Disclosure Requirements and Prohibitions Concerning Franchising
| Citation | 84 FR 9051 |
| Record Number | 2019-04466 |
| Published date | 13 March 2019 |
| Court | Federal Trade Commission |
Federal Register, Volume 84 Issue 49 (Wednesday, March 13, 2019)
[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Proposed Rules]
[Pages 9051-9053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04466]
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FEDERAL TRADE COMMISSION
16 CFR Part 436
Disclosure Requirements and Prohibitions Concerning Franchising
AGENCY: Federal Trade Commission.
ACTION: Regulatory review; request for public comment.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
requesting public comment on its Trade Regulation Rule entitled
``Disclosure Requirements and Prohibitions Concerning Franchising''
(``Franchise Rule'' or ``Rule''). The Rule makes it an unfair or
deceptive act or practice for franchisors to fail to give prospective
franchisees a Franchise Disclosure Document providing specified
information about the franchisor, the franchise business, and the terms
of the franchise agreement. The Rule also prohibits related
misrepresentations by franchise sellers. The Commission is soliciting
comments about the efficiency, costs, benefits, and regulatory impact
of the Rule as part of its systematic review of all current Commission
regulations and guides. All interested persons are hereby given notice
of the opportunity to submit written data, views, and arguments
concerning the Rule.
DATES: Written comments must be received on or before May 13, 2019.
ADDRESSES: Interested parties may file a comment online or on paper by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Franchise Rule
Regulatory Review, 16 CFR part 436, Matter No. R511003,'' on your
comment and file your comment online through https://www.regulations.gov. If you prefer to file your comment on paper, mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex B),
Washington, DC 20580, or deliver your comment to the following address:
Federal Trade Commission, Office of the Secretary, Constitution Center,
400 7th Street SW, 5th Floor, Suite 5610 (Annex B), Washington, DC
20024.
FOR FURTHER INFORMATION CONTACT: Christine M. Todaro, Division of
Marketing Practices, Bureau of Consumer Protection, Federal Trade
Commission, Constitution Center, 400 7th Street SW, 8th Floor, Suite
8528, Washington, DC 20024, (202) 326-3711, [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Commission issued the original Franchise Rule pursuant to its
authority under Section 5 of the Federal Trade Commission Act to
proscribe unfair or deceptive acts or practices.\1\ The primary purpose
of the Rule is to provide prospective purchasers of franchises the
material information they need in order to weigh the risks and benefits
of such an investment by providing disclosure requirements in a uniform
format that facilitates comparison shopping.\2\ The Commission adopted
the Rule on December 21, 1978, and it became fully effective on July
21, 1979.\3\
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\1\ Section 5(a) of the Federal Trade Commission Act, 15 U.S.C.
45(a), prohibits ``unfair or deceptive acts or practices in or
affecting commerce.''
\2\ Original Franchise Rule Statement of Basis and Purpose
(``Original SBP''), 43 FR 59614 (Dec. 21, 1978).
\3\ Id.
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In 1995, the Commission announced a regulatory review of the
Franchise Rule.\4\ That proceeding, which concluded that the Rule was
still needed but could be improved, led to amendments to the Rule
issued in 2007 (the ``Amended Rule''), which took effect on July 1,
2008.\5\ The Amended Rule sought, among other changes, to reduce
inconsistencies between federal and state pre-sale disclosure
requirements and established a set of uniform disclosure requirements
in a Franchise Disclosure Document (``FDD''). Commission staff has
continued to work closely with the North American Securities
Administrators Association, as well as individual state franchise
regulators, to promote uniformity regarding franchise disclosure
requirements.
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\4\ 60 FR 17656 (Apr. 7, 1995).
\5\ Amended Franchise Rule Statement of Basis and Purpose
(``Amended Rule SBP''), 72 FR 15444 (Mar. 30, 2007).
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The Amended Rule requires franchisors to provide prospective
franchisees with their FDD at least 14 calendar days before they make
any payment or sign a binding agreement in connection with a proposed
franchise sale.\6\ The FDD provides prospective
[[Page 9052]]
franchise purchasers with 23 items of information material to their
investment decision, including the initial fees and estimated initial
investment required; the litigation and bankruptcy history of the
franchisor, its officers, and key executives; the financial performance
of existing company-owned and franchised outlets; contact information
for current and former franchisees; and financial statements reflecting
the ability of the franchisor to provide promised services and support.
The FDD also requires disclosure of any restrictions on the sources of
goods and services and any required purchases; a franchisee's
contractual obligations in the establishment and operation of the
franchise; the terms of any financing offered by the franchisor; the
training and assistance provided by the franchisor; the extent to which
the franchisee's outlet is protected from competition by the franchisor
and other franchisees; any restrictions on what the franchisee may
sell; the circumstances in which the franchise may be prematurely
terminated or in which the franchisee's sale or renewal of the
franchise may be refused by the franchisor; how and where any disputes
will be resolved; any restrictions on the franchisee's ability to
engage in the same or similar business during and after the termination
of the franchise; and the number of outlets created, sold, and closed
during the past three years. In addition, if the franchisor makes a
financial performance representation, the representation must be
disclosed in the FDD.
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\6\ 16 CFR 436.2(a).
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II. Regulatory Review
The Commission reviews its rules and guides periodically to seek
information about their costs and benefits and their regulatory and
economic impact. The information obtained assists the Commission in
identifying rules and guides that may warrant modification or
rescission.
