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
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
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
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
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
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 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
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
- 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
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
- 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
The revised rule also makes these bizopp practices illegal:
• Bizopp statements that contradict disclosure and earnings
• Claims the bizopp is a W-2 job when it is actually a 1099 business
• 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
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.
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