The recent decision by the FTC to fine Herbalife $200 million is one of the most significant rulings in the history of direct selling. It will forever change the way business is done for hundreds of companies. And in fact, it is expected that many will not survive under the new FTC guidelines.
Summary of Herbalife Stipulation
1. Herbalife was fined $200 million to redress harm Herbalife has caused to consumers, and the FTC announced Herbalife caused harm far in excess of that amount. Herbalife must disclose customer information so the FTC can administer consumer redress.
2. Herbalife must adopt two contracts to distinguish between Preferred Members and business builders. Melaleuca has done this for 31 years.
3. Herbalife must document and track its sales to end consumers. They must collect the name, method of payment, product quantity, date, purchase price, contact information, and signature of purchaser for all sales. All of Melaleuca’s transactions are directly with the customer. Melaleuca.com provides that information instantaneously.
4. Herbalife cannot pay full commissions to distributors if they do not have 66 percent of the company and individual distributor sales to customers. Melaleuca already complies.
5. Herbalife cannot pay commissions to distributors on purchases that exceed a set amount, starting at $200 and reducing to $125. Melaleuca already complies with our 150 Product Point limit on commissions.
6. Herbalife is prohibited from requiring a purchase for a distributor to qualify for commissions and bonuses. Melaleuca already complies.
7. Herbalife is prohibited from misrepresenting income potential and cannot say that the failure to reach income potential is due to participants’ failure to devote sufficient effort. Melaleuca already complies.
8. Herbalife cannot make lavish lifestyle claims such as “quit your job,” “be set for life,” “earn millions of dollars,” “make more money than you ever have imagined or thought possible,” or “realize unlimited income potential.” Melaleuca has always advocated that people keep their jobs.
9. Herbalife must train new distributors regarding inventory management, documenting sales, penalties for falsifying sales, calculating profit and loss, how to create a business budget, permissible income claims, how to receive a refund, and how to submit a complaint to law enforcement. For 10 years, Herbalife must notify high-level distributors of the FTC Order. For 25 years, Melaleuca has given full disclosure in its Annual Income Statistics.
10. Herbalife is prohibited from using the auto-ship program for distributors (but not for Preferred Members). Melaleuca has never had an auto-ship program.
11. Herbalife must submit to internal and independent third-party compliance monitoring for at least seven years and must update its internal reports whenever there is company structure change. Herbalife must also keep records to establish its compliance and make its internal records available to the FTC. Melaleuca has been keeping these records for 30 years. The FTC has never asked to see them, but if they did they would be really impressed that every single sale that Melaleuca makes is to a bona fide retail customer. Not a single MLM company can say that. Melaleuca can!