Federal Trade Commission Workshop on the Franchise Rule

Remarks of Susan Grant
Vice President, Public Policy
National Consumers League

November 20, 1997

Thank you for inviting the National Consumers League to participate in this discussion of the Franchise Rule. NCL is a private, nonprofit, membership organization that has represented consumers' interests in the marketplace and the workplace since its founding in 1899. In April, we submitted comments in response to the Federal Trade Commission's Notice of Proposed Rulemaking because we believe that the Franchise Rule plays an important role in protecting consumers who are attracted by the idea of running their own businesses -- part of the "American Dream" that franchises and business opportunities can provide.

But at the National Fraud Information Center and the Internet Fraud Watch, programs operated in tandem by the League to provide advice about telemarketing and Internet solicitations and relay consumers' reports of suspected fraud and deception to law enforcement agencies, we hear about the "American Nightmare" -- false promises that are made for guaranteed earnings, exclusive territories, extensive training, and ongoing support services in connection with franchises and business opportunities. In the first nine months of 1997, franchises and business opportunities ranked as the 10th most frequent subjects of telemarketing fraud and the 6th most frequent subjects of Internet fraud reported to our NFIC/IFW programs. Consumers have lost as much as $100,000 in these schemes. In many cases, they have also lost faith in the idea that they can support themselves and their families by operating their own businesses.

We believe that to protect consumers and the competitive interests of legitimate franchisors and business opportunity providers, there must be:

• clear disclosures about the offers and the companies making them;
• no impediment to buyers sharing their experiences with others;
• a broad definition of business opportunities;
• no minimum investment to trigger the requirements of the Rule;
• flexibility to provide disclosures in a variety of formats, in addition to but not substituting
• for written disclosure documents;
• clear notice of the requirement to substantiate earnings claims or of the fact that no such
• representations are authorized;
• no exemptions that would create loopholes to escape responsibility;
• strong penalties for those who abuse the public trust and compete unfairly.

We hope that the insight we have gained from hearing about fraudulent and deceptive offers for franchises and business opportunities will aid in discussing how the Franchise Rule can be improved. The "American Dream" of business ownership should be possible for people who are willing to take risks based on their own efforts, not on the possibility of fraud.