National Consumers League calls on FTC to investigate allegations against Herbalife – National Consumers League

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March 12, 2013

Contact: Carol McKay, NCL Communications, (724) 799-5392, carolm@nclnet.org or Sally Greenberg, 202-835-3323 x 830

Washington, DC – The National Consumers League (NCL), the nation’s pioneering consumer and worker advocacy organization, today urged the Federal Trade Commission (FTC) to investigate recent allegations that the multi-level marketing company Herbalife is, in actuality, a sophisticated pyramid scheme. Herbalife’s business practices have recently come under intense investor scrutiny, and NCL is now calling on federal regulators to examine both the claims lodged against Herbalife and Herbalife’s responses. NCL wants the federal agency to evaluate the evidence on both sides and make a determination that will serve as an important guide to consumers.

In December 2012, Pershing Square Capital Management, a New York-based hedge fund, published the results of an 18-month investigation of Herbalife. This report claims a range of potential violations of federal and state consumer protection and anti-pyramiding laws, including Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” Herbalife responded in kind by arguing that both its products and its business model are legitimate, and that the company is a bona fide multi-level marketing enterprise.

“Having reviewed this report, Herbalife’s responses to it, and associated analyst and media coverage, we believe that the FTC should conduct a thorough investigation,” said Sally Greenberg, NCL Executive Director. “Allegations that Herbalife’s business model is a pyramid scheme are serious charges with serious consequences for consumers and those who are recruited to sell Herbalife’s products. The FTC is the federal agency with the right mandate and expertise to explore these allegations.”

The National Consumers League itself has special expertise in this area. NCL’s letter to the FTC notes that, “[I]n 2009, with a grant from the Direct Selling Education Foundation, NCL launched an consumer education campaign to help consumers spot the differences between legitimate multi-level marketing (MLM) plans and fraudulent pyramid schemes.”

NCL’s letter also notes that “NCL’s anti-pyramiding checklist informs consumers that the central difference between a legitimate MLM business and a pyramid scheme is that an MLM succeeds largely by selling products and services, whereas a pyramid scheme makes profits primarily by recruiting new distributors.” NCL is asking the FTC to determine whether Herbalife falls into the MLM category, as company officials claim, or is in fact dependent for its profits on recruiting distributors rather than selling its products.

“We believe a thorough FTC investigation looking at both sides of this issue is called for at this time,” said Greenberg.

To read NCL’s letter to the FTC, click here.

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About the National Consumers League

The National Consumers League, founded in 1899, is America’s pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.

Fishy labeling harming consumers’ health and pocketbooks – National Consumers League

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By Teresa Green, Linda Golodner Food Safety & Nutrition Fellow

A new study was recently released, reaffirming something those of us who work on food fraud have known for a while: adulteration and food fraud is rampant, especially in the most vulnerable products. This most recent study addresses fish products sold in the D.C. metropolitan area, NCL’s backyard. The study found that one-third of seafood sold in both restaurants and grocery stores is mislabeled as a different type of fish. For some types of fish, like snapper, as much as 87 percent of the fish sold nationwide may be mislabeled.

The motivation for mislabeling fish is the same as the motive for any food fraud: economic profit. Whenever a cheaper product can be sold in place of a more expensive one, this increases the potential profit margin for the producer. Unfortunately, economically motivated adulteration can hurt consumers. First and most obviously, customers are not getting what they paid for. Secondly, when products are adulterated, consumers are unaware of what they are consuming and thus cannot avoid ingredients that they do not want to consume. This is particularly harmful when these ingredients are allergens. Finally, one major concern revolves around food safety. If a producer is breaking the law by substituting products, it is certainly possible that they are cutting corners in other areas. In particular, they may not be following the most up-to-date food safety practices.

Unfortunately for consumers, identifying when a product has been adulterated is very difficult. Prices that seem too good to be true can be one indicator that a product isn’t what it claims to be. Beyond that, consumers who are concerned about this issue should let the FDA know that enforcement and testing should be a high priority.

Hits, misses from DOE on college pricing tool – National Consumers League

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By Sally Greenberg, NCL Executive Director

The Washington Post “Color of Money” columnist, Michelle Singletary, and I have something in common. We are both sending a kid to college next year. A recent column is focused on the financial realities of paying for college, and she is none too impressed with a new tool provided by the Department of Education to price out the cost of college. It’s available here. I agree with Singletary’s critique of the site, but I also see a lot of value, and I’ll get to that later.

Singletary wants the site to include a financial aid shopping sheet and she notes that the Obama Administration apparently will have 600 colleges providing financial aid information on the site as of 2013-2014. There will be several important pieces of information, including the costs for the year, estimate of monthly payments graduates would expect to make on federal student loans. Singletary says “and they will supply information about the percent of students who enroll, graduate and repay their loans.” Actually that information is there now and I found that incredibly helpful as a parent.

So here’s what I liked about the site. I have an aversion for for-profit colleges, as I’ve noted in this blog previously. I think they steal money from largely lower-income, military, and minority students, charge ridiculous tuition and when they do even provide a degree – their default rates are very high – that degree is often worth little in the marketplace.

