Text: H.R.5230 — 114th Congress (2015-2016)All Information (Except Text)

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Introduced in House (05/13/2016)

2d Session
H. R. 5230

To prohibit pyramid promotional schemes, and for other purposes.


May 13, 2016

Mrs. Blackburn (for herself and Mr. Veasey) introduced the following bill; which was referred to the Committee on Energy and Commerce


To prohibit pyramid promotional schemes, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Anti-Pyramid Promotional Scheme Act of 2016”.

SEC. 2. Prohibition on pyramid promotional schemes.

(a) In general.—It shall be unlawful for any person to establish, operate, promote or cause to be promoted a pyramid promotional scheme.

(b) Enforcement by the Federal Trade Commission.—A violation of subsection (a) shall be treated as an unfair or deceptive act or practice in or affecting commerce under section 5 of the Federal Trade Commission Act (15 U.S.C. 45). The Federal Trade Commission shall enforce such subsection in the same manner, by the same means, and with the same jurisdiction, powers, and duties as though all applicable terms and provisions of the Federal Trade Commission Act (15 U.S.C. 41 et seq.) were incorporated into and made a part of this Act.

SEC. 3. Definitions.

As used in this Act:

(1) APPROPRIATE INVENTORY REPURCHASE AGREEMENT.—The term “appropriate inventory purchase agreement” means a program by which a plan or operation repurchases, upon request at the termination of a participant’s business relationship with the plan or operation and based upon commercially reasonable terms, current and marketable inventory purchased and maintained by the participant for resale, use, or consumption, and such plan or operation in its recruiting literature, sales manual, and contracts with participants, including the manner in which the repurchase is exercised, and disclosure of any inventory that is not eligible for repurchase under the program.

(2) COMMERCIALLY REASONABLE TERMS.—The term “commercially reasonable terms” means the repurchase of current and marketable inventory within 12 months from the date of purchase at not less than 90 percent of the original net cost to the participant, less appropriate set-offs and legal claims, if any.

(3) COMPENSATION.—The term “compensation” means the payment of any money, thing of value, financial benefits, or position within the plan or operation;

(4) CONSIDERATION.—The term “consideration”—

(A) means the payment of money or another thing of value or the purchase of a product, good, service, intangible property; and

(B) does not include—

(i) the purchase of a product furnished at cost to be used in making a sale and not for resale; or

(ii) any time and effort spent in pursuit of sales or recruiting activities.

(5) CURRENT AND MARKETABLE.—The term “current and marketable”, with respect to inventory—

(A) means inventory that—

(i) in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and

(ii) in the case services and intangible property, including Internet sites, represents the unexpired portion of any contract or agreement; and

(B) does not include inventory that has been clearly described to the participant prior to purchase as discounted, seasonal, special promotion item, or not subject to the plan or operation’s inventory repurchase program.

(6) INVENTORY.—The term “inventory” means both goods and services, including company produced promotional material, sales aids, and sales kits that the plan or operation requires participants to purchase.

(7) INVENTORY LOADING.—The term “inventory loading” means that the plan or operation requires or encourages its participants to purchase inventory in an amount that unreasonably exceeds that which the participant can expect to resell to ultimate users, or to use or consume, in a reasonable period of time.

(8) PARTICIPANT.—The term “participant” means a person who joins the plan or operation.

(9) PYRAMID PROMOTIONAL SCHEME.—The term “pyramid promotional scheme” means a plan or operation by which a person gives consideration to a participant for the right to receive compensation that is derived primarily from a participant’s introduction of another person into the plan or operation rather than from the sale of products to ultimate users.

(10) ULTIMATE USER.—The term “ultimate user” means a non-participant in the plan or operation, or a participant who purchases reasonable amounts of products, goods, services, or intangible property for personal use and whose purchase is not made solely for purposes of qualifying for increased compensation.

SEC. 4. Limitations.

Nothing in this Act shall be construed to—

(1) limit the authority of any Federal official from proceeding against pyramid promotional schemes for other violations of Federal law, including the Federal Trade Commission Act;

(2) allow for a defense to an enforcement action under section 2 of this Act that the alleged pyramid promotional scheme involved both a franchise to sell a product and the authority to sell additional franchises if the emphasis of the alleged pyramid promotional scheme is on the sale of additional franchises; or

(3) allow for a defense to an enforcement action under section 2 of this Act that the alleged pyramid promotional scheme included repurchase agreement inventory loading programs if the emphasis of the alleged pyramid promotional scheme is on the sale of additional franchises.

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