US FTC bans undisclosed fees for franchisees, allows ‘contract changes’

US FTC bans undisclosed fees for franchisees, allows ‘contract changes’

The ban was expanded from the ruling that ‘undisclosed surcharge fees are illegal’, which is the biggest disadvantage to franchise owners, a symbol of American capitalism, to ‘change contracts’.
The U.S. Federal Trade Commission (FTC) issued a decision Thursday saying franchisors cannot require new payments, such as technical or marketing surcharges, unless they are detailed in a document the franchisor signed when acquiring the business.
In the United States, a long-standing hotbed of conflict between franchise owners and franchisee friends owners, a ban was imposed on the undisclosed imposition of new fees, designation of punitive essential suppliers, and restrictions on sales activities other than through open contracts.
American franchises have been a feature of American capitalism for decades, with easy access to business based on high awareness among consumers, and rapid growth as franchise owners invested their own capital in exchange for a familiar logo. However, as demands for disadvantages increase, the Biden administration The Federal Trade Commission has required franchise owners to disclose factors including business start-up costs and the company's financial performance to those considering acquiring a franchise, and some state laws have taken steps to ban the right to transfer rights between transactions.
This additional measure unregulated most of the relationships in internal franchise transactions, and in particular, franchisees added the right to ‘change the contract’ and allowed franchisees to avoid the store owner’s unilateral supplier designation.
An FTC press release said the commission "is taking action amid growing concerns about unfair and deceptive practices by franchisees to ensure that the franchise business model remains a ladder of business ownership opportunity for honest small business owners."
The FTC statement specifically said, “The FTC hears complaints from franchisees and takes steps to protect them from illegal fees,” adding, “The new policy statement and guidance address franchise contract provisions that block communication with the government and undisclosed junk fees that are illegal.” “I warn you,” it stated.
The FTC statement specified a “non-disparagement clause” prohibiting communications between franchisees and the government, and included a policy statement “warning against violation of the law” regarding franchisors’ use of contract clauses.
The statement said franchisee reporting and voluntary interviews are an important part of the FTC's investigations, and that franchisees' reluctance or inability to report and discuss their experiences can hinder the agency's work to protect franchisees. It was revealed that there was a franchise control operation based on confidential business guidelines.
The statement stipulated that “retaliation is prohibited,” saying, “Threats of retaliation against a franchisee who reports to the government a franchisee’s potential violation of the law are unlawful.”
Regarding the franchisor's 'imposed fees', the FTC said, "Payment processing and technology fees continue to increase, making it difficult for franchisees to make a living," and "Training, marketing, property improvements, or other products or services unilaterally requested by franchisors. Today's staff guidance makes clear that it is unlawful for franchisors to charge undisclosed junk fees (fees that drive up costs and can make the difference between a profitable and unsustainable franchise). He said clearly.
“Franchising is an opportunity for Americans to start a business, but the FTC believes that unfair franchise practices, such as failing to fully disclose fees upfront, go unreported for fear of retaliation,” said FTC Chairman Lina M. Khan. “Today, the commission makes clear that contract terms that prohibit franchisees from reporting potential violations of the law to the government are unfair, unenforceable and illegal,” the commission said in a statement.
The FTC said on this day, “We received more than 2,000 comments, including from franchisees, franchisees, and other stakeholders, as part of the Issue Spotlight, a summary of key concerns raised by franchisees in response to 2023 information requests.” “Our staff analysis of loan default data from the Small Business Administration shows that certain franchises appear to be making riskier investments than others,” he said.
The U.S. Internal Revenue Service (IRS) began investigating unfair agreements between franchisees and franchisees in January last year and closely examined 800,000 businesses and officials, and the Government Accountability Office released a report on March 20 last year. “Franchisees often lack control over important business decisions and do not understand all the risks they face before purchasing a license,” the release said.
The report concluded, “Franchisees cannot file complaints for fear of violating the terms of their contracts by speaking out against brand owners,” and “Franchisees’ concerns may be underreported to the FTC.”
He pointed out that risk factors for franchise owners include “lack of control over key business operations, important disclosures may not be read, and management risks may be underreported.”
The disadvantages of franchise owners pointed out that “the brand owner is using advertising fees for other brands that do not directly benefit his or her business, and charges these fees to the franchisees and requires them to operate at certain times even if they incur losses,” and “the franchisee The state was found to be a victim who must pay a percentage of gross revenue to the brand owner for the right to use the brand owner's name and business model, even if the business is losing money.