Saturday, February 28, 2015

MLM History: DSA Killed a Bill in 2010 That Would Have Saved MLM

Network Marketing is in an identity crisis, and it had been for decades.

At the beginning MLM was really about selling stuff. It is in the past 3 decades that MLM had morphed into an industry no longer cares about retail. And their industry organization, Direct Selling Association (DSA) does not even bear the MLM or NM name.

(Frankly, DSA had existed LONG before existence of MLM, and was basically "taken over" by MLM companies. But that's a different story for another time. )

Previously I've addressed how DSA managed to condemn FHTM in 2012, a pyramid scheme, mainly by dissociating itself far from FHTM and claimed FHTM was denied membership 3 years in a row. My conclusion then is DSA is not making any efforts to clarify the differences between its members and a pyramid scheme, and it may not like how FTC will shape the industry in the future.

I've also addressed that DSA has basically ignored the existence of product-based pyramid scheme, and this action is clearly deliberate, because it needed to defend Herbalife in 2013 amidst Bill Ackman's long and epic short. DSA should instead lead the effort to stamp out product-based pyramid schemes and lead its members to strive for retail volume. But it won't.

Later, I discovered a DSA position paper where it basically denied the existence of legal precedents (i.e. just ignore it) and everybody can self-consume to their own riches. That, I predicted, will lead to the eventual destruction of MLM itself, if not by Ackman, then by the government.

But what surprised even me was the DSA's reluctance to even nail down the definition of "customer"... and how they killed a legislative bill in Tennessee back in 2009/2010 that attempted to separate a legitimate MLM from a product-based pyramid scheme. It wasn't launched by a "crusader" who's out to kill MLM. It was launched by a MLM insider.

And it went down in flames, killed by DSA lobbyists.

In 2010, Kevin Thompson, better known online as "The MLM Attorney", asked Rep. Sargent of the Tennessee State House of Representatives and Sen. Johnson of the Tennessee State Senate to introduce the "Tennessee Multilevel and Pyramid Distributorship Act", which were known as SB2929 / HB2843. 

The bill introduced NO new ground. Instead, it only sought to codify into law rules that were already in play, such as the FTC-accepted "Amway Safeguard Rules". You can read the summary here:

Full bill will be linked at the end. But here are the main provisions:

R) Requires MLM company to

  1. Distributors can cancel at any time, return resellable inventory and get at least 90% refund
  2. Require distributors to make X amount of retail sales before qualifying for commission
  3. Enforce #2 above, and provide documentation of audit should it be asked
  4. Clear income disclosure statement to accompany any income claims, along with percentage of distributors that quit after 1st year
  5. Notify State AG that there are participants in TN
P) Prohibits MLM company from
  1. Requiring distributors to buy products / services, or pay fees to participate, except for required sales 
  2. Operating a program where participant's income are dependent on consumption of downlines or sales to customers is NOT a requirement to compensation
  3. Offering to pay specifically outlawed bonuses (read the bill details)
  4. Offering to pay commision on sales aids
Really, that's it. 

Of the Requirements, R1 is already in DSA's "code of ethics". R2 is part of Amway safeguard rules, and R3 was a part of Amway's agreement with state of California. R4 is part of DSA requirement except the "churn" stats. R5 is just paperwork. 

Of the prohibitions, P4 was already industry practice when Amway killed all the Amway Support Organizations (ASOs) even offered refund on the materials paid for. P3 is mostly paperwork as it deals with stuff already outlawed like "referral sales". 

DSA fought this bill tooth and nail, and it never made its way out of committee. Apparently implementing P1 and P2 will add undue burden to its members, it argued, because apparently some of its members would have a difficult time with prerequisite of selling. 

WTF? Direct SELLING Association don't want members to prove their distributors are selling their stuff? 

That should prove to you DSA has lost its soul. It no longer cares about selling, much less direct selling.

This basically means MLM is doomed, and DSA will be the boy plugging fingers into the dike hoping to contain the leaks. But it can't stop all the leaks. And it will likely be swept away... eventually.

You can read the full bill here: Tennessee House Bill 2843 / 2009-2010 session

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