FTC Seeks Comments On Franchise Rule

Fox Rothschild LLP

The Federal Trade Commission (“FTC”) has requested public comments on its Trade Regulation Rule entitled “Disclosure Requirements and Prohibitions Concerning Franchising” (the “Rule”). The Rule makes it an unfair or deceptive act or practice for franchisors to fail to give prospective franchisees a Franchise Disclosure Document, which is required to provide certain specific information about the franchisor, the franchise business, and the terms of the franchise agreement. The FTC is currently 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. Interested persons have the opportunity to submit written data, views, and arguments concerning the Rule to the FTC. The window for public comment is open until April 21, 2019.

The original Franchise Rule was issued in 1979. In 1995, the FTC decided to review the Rule, a process that took many years to complete. Finally, the review concluded that the Rule was still needed but could be improved, and amendments to the Rule were issued in 2007 (the “Amended Rule”), taking effect on July 1, 2008. 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”). The Amended Rule is the one with which most practitioners are familiar, requiring 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. The FDD provides prospective franchise purchasers with 23 items of information material to their investment decision.

The FTC is now seeking comment on a number of issues, including the continuing need for the Amended Rule. Other questions from the FTC focus on whether the Amended Rule has been beneficial to franchisees and franchisors as well as the Amended Rule’s interaction with and impact on other regulations. Additionally, The FTC requests comments on whether the Amended Rule has been effective on preventing unfair and deceptive practices as well as the costs of compliance with the Amended Rule.

Members of the public may provide comments on the FTC’s questions, and public comments will be posted to the FTC’s website.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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