On September 4, 2024, the Federal Trade Commission (FTC) released an FTC Staff Report (the “Report”) titled “Multi-Level Marketing Income Disclosure Statements.” The 95-page report (28 pages of analysis with the additional being the examined income disclosure statements and definitions therein) arose from a February 2023 study of income disclosure statements for 70 different multi-level marketing companies as a result of “[t]he vast majority of comments received in response [to the March 10, 2022, Advance Notice of Proposed Rulemaking (ANPR) regarding Deceptive or Unfair Earnings Claims] relat[ing] to MLMs.”

In the Report the FTC concluded,

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“This report identifies a number of practices used across many of the 70 income disclosure statements reviewed. Among other things, the disclosure statements: (a) present income data that does not take account of participants who made little or no income, often without clearly explaining the limitation; (b) do not account for expenses incurred by participants, often without clearly stating the limitation; (c) emphasize high dollar amounts received by a relatively small number of participants; (d) do not include information about the limited income that most participants receive, or provide this information only inconspicuously; and (e) use terms and present income data in potentially confusing or ambiguous ways. And, for those MLMs where the data is sufficient to calculate it, the data shows that many participants received no payments from the MLM, and the vast majority received $1,000 or less per year—less than $84 per month, on average.”

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The age-old question in network marketing is always what’s to be done about income disclosure statements? The answer remains similar to the Supreme Court’s definition of pornography, “I know it when I see it.” In other words, we have no idea. But all we know for certain is that whatever the industry seeks to do, regulators balk.

Some companies have found that eliminating income claims altogether has been a positive step forward. If you have no income claims, then there’s no need for disclosures. Simple enough. While this may be a viable option for more established companies, it’s most certainly not a one-size-fits-all solution.

The Report made clear that it was only a report and did not reflect the positions of the Commission, any particular Commissioner, and was also not FTC Guidance, but the tea leaves can be read quite clearly: income claims will inevitably be the easy in for any FTC enforcement action.  

The problem with the Report and recent FTC guidance, most notably the FTC's letter to the Direct Selling Self-Regulatory Council (DSSRC) in March 2024, is that all income claims are atypical. The FTC continuously fails to understand the nuance of the marketplace. Or maybe they just don't care. What it may be, the industry is in a tough spot.

This dichotomy between FTC “guidance” and the reality of the marketplace places a significant burden upon any company in the network marketing space.

At minimum, all companies must be fully transparent about what they are presenting. One may become creative without being cute. This isn’t rocket science. If you’re trying to fudge the numbers, then you need to go back to the drawing board. If there are numbers you’d rather not present, then you need to go back to the drawing board. I think we can all agree on this.

In short, income claims may be provided but should never be the driving focus.

Ambiguity is the FTC’s playground, so it is critical that network marketing companies remove as much ambiguity as possible. You may know what you mean, but that doesn't mean a third-party observer will.

Network marketing is about sharing a community and product and whatever happens along the way is dependent upon a variety of factors and, believe it or not, luck. People love stories, so just tell them the truth. It’s always better to under promise and overdeliver than to overpromise and underdeliver.

There’s no right answer, but there are plenty of wrong ones. If something can be true only if you tilt your head a bit and squint, then you probably shouldn’t say it.

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