Earnings Claims From Franchisors

Writen by Lance Winslow

There has been talk at the Federal Trade Commission of requiring Franchisor's to give earnings claims in their disclosure documents. The franchise rights groups want it and the consumers need it to help them make a decision. But unfortunately with all the litigation in our nation it is too risky for franchisors. The Federal Trade Commission put forth a report on franchising last summer and has been reviewing the franchise rule in our country. Chances are and most agree in the franchise industry that earnings claims should not be required but should be considered for those franchisors who wish to sell more franchises as it will improve their sales.

On page 26 of the Franchise Report; the Federal Trade Commission made reference to a potentially gray area of this rule and said they believed that a statement such as:

"You'll make so much money you can buy a Porsche!"

is an earnings claim and maybe it could be considered that. These types of things appear in advertising, brochures and in simple conversation. My question is; Yes, this is in a way an earnings claim, yet are we really interested in regulating normal human interaction? I mean we already have such a sterile world as it is. People are afraid what to say for fear they might get sued? This breaks down communication. Adding to this the FTC wishes to regulate such common conversation? And if a picture is worth a thousand words then what is an advertisement, which has a franchisee next to his house? Did he purchase that exact house through his franchised outlet or was it left to him from his folks or did he buy that house during his many years as an executive at IBM, Lockheed, 3M or Microsoft? You can't use those pictures either then. Are we sure we wish to get into all this, this is a slippery slope.

I agree with the commissions comments on the right of the franchisor to determine if they wish to give earnings claims, but also warn the commission that someone can claim that earnings claims were giving, and file a claim even if they were not, the franchisor would have to defend against the claim and also put that in the UFOC such bogus and frivolous litigation, not to mention the cost to defend from the attorneys and may I ask why the burden of proof is always on the franchisor? What happened to presumed innocence? The burden of proof should not be on the franchisor, but rather the accuser. Is Mary K Cosmetics guilty of rallying people in pep rallies that they will soon be able to get a 'Pink Cadellac'? Investment Advisers often have prospectuses and or brochure combination, they use from Mutual Fund Companies, which are approved by the SEC, which show kids going to college or holding a degree in a cap and gown? Obviously indicating that if you make such an investment you can send your kids to college, yet there is no way to know that in this age of economic uncertainty or in this age of over regulation and terrorism (sometimes the same thing) to guarantee that. Will this effect the trend to have some of the Social Security which may be invested in the private sector open for litigation from the companies who will be offering to invest those funds?

Show me one ad in Entrepreneur Magazine, which does not indicate some type of financial reward on it with pictures. Is the FTC going to stop all the 500,000 Biz Op Internet Sites from doing the same thing? Is the FTC going to not enforce this on BizOps where fraud is known to exist, yet enforce it on franchises where no fraud exists? It appears that normal human interaction will be muffled and motivational pep talks and coaching will be curtailed, this is horrible, not to mention the ugly ads if all these cool sports cars, yachts and custom homes are taken out. The Magazines will have to put the ads on the back sides of articles instead of the fore side pages and then they will sell less advertising and thus there will be communication loss that way as well, less consumer choice available and higher magazine costs as supply and demand will limit the number of publications (regulation always has a runaway effect).

So far in this Franchise Rule Making Report we see regulations causing friction in the franchise relationship at the most crucial time of courtship, how on Earth is it to have a long and fruitful marriage. It is difficult to annul a franchise once the business is set up, starting out on the wrong foot is likely to cause more franchise failures and more Britney Spears quickies. This is not good for franchising and the Federal Trade Commission needs to back off of such talk. I have for years told every franchise buyer that;

"This business is hard work and you can lose all your money,"

but if you limit the types of phrases one uses in normal conversation, then you are taking away from the "get to know you" phase of learning if the franchise is a good fit for the franchisee and franchisor. For instance do we like each other? Do we want to do business together? And as every other industry has get to "know your customer laws" we are making it difficult for franchisors to know their customers.

The Federal Trade Commission gives earnings claims, for instance when it filed against our company it promised those who complained that if they filed formal declarations and embellished the story that the Federal Trade Commission would get them all their investment back and a little more to boot. The Federal Trade Commission made that earnings claim then failed to deliver on that promise, perjured itself in the process and then took no responsibility for bad profiling and lying to the declarants or for the declarants lies and refused to prosecute them for lying, yet made sure there was a clause in our settlement that we could not sue them for lying, slander or perjury?

Wouldn't it be nice for an agency of the Federal Government to actually do what it is suppose to do, to actually get the job done on time and not botch it? That would be a good day for America, why not start right here at the Federal Trade Commission and reduce these regulations and allow for fluidity of business to accomplish the objectives designed into the system of Capitalism? Why not set an example to the rest of the government agencies, why not start a new trend in government to do something, anything and do it well? Well, why not? That would be a major statement and best for all concerned. Think on this.

Lance Winslow - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs/