The Federal Trade Commission (FTC) sent letters to both the Direct Selling Association (DSA) and the Direct Selling Self-Regulatory Council (DSSRC) on Friday, March 15. While these letters or advisory opinions reflect the views of the current FTC staff and are not official Commission positions, the letter to the DSSRC raised concern about the program’s guidance about income disclosure statements, and the letter to the DSA restated the FTC’s position on the interpretation of the Koscot Test. According to this article from Kelley Drye …

“Over the past two years, we have seen FTC staff express its opinions on the state of the law in multiple ways. In December 2022, for example, staff issued its Health Products Compliance Guidance, intended to supersede the FTC’s 1998 guidance, “Dietary Supplements: An Advertising Guide for Industry,” as we covered here. We also have seen a slew of proposed guides and rules on endorsements and testimonials, junk fees, earnings claims, negative option and automatic renewal plans, and environmental marketing, among many others – all intended to explain FTC staff’s view of the law as it currently sees it.

On Friday, FTC staff put another stake in the ground when it sent a letter to the Direct Selling Association (“DSA”), doubling down on its reframing of the longstanding Koscot Test for determining whether a business is an illegal pyramid scheme – a reframing that Judge Barbara Lynn soundly rejected in the Neora matter, as we previously discussed here. Also on Friday, the FTC sent a separate letter to the Direct Selling Self-Regulatory Council (“DSSRC”), taking issue with the independent body’s issued guidance on income disclosure statements.

We discuss these two letters in more detail below, but note the following key takeaways:

Advisory opinions and letters such as the ones discussed below reflect the views of the current staff and are not official Commission positions. The Commission is not bound by these opinions, and future staff may rescind or modify them at any time (as illustrated below by staff’s disavowal of its 2004 Advisory Opinion, upon which many in the direct selling industry have relied over the years).

Regardless of Commission staff’s opinions, Section 5 and associated case law ultimately control. Commission staff undoubtedly intends to raise the bar for compliance while attempting to improve its litigation position in future matters (and possibly avoiding a repeat of the Neora loss), but courts must ultimately look to the law and relevant precedent in determining whether a practice is unfair or deceptive under the FTC Act.”

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