Pennsylvania House passes pyramid scheme protection bill

A bill designed to protect consumers against pyramid schemes unanimously passed the Pennsylvania House Monday.

House Bill 1534 amends the Unfair Trade Practices and Consumer Protection Law and highlights the distinction between direct-sale companies with a pyramid-like structure and “fly-by-night” operators attempting to rip off the public.

“My bill would update the law and provide the necessary teeth to bolster law enforcement’s prosecution of bad actors,” said state Rep. Bob Matzie, D-Ambridge, the bill’s author. “At the same time, it would provide much-needed clarity that would guide legitimate direct-selling companies as to what constitutes acceptable business practices.”

Matzie is the Democratic chair of the House Consumer Affairs Committee.

In the U.S., the direct-sale model – also called multi-level or network marketing – was popularized by Amway, which sells health and beauty products. Other examples include cosmetic and personal care companies like Mary Kay and Avon, as well as Pampered Chef and Stampin’ Up!, which sells craft supplies. Multi-level marketing in 2018 was a $35.4 billion industry in the U.S., according to Direct Selling Association, a national trade organization.

The distinction between a legitimate multi-level marketing business and a pyramid scheme is a fine one. Consumer advocate Jon M. Taylor, who has studied the industry for more than two decades, has said it’s a distinction without a difference. The U.S. Federal Trade Commission acknowledges this, with a former general counsel saying schemes promise profits based on recruiting others, not on product sales.

Matzie noted that his proposed legislation encourages companies to adopt policies that better protect consumers engaging in multi-level marketing. Those policies include preventing companies from requiring direct sellers to purchase more products than they can sell, and providing an option to sell unsold products back to the company.

More than two dozen other states, including Maryland, New Jersey and Ohio, have enacted stronger anti-fraud laws to protect consumers, Matzie said.

If enacted, the legislation would take effect immediately.

Matzie’s bill now heads to the Senate for a vote.