FTC right, Congress wrong on multi-level marketing giants like Herbalife

For more than 30 years, the United States Hispanic Chamber of Commerce has been the leading voice for the Hispanic business community and American entrepreneurs of all types.

That is why we were so pleased to hear the Federal Trade Commission’s (FTC) recent action against Herbalife. But at the same time, we are greatly concerned about a recent Congressional action that could make it more difficult to punish companies that want to prey on future American entrepreneurs.

Herbalife is a billion-dollar, multi-level marketing company that sells vitamins, protein shakes and other “healthy living” products.

{mosads}Traditionally, the company has sold its products to customers through a network of distributors. It has recruited distributors with a pitch that promotes the glamour of financial independence. With the recent FTC action, all of that will change. The FTC found that Herbalife engaged in “unfair and deceptive” business practices. In my opinion, the company’s sales model was nothing more than a pyramid scheme that used distributors to recruit and sell products to other distributors.

Sales were based more on distributor pressure than true customer demand. The FTC settlement required Herbalife to pay $200 million in compensation to consumers and distributors and restructure their entire U.S. sales operations.

We applaud the FTC for actions that punish companies engaged in deceptive behavior that targets people with the entrepreneurial spirit that created this country. That is why we are stunned that now, Congress wants to pass a law that would make it more difficult for the FTC to punish fraudulent business practices.

Right now, there is a bill before Congress called the Anti-Pyramid Promotional Scheme Act of 2016 or H.R. 5230. The title sounds like one that would help combat deceptive practices with words like “anti-pyramid” and “scheme.”

In reality, the bill would handcuff the FTC and allow future direct sales companies to engage in the very same behavior as Herbalife. The bill would redefine the concept of customer, or what it calls “ultimate user,” to include anyone inside or outside the network. Under the bill, an “ultimate user” within the network is anyone purchasing “reasonable amounts” of product to be resold, used or consumed.

These vague definitions could crush the entrepreneurial drive of Americans who want to start their own business under the weight of thousands of dollars of unsellable inventory.

This bill must be defeated. It is an economic tragedy for two specific reasons. First, direct sales have been a lucrative channel of revenue and opportunity for Americans of all backgrounds for decades.

When done through ethical business practices, such as Mary Kay and Avon, direct sales can be a path to financial independence for thousands of workers. When it is done unethically, it can taint the public’s perception of an industry that has provided millions of Americans with their first shot at an entrepreneurial venture.

Second, the bill would make it easier for companies to target immigrants. Recent immigrants are particularly attractive to these schemes, as they promise easy money without higher education.

Unfortunately, too many immigrant families buy into these ploys only to sink themselves and their loved ones into financial ruin. To be clear, our observation is not an indictment on the direct sales industry, but rather on Herbalife, which engaged in deceptive practices.

Such activity goes against the values we support as an organization and the practices that make America the best place in the world to start a new business.

This is why we at the USHCC want this bill rejected. We represent more than 4.2 million Hispanic-owned businesses across the country, which contribute over $668 billion to the American economy every year.

It is our strong belief that reasonable regulations to safeguard consumers are good because, unfortunately, there are bad actors who take advantage of our generous free market system.

Our association is proud to be the leading voice for the Hispanic business community, as well as American entrepreneurs of all types, because oftentimes their voices go unheard.

Therefore, the USHCC calls on Congress to oppose this bill, one designed to mislead instead of lead, and vote NO on the Anti-Pyramid Promotional Scheme Act, listed as H.R. 5230.

Javier Palomarez is the president and CEO of the United States Hispanic Chamber of Commerce.

The views expressed by Contributors are their own and are not the views of The Hill.