As part of this review, the Commission is seeking comment on a
number of issues, as outlined in the questions posed in Section III
below, including the continuing need for the Amended Rule, its economic
impact, the effect of the Rule on the unfair and deceptive practices it
was designed to prevent, and the interaction of the Rule with other
regulations. The Commission believes that this review is important to
determine whether the Rule continues to serve a useful purpose and, if
so, how it could or should be improved.
III. Issues for Comment
The Commission requests written comments on any or all of the
following questions. Interested parties are invited to comment on any
relevant issue, regardless of whether it is identified below. Where
comments advocate a change to the Rule, please be specific in stating
the unfair or deceptive act or practice to which the change relates,
provide evidence of the pervasiveness of the act or practice, and
describe the suggested change and any potential costs or benefits the
change might have on prospective franchisees, franchisors, and
franchise sellers, including those that are small businesses. The
Commission requests that responses to its questions be as specific as
possible, include a reference to the question being answered, and cite
to empirical data or other evidence wherever available and appropriate.
1. Is there a continuing need for the Rule? Why or why not?
2. What benefits, if any, has the Rule provided to prospective
franchisees, including small businesses? What evidence supports the
asserted benefits?
3. What modifications, if any, should be made to the Rule to
increase its benefits to prospective franchisees, including small
businesses?
a. What evidence supports the proposed modifications?
b. How would these modifications affect the costs the Rule imposes
on franchisors and franchise sellers, including small businesses?
c. How would these modifications affect the benefits to prospective
franchisees?
4. What impact has the Rule had on the flow of truthful information
and on the flow of deceptive information to prospective franchisees?
5. What significant costs, if any, has the Rule imposed on
prospective franchisees, including small businesses? What evidence
supports the asserted costs?
6. What modifications, if any, should be made to the Rule to reduce
any costs on prospective franchisees, including small businesses?
a. What evidence supports the proposed modifications?
b. How would these modifications affect the benefits provided by
the Rule?
7. What benefits, if any, has the Rule provided to franchisors and
franchise sellers, including small businesses? What evidence supports
the asserted benefits?
8. What modifications, if any, should be made to the Rule to
increase its benefits to franchisors and franchise sellers, including
small businesses?
a. What evidence supports the proposed modifications?
b. How would these modifications affect the costs the Rule imposes
on franchisors and franchise sellers?
c. How would these modifications affect the benefits to prospective
franchisees?
9. What significant costs, if any, including costs of compliance,
has the Rule imposed on franchisors and franchise sellers, including
small businesses? What evidence supports the asserted costs?
10. What modifications, if any, should be made to the Rule to
reduce the costs imposed on franchisors and franchise sellers,
including small businesses?
a. What evidence supports the proposed modifications?
b. How would these modifications affect the costs the Rule imposes
on franchisors and franchise sellers?
c. How would these modifications affect the benefits to prospective
franchisees?
11. What evidence is available concerning the degree of industry
compliance with the Rule?
12. What modifications, if any, should be made to the Rule to
account for changes in relevant technology or economic conditions? What
evidence supports the proposed modifications?
13. Provide comment on any overlap or conflict with other federal,
state, or local laws, or regulations.
a. What evidence supports any asserted conflicts?
b. With reference to asserted conflicts, should the Rule be
modified? If so, why or why not?
IV. Instructions for Submitting Comments
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before May 13, 2019.
Write ``Franchise Rule Regulatory Review, 16 CFR part 436, Matter No.
R511003,'' on your comment. Your comment, including your name and your
state, will be placed on the public record of this proceeding,
including, to the extent practicable, on the https://www.regulations.gov website.
Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online through the https://www.regulations.gov/ website.
If you file your comment on paper, write [``Franchise Rule
Regulatory Review, 16 CFR part 436, Matter No. R511003''] on your
comment and on the envelope and mail your comment to the following
address: Federal Trade Commission, Office of the Secretary, 600
Pennsylvania Avenue NW, Suite
[[Page 9053]]
CC-5610 (Annex B), Washington, DC 20580, or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610,
Washington, DC 20024. If possible, please submit your paper comment to
the Commission by courier or overnight service.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov/, you are solely responsible for
making sure that your comment does not include any sensitive or
confidential information. In particular, your comment should not
include any sensitive personal information, such as your or anyone
else's Social Security number; date of birth; driver's license number
or other state identification number, or foreign country equivalent;
passport number; financial account number; or credit or debit card
number. You are also solely responsible for making sure that your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``trade secret or any
commercial or financial information which . . . is privileged or
confidential''-- as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in
particular competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names. As a matter of discretion, the Commission
tries to remove individual's home contact information from comments
before placing them on www.regulations.gov.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comments to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the FTC General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted publicly at www.regulations.gov--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment, unless you submit
a confidentiality request that meets the requirements for such
treatment under FTC Rule 4.9(c), and the General Counsel grants that
request.
Visit the FTC website to read this Notice and the news release
describing it. The FTC Act and other laws that the Commission
administers permit the collection of public comments to consider and
use in this proceeding as appropriate. The Commission will consider all
timely and responsive public comments that it receives on or before May
13, 2019. For information on the Commission's privacy policy, including
routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-04466 Filed 3-12-19; 8:45 am]
BILLING CODE 6750-01-P
