Criticism of MLM

Criticism of MLM

The Federal Trade Commission (FTC) issued a decision, In re Amway Corp., in 1979 in which it indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by requiring "independent" distributors to sell at the low price) and making exaggerated income claims.^[25][26]
The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding".^[27] In April 2006, it proposed a Business Opportunity Rule intended to require all sellers of business opportunities—including MLMs—to provide enough information to enable prospective buyers to make an informed decision about their probability of earning money. In March 2008, the FTC removed Network Marketing (MLM) companies from the proposed Business Opportunity Rule:

The revised proposal, however, would not reach multi-level marketing companies or certain companies that may have been swept inadvertently into scope of the April 2006 proposal.^[28]

Walter J. Carl stated in a 2004 Western Journal of Communication article that "MLM organizations have been described by some as cults (Butterfield, 1985), pyramid schemes (Fitzpatrick & Reynolds, 1997),^[29] or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to promote the business (Hopfl & Maddrell, 1996), and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997)".^[29][30]
MLM's are also criticized for being unable to fulfill their promises for the majority of participants due to basic conflicts with Western cultural norms.^[31] There are even claims that the success rate for breaking even or even making money are far worse than other types of businesses:^[32][33][34] "The vast majority of MLM’s are recruiting MLM’s, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLM’s is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company."^[32] In part, this is because encouraging recruits to further "recruit people to compete with [them]"^[7] leads to "market saturation."^[35]
Because of encouraging recruits to further recruit their competitors, some people have even gone so far as to say at best MLMs are nothing more than legalized pyramid schemes^{[7][22][23][36]} with one stating "Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States"^[22] while another states "Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulent."^[24]