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Minutes for SB494 - Committee on Commerce
Short Title
Exempting certain plans or operations from the crime of conducting a pyramid promotional scheme.
Minutes Content for Mon, Mar 16, 2020
Chairperson Lynn opened the hearing on SB 494 and requested Assistant Revisor Charles Reimer to provide an overview of the bill.
Chairperson Lynn asked Mr. Reimer to review the definition of "inventory loading".
Chairperson Lynn recognized John Webb, Direct Selling Association, who provided testimony in support of the bill. The bill would define and establish penalties for operating or participating in a pyramid promotional scheme. The current law does not draw a clear line of delineation between legitimate direct selling companies and pyramid schemes. The lack of a clear pyramid scheme definition in the current statute may create confusion among the public, particularly when considering that some pyramid schemes masquerade as legitimate direct selling companies to defraud consumers. The state attorney general's office had the opportunity to review the bill and have no concerns with the change. (Attachment 1)
The bill defines a pyramid scheme as any plan or operation in which compensation is provided primarily for the recruitment of others and makes clear that personal use of products is a legitimate business practice. Paying compensation based upon purchases of goods, services or intangible property for personal use, consumption or resale is an entirely legitimate and standard practice within the direct selling industry.
The legislation is needed to protect consumers because pyramid schemes are illegal businesses that defraud customers. The bill would give law enforcement in Kansas more guidance on identifying and prosecuting pyramid schemes and guide legitimate direct selling companies on what constitutes acceptable business practices. The bill would differentiate the legal income-earning opportunities offered by legitimate direct selling companies from the scams perpetrated by fly-by-night promoters of pyramid schemes and encourage adoption of a right of return for inventory purchased by individual direct sellers.
The Council of State Governments adopted this legislative language in its 2004 Volume of Suggested State Legislation, based on the 2003 South Dakota law. Twenty-five states have adopted this or similar legislation.
Senator Holland asked what was driving the pursuit of this bill. Mr. Webb responded the purpose was to improve the clarity in what is permitted and what is not.
Senator Alley asked Mr. Webb to review the reasons for which sales representatives receive commissions. Mr. Webb responded commissions are primarily based upon sales. In addition, if a person recruits a sales representative and that representative makes a sale, the person who recruited the sales representative receives a commission.
Written only testimony in support of the bill was submitted by:
- Dirk Bloemendaal, Amway Government Affairs (Attachment 2)
- Thomas Cohn, Interim General Counsel of New Avon Company (Attachment 3)
No testimony was submitted in opposition or neutral to the bill.
Chairperson Lynn closed the hearing on SB 494.
