Franchise regulation
Franchise regulation
Once the Federal Trade Commission (FTC) organized franchising back in late 1979, the FTC claimed in the preamble to the Rule that the intention of the Rule was to safeguard potential purchaser of franchises with impelling franchisor revelation of “crucial” information which would allow the purchasers of franchises to appraise the dangers and benefits of the investment and compare the investment with other investments.
Apparently, the FTC formula that preempted state law and that forbids a private prerogative of action for any offense of the FTC formula does not safeguard new purchasers of retail franchises, and doesn’t afford them “crucial” information on which to appraise the dangers and benefits of the investment and compare the investment with other investments. ‘
The FTC formula does, still, conjointly with the franchise arrangement, virtually all of the time safeguard the franchisors from common law fraud arrogations and tort law in the state courts, as was the purpose and is the Franchise regulation consequence of the FTC formula in 1979 and, now, in 2009,
Authorities on franchise have indicated to the FTC in invited public Franchise regulation comments that the actual intention of the FTC Rule promulgated in late 1979 was to safeguard franchisors, and their franchisees who prospered, from those regulation franchisees who would flunk, and who would cry “fraudulent inducement” to the courts. Robert Purvin, Chairman of the AAFD, in a public comment to the FTC in 1997 asked the FTC to keep in mind that the formula was promulgated principally to safeguard the franchisors from fraud. Others, like Susan Kezios of the American Franchisee Association, have likewise commented to the FTC and have appeared before the Congress of the United States to attest about the flaw in the FTC Franchise Rule that misleads prospective franchisees.
The Franchise regulation flaw is the failure of the FTC formula to demand that franchisors, themselves, disclose, or make accessible, the historical UNIT performance statistics of their formulas. This skip in disclosure is deceptive and potential franchisees unknowingly invest in franchise systems with low lucre or no profitability, and a high rate of failure of the founding franchisees of the Franchise regulation system.
By 1979, franchising had already developed quickly in our economy and had a considerable role in our communities. The government and the extraordinary concerned people thought that franchising had been helpful in assisting the economy through the slump earlier in the 1970’s and were eager to help the great potential of franchising. Franchising appeared to develop even during slumps because those with financial resources who lost their Franchise regulation jobs or were early retired or downsized, etc.. would consider self-employment in a franchised business of their own and would offer the low-cost labor and low-cost venture capital on which the franchisors could quickly develop their branded chains that stirred up the economy.
