Home-based businesses get greater protections, but could use more relief
by Broderick Perkins
(12/5/2011) - An updated federal rule should make business opportunity offers more transparent and less prone to fraud, but the rule is small potatoes for the largely-ignored work-at-home economic sector.
A Federal Trade Commission rule update identifies illegal practices that have become all-too-common in the work-at-home business opportunity market. It also specifies certain disclosures that must come with business opportunity offers.
Unfortunately, the only economic relief home-based businesses can expect from this rule do-over is a better shot at not getting ripped off by bogus work-at-home opportunities.
Since the onset of the Great Recession, the rule update appears to be the best the Feds can do for home-based businesses and that's not saying much.
From auto makers to Wall Street fakers, Washington D.C. threw some form of economic relief at virtually every major economic sector since the down turn, but home-based business owners have been left twisting in the economic wind.
Apparently, the home-based business sector isn't too big to fail.
According to Hanley Wood Online Builder Magazine's recent "10 Lifestyle Trends to Watch For in 2012," working from home is hot.
Builder magazine reports:
• Between 1999 and 2005, the number of people who were self-employed and working exclusively from home grew by more than 25 percent, according to latest data from the U.S. Census Bureau.
• Home-based workers in 2005 reported a median family income of $63,648, as opposed to that year's national median of $46,242.
• Home-based workers are almost twice as likely as their peers to hold a bachelor's degree, coming in at 46.5 percent compared to 27.2 percent of the country's population over age 25. "And that was before the country's current economic funk brought on round after round of layoffs, encouraging many people to try their hand at working for themselves."
• According to architect Carson Looney, of Looney Ricks Kiss Architects, designing a house without a home office is like designing a "car without brakes."
Work-at-homers comprise a large segment of the economically-significant 20- to 40-million strong "Free Agent Nation" of so-called 1099ers (because they report income with the IRS-1099 Form, also known as "freelancers," "independent contractors (ICs)," "starving artists" and the like.
Struggling 1099 nation
There major benefit -- aside from working in their jammies -- is a piddling business tax deduction that doesn't amount to a hill of beans when you consider the extra Social Security and Medicare taxes they pay, out-of-pocket costs for health care, retirement and vacation "benefits," and their ineligibility for unemployment checks and job-loss insurance.
Also, with the demise of the "stated-income" mortgage and similar loans for those who don't have W-2s to wave around, hard-working, work-at-home stiffs are harder-than-ever pressed to land a mortgage, refinance their current home loan or even tap home equity.
"They remain largely invisible to policy makers and to economic and workforce developers," says Erik R. Pages, president of EntreWorks Consulting, who recently published "Living and Working in the 1099 Economy," a largely under-reported issue.
Pages says, "That needs to change. In addition to recognizing the importance of this part of the workforce, we also need to develop a more nuanced understanding of their concerns and needs."
Updated business opportunity rule
The FTC's Business Opportunity Rule, effective, March 1, 2012 is a small step in that direction. It does help keep the bogus "bizopp" hounds at bay.
The rule recognizes that the sour economy has spawned a growing number of small business opportunities -- good with the bad -- that target the Great Recession's economic refugees, often vulnerable unemployed, under-employed and never-employed 99 percenters, who look to their home as a place of business.
The rule covers anything from assembling crafts and making Google Adsense dollars to stuffing envelopes and writing resumes.
Updating the existing bizopp rule, the changes are designed to make sure consumers have the information they need when considering buying into a work-at-home deal, as well as other self-employed gigs.
In a nutshell, the changes require that bizopps give you certain disclosure documents outlining important facts about the opportunity and the update makes clear certain practices are against the law.
The bizopp disclosure statement
The bizopp offer must include a one-page disclosure statement with five key pieces of information. Consumers can use the document to fact-check what the seller says and what the consumer learns from his or her own research.
The document must:
- Reveal certain lawsuits or other legal actions involving the seller or its key personnel, if they exist.
- Disclose the offer's cancellation or refund policy, clearly explaining the terms.
- Disclose any claim the seller is making about earnings. If the seller makes an earnings claim, he or she must also give you an earnings claim statement.
- Provide a list of references.
The bizopp must give you the disclosure document at least seven days before you sign a contract or pay them anything. The statement must be in the same language the bizopp used to pitch the deal and it should include any information about plans to give your contact information to others, including other bizopp buyers, say to use you as a reference.
You should use that seven days to vet the operation and the information in the disclosure document. Do not only rely upon the bizopp's list of references. They could be stooges giving, glowing, but empty or bogus recommendations.
The bizopp earnings claim statement
If the seller makes a claim about how much money you can earn, they must give you a separate document emblazoned in big type across the top with EARNINGS CLAIM STATEMENT REQUIRED BY LAW.
This earnings disclosure must include:
- The name of the person making the claim, the date.
- Specifics of the earnings claim.
- Start and end date actual earnings were achieved.
- Number and percentage of people who achieved those earning.
- Any information that reveals how those earnings might differ from what you could earn, say, because of your geographic location.
- A statement that says you can get written proof of the seller's earning claims if you ask for it.
Use your right to see written proof of earnings claims. Scrutinize any earnings claims. If the stated claims don't jibe with the documented statements, consider walking. Like the disclosure document, the earnings claim statement must also be in the same language the seller used to communicate with you.
Banned misleading bizopp claims
The revised rule also makes these bizopp practices illegal:
• Bizopp statements that contradict disclosure and earnings statements.
• Claims the bizopp is a W-2 job when it is actually a 1099 business opportunity.
• Misrepresentations about the nature of the investment, for example, a bizopp claim it will help you line up locations, outlets, accounts, or customers or that you'll have an exclusive territory, if those promises are not true.
The FTC says if you suspect a bizopp scam, report it to your state attorney general's office, to your county or state consumer protection agency and to the Better Business Bureau, in all cases, where both you and the bizopp promoter is based.
You can also file a federal complaint online at the FTC Complaint Assistant, or call toll-free 1-877-382-4357.
Follow the link to continue reading the related articles.
Keeping the misspending monkey off your back
Estate planning primer and mistakes to avoid
Much of 1099 economy home-based
How to get your spouse's financial baggage out of the closet
Married couples ready to take the plunge
Sam's Club to Offer Small Business Loans
Fannie Mae & Jumbo Mortgage Rates
Just One Click! = Current Rate Chart