We often think of homes, cars, and education as the biggest purchases people ever make. But for many consumers, the cost of purchasing a franchise is a lifetime financial commitment. Some potential franchisees may be experienced entrepreneurs. But many others are hard-working people who spent their life savings — or took on huge debt — to buy a franchise.Federal Trade Commission Franchise rules Require franchisors to make key disclosures up front before people make significant investments. Additionally, the FTC Act prohibits material misrepresentations about any business opportunity, including franchising. But what happens if a franchisor fails to comply with the requirements of the rule or misleads franchisees with deceptive claims? Consumers may have avenues of recourse they have not considered.
CSure, there are franchise success stories, but there are also examples of companies pocketing franchise fees and then failing to deliver on their promises.For example, the Department of Justice filed suit on behalf of the Federal Trade Commission Fighting against fast-food chain Burgerim, alleging that the defendants made millions of dollars selling franchises while setting up franchisees to fail.this Pending complaints Alleges the company violated the Federal Trade Commission Act and the Franchise Rules by deceptively promoting the opportunity as a “business in a box,” promising franchisees assistance that never occurred, and omitting franchise disclosures key messages in documents and say something in those documents that contradicts what they tell potential franchisees.
What can a franchisee do if they believe a franchisor has acted illegally? Neither the FTC Act nor the Franchise Rules create a private right of action that would allow consumers to sue a franchisor under those laws. However, franchise rules prohibit unfair or deceptive practices as determined by the Federal Trade Commission, and franchisees can use state statutes prohibiting unfair or deceptive practices to challenge violations of the franchise rules or truth-in-advertising standards. Of course, state law will determine whether a franchisee can bring a claim for a franchisor’s misrepresentation or omission, but let’s be clear: There is nothing in the FTC Act or the Franchise Rules that prevents a franchisee from exercising its legal right. In short, the FTC Act and Franchise Rules do not create any barriers to consumers seeking justice under state law.
Want to invest your heart, soul and savings into a franchise?If you don’t read, don’t act. A Consumer’s Guide to Buying a Franchise. If you find that the franchisor’s business practices are questionable, please tell us in the following ways: reportfraud.ftc.gov.
Franchisors, given that the FTC is committed to protecting franchisees from illegal conduct, how do your practices align with the mandatory standards as interpreted by the FTC? Franchise rulesthis Franchise Rules Compliance Guide, and Revised Franchise Rules FAQs?