I tested the information available on the site. I plugged in Strayer University in DC, a for-profit entity, to the search engine. Average tuition is $29,000+, graduation rates are 22.7 percent, and the loan default rate is 13.9 percent. Compare that to Catholic University, a well-regarded and longstanding nonprofit university, also in DC. It may be the least difficult of the four major universities in DC to get into. Tuition is $34,000, graduation rates are 68.3 percent, and default rates are 1.7 percent. Yes, it costs $5,000 more a year than Strayer, but your chances of graduating are far greater and your chances of defaulting on your student loans are far lower.

Let’s try Georgetown University, also highly regarded and in DC, and very selective. Tuition is $26,000. Graduation rates are 93.8 percent and default rates are 1.3 percent. What does that tell you? If you go, you’re likely to graduate and you are very unlikely to default. That’s a good investment.

To my mind, Catholic and Georgetown are priced similarly to Strayer, but are far better investments I think this information is critical for parents and students of all ages. The information I’d like to see added to the site now is how easily graduates find jobs and what they make once they get those jobs. The site wasn’t able to provide that critical information. I have seen that somewhere but I wasn’t able to locate that here. In the next few months, I hope the Education Department make that available.

Thanks to Michelle Singletary for giving these new tools much-needed publicity. The sites are far from perfect, but they do provide some critical information that savvy consumers should be able to use to make a good investment in theirs or their children’s education.

Celebrating Let’s Move’s third birthday – National Consumers League

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By Teresa Green, Linda Golodner Food Safety & Nutrition Fellow and Michell K. McIntyre, Director of NCL’s Special Project on Wage Theft

This week, First Lady Michelle Obama is touring the country to celebrate the third anniversary of her Let’s Move initiative. The goals of Let’s Move are:

  1. Creating a healthy start for children
  2. Empowering parents and caregivers
  3. Providing healthy food in schools
  4. Improving access to healthy, affordable foods
  5. Increasing physical activity

Through her various activities, Obama has increased national focus on alarming rates of childhood overweight and obesity; currently, one-third of children fall into this category. By putting the spotlight on increasing the health of school lunches and the importance of physical activity, Let’s Move has started important national conversations about the health of our children.

Additionally, the First Lady has worked with various restaurants and grocery store chains to develop healthier options, in the case of restaurants by decreasing the amount of salt and calories across their menus and by adding healthier default options to their children’s menu. By working with grocery stores committed to decreasing the number of food deserts by building new stores, Obama is also addressing the question of equitable access to healthy food.

While all of this work to ensure our children have a fair shot at a healthy future is beyond admirable, the companies the First Lady has chosen to work with to achieve these goals are not always so admirable. Specifically, both Walmart, the largest retailer in America, and Darden Restaurant Inc, the largest restaurant group in the U.S. and owner of the Olive Garden, Red Lobster, LongHorn Steakhouse and other restaurants, face widespread criticism about their treatment of workers, including numerous cases of wage and hour violations ranging from unpaid overtime to unpaid minimum wage to forcing employees to work off the clock – all forms of wage theft.

Despite revenues easily topping $113 billion, the average Walmart associate makes just $8.81 per hour and working full-time (which Walmart defines as 34 hours per week) would make just $15,576 per year. That means hundreds of thousands of people who work full-time at Walmart still live below the poverty line, forcing many to utilize state subsidized benefits. Three major studies – one in Georgia, one in California and one in Massachusetts – found that Walmart was the company whose employees were most reliant on government assistance. Making Change at Walmart estimates that Walmart employees cost taxpayers more than $1 billion nationwide.

Between July 2005 and June 2011, Walmart settled an estimated 70 state and federal class action wage and hour lawsuits and lost one jury trail, involving well over a million current and former employees and costing the company over $1 billion. The lawsuits covered wage and hour violations that occurred between the late 1990s and 2010, including unpaid wages and lack of legally required breaks. Walmart also faces gender discrimination class action lawsuits stemming from their policies and practices on promotion and pay.

Darden has also had their share of employment problems, ranging from wage and hour violations to racial and gender discrimination lawsuits and policies that result in below poverty level wages for employees. As a part of the restaurant industry, Darden is allowed to pay tipped workers the tipped minimum wage – a mere $2.13 an hour. Tipped workers rely on restaurant customers for the majority of their wages. Even at $7.25 an hour, workers only earn $15,080 a year, well below the income level needed to lift a family of three out of poverty ($19,090 – based on data from the Department of Health and Human Services). With more than half a billion in profits in 2010 alone, Darden can surely provide better wages and benefits to its workers.

According to ROC United’s Saru Jayaraman, whose book “Behind the Kitchen Door” highlights Darden’s practices, employees report they are forced to work through their breaks, off the clock, and overtime without proper compensation.

Last fall Darden ‘tested’ a program to move full-time workers to part-time in order to avoid paying health benefits under the ACA. When consumer backlash ensued and profits tanked for the last quarter, (CNBC article “Darden Profit Sinks as Restaurant Promos Fall Flat” and Washington Post article “How Not to Succeed in Business: Promise to Dodge Obamacare Mandates”) Darden abandoned this ‘test program’. Like Walmart, Darden faces gender discrimination lawsuits as well as racial discrimination lawsuits.

We admire the First Lady’s Let’s Move initiative, but she can and should also play a much bigger role in promoting both fair and equitable workplaces while touting healthier food and lifestyles.