of the consumers. Rather, I believe that companies like Mary Kay hide behind the DSA and use it to do their political dirty work.

The DSA is currently lobbying for changes in federal in state laws that define illegal pyramid schemes. An MLM attorney, Jeffrey Babener, explains this campaign and its push to make “personal use” MLM distributors acceptable under the law.

Robert FitzPatrick explains:

The DSA law would eliminate any “retail standard” and exempt MLMs on the grounds that the rewards paid to recruiters come from revenue generated through product sales “to anyone.” Somehow this is supposed to cure all fraudulent ills, much like some MLM products claim to cure health ills.

The FTC’s position — that most commissions must be funded from retail revenue, otherwise the MLM is an endless recruitment chain with product purchases by the distributors only serving to disguise the true nature of the enterprise — is described by Babener as “a devastating position for the direct selling industry.”

The DSA has been successful in getting certain states, such as Utah, to adopt such a law that the purchases of MLM products for “personal use” should be considered the same as a retail sale and their purchase should not be considered a “business investment” necessary to get commission payouts. (i.e. Mary Kay sales directors may place an unneeded order of $600 wholesale in a month simply for the purpose of raising their commission rate on personal recruits from 9% to 13%. This could be an example of a “personal use” purchase.)

Robert goes on to explain how MLMs skirt some of the current rules that prohibit a person from “making an investment” simply to receive commissions:

MLMs require the recruits to maintain a monthly purchase level, in order to receive rewards. They offer a plan and a structure for gaining rewards from recruiting new people. But, when the rewards are paid, they say they did not come from anyone “paying consideration” to join the scheme. No, these people just purchased products for their personal use. The rewards were not for having recruited anyone. It’s just that those new recruits also purchased products for their power personal use and the money came from those purchases, not from their “payments.”

This is legal fiction. The payments made by MLM recruits are no more “just purchases for personal use” than the gifting club participants were giving and recruiting “gifts.”

This legal mumbo jumbo aimed at escaping the court’s and the FTC’s interpretation that most of the money has to come from outside the chain [actual retail sales to actual customers], otherwise it is, per se, an endless recruitment chain, also ignores the reality that, whatever you call it, the pyramid structure places the vast majority at the bottom, all the time. So, this could never be an “income opportunity” for any but a tiny few at the top. Any claims about a viable income opportunity would be false. In short, all this legal maneuvering ignores that the outcome is the same — a money transfer, resulting 99% of the people never making any profit.

Interesting, isn’t it? I wonder how long Mary K ay will continue to brag about their membership in the DSA.