Full Disclosure: Periodic Review of FTC Franchise Rule

The Federal Trade Commission (FTC) seeks public comment regarding its Trade Regulation Rule entitled, “Disclosure Requirements and Prohibitions Concerning Franchising” (the “Rule”).

The Rule has been in effect since 1979, and was last amended in 2007.

Federal law mandates franchisors operating in the United States to furnish prospective franchisees with a Franchise Disclosure Document (FDD) at least 14 days before prospects make payments to franchisors or sign franchise agreements. The FTC Rule helps ensure buyers know the nature of the franchise system, the franchisor’s financial prospects, costs of operating a franchise in the system, among other pertinent details that affect a potential franchisee’s decision-making. There are 23 specific items addressed in an FDD.

As part of the FTC’s periodic regulatory review, the agency is requesting comments to thirteen specific questions to address whether franchisors, franchise sellers and franchisees have benefited from the Rule, what modifications are needed to the Rule, the costs of compliance, and what amendments might be needed to address changes in relevant technology and economic conditions.

The questions are both franchisor and franchisee focused. For example, the FTC asks:

• What impact has the Rule had on the flow of truthful information and on the flow of deceptive information to prospective franchisees?
• What significant costs, if any, including costs of compliance, has the Rule imposed on franchisors and franchise sellers, including small businesses? What evidences supports the asserted costs?

Comments from the public are due on or before April 21, 2019 and the full notice and details on submissions can be found on the FTC website.

Those who want to submit comments may do so online or through U.S. Mail, though there may be delays for paper submissions because of increased security screening. Comments should be prefaced with a subject line:  “Franchise Rule Regulatory Review, 16 CFR Part 310, Matter No. R511003,” and include the submitter’s name and state.

The comments will be made a matter of public record – so submissions should not include confidential details or personal information.

Taylor M. Vernon is an attorney in our Franchise & Distribution Practice Group.