DSA Launching Self-Regulatory Scheme, Promising Tough Changes Ahead

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    As reported in Social Selling News, the Direct Selling Association is preparing to launch a third-party (independent) entity that’s responsible for policing the network marketing channel. Taken from the DSA chairman’s speech, Joe Mariano said, “With a new mission, the yet-to-be-named entity will serve as an independent compliance enforcement group and will respond to compliance and regulatory issues among direct selling companies and MLMs regardless of their affiliation with the DSA.”

    Currently, I have more questions than answers. However, at first blush, it seems like positive news. The industry has always been significantly larger than what’s represented by DSA membership. There’s an ocean of network marketing companies that choose to pass on DSA membership, or they’re just too small to justify the expense. By ignoring that community of companies, the DSA has, in my view, lost touch with popular trends in the industry. Those trends have not always been positive and the DSA’s ignorance of those trends has hampered its ability to craft better legislation.

    Not anymore. The DSA has decided that it’s ready to jump into the weeds and launch a new regulatory initiative. The details are light, but it’s looking like former FTC director Lee Peeler is under consideration to run the thing.

    Concerns

    It’s too early for serious concerns, but…I have concerns that this entity will be modeled after the National Advertising Division (NAD). Taken from its website, “The National Advertising Division monitors national advertising in all media, enforcing high standards of truth and accuracy.” Similar to the vision for the DSA to have a truly neutral third-party regulator, NAD is an example of advertisers (mainly bigger companies) submitting to self-regulation. NAD provides a process whereby companies can narc on other companies, committing to a resolution process without litigation. If the process breaks down, information is submitted to the FTC where the FTC can either get involved or punt.

    This is what I dislike about NAD: it allows the big to pick on the small. The cost of submitting a complaint is $15,000 for member companies, $20,000 for non-member companies. I once had a client receive a NAD complaint from a high-profile consumer company over various advertising claims. This company, with a $200b market cap, has the luxury to spend serious money to narc on smaller companies. In the event discussions break down, this company’s complaint and all supporting documents are forwarded to the FTC. It almost feels like an easy way for larger companies to co-opt the resources of the Federal Government to crush smaller competitors. Smaller companies will NOT waste their time narcing on companies, which leads me to believe that the larger companies could use this as a way to keep the FTC busy bullying the under-represented companies.

    But…the DSA’s program could be different. I’m hopeful that it is.

    All in all, it seems like an interesting development. It’s definitely good for us lawyers as it gives us more work to do when our smaller clients will inevitably receive complaints.

    If you were running the entity, what sort of policies would you like to see?

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      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.