Legislator: These predatory practices hurt Michigan consumers
Legislation sponsored by state Rep. Pamela Hornberger further addressing the nature of pyramid schemes today was advanced in a Michigan House vote.
The plan is part of a four-bill legislative package amending current state consumer protection and franchise investment laws, while also adding needed clarification between pyramid schemes and other ventures such as direct selling agencies or multi-level marketing.
Pyramid schemes lack a product or service readily for sale and usually rely directly on the recruitment of new investors. This business model collapses without profit from sales and investors at the bottom of the pyramid can lose their investment. Direct selling agencies and multi-level marketing projects feature individuals selling real products and earning compensation based on how much of the product they sell.
“I’m concerned in this day and age of technology, from spam e-mail to social media messaging, that the environment is ripe for an increasing number of pyramid schemes that prey on Michigan residents’ hard-earned money,” said Hornberger, of Chesterfield Township. “We need to protect residents while promoting fair business practices within the state.”
Pyramid schemes are currently illegal under Michigan law, but the law has not been revised in years. Establishing, promoting or operating a pyramid scheme would be classified as a felony and participation in a pyramid scheme could result in misdemeanor charges under the plan. Legal business models would require a majority of compensation for an individual to come directly from sales.
Hornberger was part of an overwhelming vote of recommendation for House Bills 5726-29 in the House Commerce and Trade Committee on April 10. Hornberger’s bill, HB 5727, advances to the Senate for consideration along with the other three bills in the proposal.