Legislation promotes education, transparency to help consumers steer clear of pyramid schemes

While it may not come as a big shock to those accustomed to the prevailing money-buys-influence culture of Washington, D.C., it is nevertheless disappointing to see the League of United Latin American Citizens support policy positions that run contrary LULAC’s core mission of economic empowerment for Hispanic Americans.

H.R. 5230 — a bipartisan measure supported by 30 members of the Congressional Hispanic Caucus, Congressional Black Caucus, Energy & Commerce Committee and Direct Selling Caucus — will advance consumer protection by clearly defining a pyramid scheme in federal statute for the first time. This is a straightforward goal that consumer protection advocates and industry representatives alike have championed for decades, because no one wins when fraud gets the better of consumers, and greater transparency around what constitutes fraud is useful in combating it.

This legislation reflects a decades-long effort by those interested in consumer protection to define and prohibit pyramid schemes.  None of H.R. 5230’s central provisions — that a scheme exists when compensation is based primarily on recruitment (as opposed to retail sales) and that personal use is a legitimate business practice in direct selling — are new or outlandish. Forty-nine states have laws already on the books banning pyramid schemes, numerous court decisions have used the same definition of a scheme that H.R. 5230 seeks to enact at the federal level and – most importantly – more than a third of the states have anti-pyramid statutes in force that explicitly sanction personal use.

Real consumer protection entails two important goals: educating people about which behavior is right and wrong and enforcing rigorous standards that protect people from falling prey to undue financial risk. Working hand in hand to achieve each of these goals, H.R. 5230 and DSA’s mandatory Code of Ethics – which requires that direct selling companies buy back unused inventory at no less than 90% of the original purchase price – will make it much easier for consumers to steer clear of pyramid frauds and enjoy financial peace of mind.

Nearly 20 percent of the working Americans who become involved in direct selling are Latinos.  LULAC needs to take a hard look at the motivations that underpin its policy positions to determine if its interference in the direct selling marketplace is helping – or hurting – the constituents it claims it wants to protect. 

Mariano is president of the U.S. Direct Selling Association, a national trade association for companies that offer entrepreneurial opportunities to independent sellers to market and sell products and services, typically outside of a fixed retail establishment. 

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