Turmoil over compensation plans in the USA

03.12.2015

On November direct selling company Vemma got a new FTC approved compensation plan as a result of FTC action against the company. The plan states that participants may not ”qualify” with their own purchases therefore removing any motive to inventory load (regardless of self-consumption). In other words, from now on a new ”51% rule” prohibits the payment of any commissions if 51% or more of commissions are earned from affiliates (downline). It seems that FTC finds important that affiliates may no longer ”self-qualify” by purchasing the required amount of inventory to advance within the organization. One of the primary themes in the decision is retail sales and its definition.

Is the turmoil spilling over to Europe?

In Europe and in Finland the situation differs somewhat from the above mentioned – the issue that over 50% of company’s net sales should derive from sales to consumers is not in the current version of unfair commercial practices. UCP directive states that ” Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.”

Directive does not say what ”rather than from the sale or consumption of product” means and therefore it doesn´t require that compensation comes only from consumers that aren´t distributors or that it doesn´t come from own consumption. Hence, 51% rule is derived/interpreted as, but not stated in the law. Also, even though Commission wants to introduce a broader definition of pyramid schemes in the currently updated UCPD Guidelines, it should not go beyond what was said in the “4 finance” case. The case stated that in order the scheme to be a pyramid, consumer is charged for participation (in any amount, no matter how small) in exchange for the possibility to receive remuneration for attracting new participants and the remuneration received by the consumer is derived mainly from subsequent contributions to the scheme from new joiners.