DS-SRC: The industry’s positive first step towards self regulation

    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.

    The Direct Selling – Self Regulatory Council (DSSRC) is a good first step towards meaningful self regulation. Without question, the industry needs additional oversight. The FTC got heavily involved during the Herbalife / Vemma years, much to the chagrin of industry insiders. The results were messy, imprecise, and predictable.

    It was predictable because absent meaningful self-policing, the Feds were bound to intervene to clean up what they perceived to be systemic problems. Herbalife and Vemma, both companies that at one point or another boasted of their membership with the DSA, were accused of operating as illegitimate network marketing programs. The DSA’s credibility as torch-bearers for good ethics in the industry was never really that high. After the FTC was finished with Herbalife / Vemma, the veneer of “our standards are designed to protect people” was completely gone, paving the way for a true third-party solution.

    In the DSA’s defense, it’s an entity designed to serve its member companies, not so much consumers at-large. This disconnect of priorities places it at odds with both consumers and its member companies, eliminating its ability to meaningfully get involved in enforcing industry-wide standards. The DSA has always been reluctant to get involved in the general industry, choosing to focus internally on its members and the behavior of its members. The FTC wanted more leadership from the DSA and it appears they’re now getting it.

    Direct Selling – Self Regulatory Council

    What is the DSSRC?

    The website states, “DSSRC provides independent, impartial and comprehensive monitoring of direct selling companies on an industry-wide basis and addresses income representations (including lifestyle claims) and product claims by companies and salesforce members with an emphasis on claims disseminated on social media platforms.”

    How does it work?

    I’m going to boil the ocean here and summarize: If a company, any company, enters into the DSSRC cross-hairs, whether initiated by a “challenger” company or initiated by the DSSRC itself, and if the company is determined to be less-than-admirable, the DSSRC will send a “case report” directly to the FTC. The report will, apparently, go to the “top of the pile” for the FTC to consider. What are the consequences when a company’s dirty laundry gets submitted directly to the FTC? It apparently has a higher probability of regulatory intervention due to the fact that the FTC wants to encourage self-regulation.

    How does it really work?

    The specific policies about the rules of the DSSRC are included here. The document is short and easy to understand.

    The DSSRC can get involved in a number of ways. The two most interesting ways, in my opinion, are when (1) matters are referred by others, i.e. DSA, media reports, Truth in Advertising, LAWYERS *ahem*, etc; and (2) Challenger Submissions.

    (1) When Referred by Others

    In summary:

    The DSSRC will identify problematic claims (income claims/product claims) and request that the company provide substantiation for the claims;
    The company will have 15 business days to respond by providing substantiation or arguments regarding its conduct;
    If the DSSRC and the company agree on corrective measures, the DSSRC may issue a case report and publish an announcement on the website;
    If the DSSRC and the company DO NOT agree on corrective measures, the DSSRC may issue a case report;
    If the company refuses to participate, the DSSRC will issue a case report.

    (2) When Initiated by a “Challenger”

    In summary:

    A challenger company can narc on another company by submitting information directly to the DSSRC along with a $10,000 check ($5,000 for DSA member companies);
    The subject company can submit a written response to the claims;
    The Challenger gets to reply;
    After the process, the final case decision will be prepared and likely submitted directly to the FTC.

    There’s an option for an appeal whereby an Appeals Review Panel will review the matter. This is where it can get a little screwy. The Panel consists of 3 people, 1 selected by the DSA, 1 selected by the Council of Better Business Bureaus, 1 selected mutually by both the CBBB and the DSA. If they wanted to block an embarrassing outcome for one of its member companies, the DSA could certainly put their thumb on the scale via the appellate process.

    Conclusion

    If you prefer the minutiae over the summaries, the full DSSRC policies are here. I believe it represents a great start. In the past, when one company had legitimate gripes with another, they either had to initiate litigation (an unpopular choice) or suck it up. Now there’s a real choice available that can help keep behavior in check without uncorking expensive and unpredictable litigation.

    If Company ABC is cross-recruiting from Company XYZ, Company XYZ can now take measures to thwart Company ABC without the hassle or expense of litigation. Or when there’s a train-wreck occurring in the industry, one that everyone can see coming, the “industry” now has a way of elevating complaints to someone that might be in a position to help. The countless cryptocurrency scams come to mind. We all knew there was a problem, yet we had no way to draw attention to it in a meaningful way.

    In a panel discussion, the chief administrator behind the DSSRC, Peter Marinello, was asked a question about how he’ll handle material submitted by Truth in Advertising, an entity that’s not widely popular in the industry. He passed the test with me when he answered, “If there’s merit, we’ll pursue it. It’s all about the claims, not about the source.” This signals to me that Marinello is committed to following the facts without regard for politics for where those facts come from. It’s a good sign of things to come.

    I look forward to seeing how the FTC responds to materials submitted by the DSSRC. If the FTC takes it seriously, it’ll give the DSSRC sufficient teeth to command respect in the jungle. Without respect, it’ll be perceived as a big paper tiger. I look forward to seeing it develop over the coming months and years.

    DSSRC Procedures by on Scribd

      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.