Will the New FTC Guidelines Affect Your MLM Business?

It’s always good to avoid entanglements with the law, so here’s some information to help you abide by the new revisions to the FTC Act in your MLM business.

I found this testimonial on a website…have you seen others like these? This is a prime example of what the FTC is looking for!

I want you to know about the wonderful  shake product that I use myself and have been selling to my friends. I love that _______ is a whole ___ based beverage powder made from organic ___.  I love this company. There are no health dangers because it’s organic and they use a special process that is different than others.  It’s a gentle process that protects the valuable phytonutrients. All the dangers you describe as coming from ___ are the result of the poor processing methods other companies use. Please let people know that ______is a good and healthy product. It cures cancer, heart disease, weight loss . .   -anon distributor

It would be wise to check out how the Federal Trade Commission’s (FTC) new revisions to its guidelines governing endorsement and testimonial ads may affect your MLM business. The FTC works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. It’s always a good idea to avoid entanglements with the law, so here’s some information to help you abide by the FTC Act.

In regard to endorsements, the guidelines now include examples of “materials connections” as the concept applies to bloggers and other “word-of-mouth” marketers. “Material connections,” which refer to associations between advertisers and endorsers that are “unexpected by consumers,” must be disclosed. Material connections sometimes include payment or free product. Posts of bloggers who receive cash or in-kind (goods or services) payment to review a product are considered endorsements.

The FTC specifies, “Bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. Likewise, if a company refers in an advertisement to the findings of a research organization that conducted research sponsored by the company, the advertisement must disclose the connection between the advertiser and the research organization. And, a paid endorsement is considered deceptive if it makes false or misleading claims.”

The revised guidelines state that both advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement. Also, celebrities are required to disclose their relationships with advertisers when endorsing products/services outside the context of traditional ads, i.e., talk shows or social media.

As business consultant Whitney Hoffman, Hoffman Digital Media, put it in her blog, “Blogging as a medium is now going to need to take itself more seriously, and bloggers are going to have a new level of professionalism expected of them as it concerns endorsements or reviews that have some sort of exchange…attached….If there’s not real exchange of anything other than warm fuzzy feelings, you’re good.” (“The New FTC Guidelines on Endorsements by Bloggers.”)

Testimonial ads that feature a consumer’s experience with a product or service as “typical” have to now disclose results “consumers can generally expect.” In the old days, advertisers were allowed to describe untypical results in a testimonial as long as they included a disclaimer, i.e., “results not typical.” This is no longer the case. The Direct Selling Association (DSA) recommends, “Companies should be even more discerning when it comes to validating and promoting the use of their products based on isolated or atypical results. To remain in compliance with the FTC Act, a company should reasonably explain how an outcome was achieved and describe the critical part the product played in reaching that result, as well as any additional components that may have contributed to the success of the product.”

These revisions to the FTC guidelines will go into effect December 1, 2009. That means you still have a little time to study up and make sure you’re in compliance so that you can maintain your standing as a good, law abiding multi-level marketer!

Here’s some good counsel on how to make sure you’re in compliance with the new FTC rules from a blog post of social media consultant Jennifer Fong: