The babble about buy-back


It has become standard practice among mlm's to offer a buy-back provision. While this practice was initially instituted at the behest of regulators, it actually helps the mlm company by overcoming the objection prospective distributors might have about the likelihood that they will be able to sell the products they have purchased.

The Illinois agreement with NFLI provides that distributors can get back 90% of what they paid for product that has been purchased in the recent past (the press release is not explicit about this, but typical provisions provide for buyback of products purchased in the last 90 days). The press release also doesn't say anything about who must buy back the product (the distributor's sponsor or NFLI) nor about what might happen to any bonus commissions earned.

In fact, at any given time, a distributor is likely to be hoping that this will be the month that they start seeing enough bonus commissions to cover the cost of the products they have purchased, so that they can continue to participate in the program without an extensive time committment and/or negative cash flow.

Bottom line on buy-back programs

The effect of buy-back programs is to make the job easier on the regulators, without offering effective protection to the public. That's because distributors who get some compensation when they leave the program are less likely to complain than those who get nothing. Companies potentially could even require a statement from the distributor that bars future action against the company in exchange for this compensation. Additionally, prospective distributors are unlikely to consider the consequences that could occur if they were to rely on the buy-back provision.

Regulators should have incorporated additional requirements pertaining to the buy-back provision:

  1. The buy-back provision must make clear whether NFLI or the sponsor has primary responsibility for making good on the buy-back provision. If this is the sponsor, and the sponsor fails to make good on the buy-back provision, then NFLI must make good on it.
  2. The buy-back provision must allow for return of product in unopened condition purchased within the buy-back period, without regard to previous statements made by the distributor implying that the product was actually sold to customers.
  3. The buy-back must not be conditioned on any statement that the buy-back constitutes a settlement or on giving up any rights to take legal action against the company.
  4. Any written material (including Web pages) that describe the buy-back provision which is intended to be presented to prospective distributors must fully describe the consequences of invoking the buy-back provision, e.g. loss of future bonuses from the existing downline organization.

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