Ex-IFA John Gay Changes Mind, Supports Regulating Franchisors
Apparently the franchisors give the franchisees take-it-or-leave-it contracts and costs imposed by the franchisors have been rising sharply. Gay notes that the franchisees "expressed concern about the unexplained increases...and inability to negotiate a fairer" deal.
The proposed legislation would permit franchisees to "form a broad coalition and negotiate" with franchisors "from a position of strength... if the negotiating parties cannot reach an agreement after a designated time, a three-judge panel would make a decision that best reflects market conditions."
In response, the franchisors respond that "there is no need for government intervention, and that it would be inappropriate for the U.S. government to set prices and negotiate the terms of contracts for private commercial entities."
Note: substitute "MasterCard & Visa" for "franchisors" and "restaurant owners" for "franchisees" and this story is true.
Congressman Conyers is a bit left-wing for my taste but is true to his principles. On the other hand,Mr. Gay must be having a tough time spouting this line with a straight face. Was Mr. Gay worried about "fairness" or did he base his position on "freedom of contract" when he lobbied for the IFA?
Wonder what the IFA's position on this bill is... after all, most IFA members would benefit from this government intrusion proposed by Rep. Conyers.


The real bill results in the government regulating the rates which MasterCard & Visa charge merchants.
I was trying to point out the irony of someone supporting a vastly intrusive statute (far more intrusive than SBFA would have been) because the free market is "unfair." That Mr. Gay and Rep. Conyers are bedfellows is the icing on the cake.
As to why it would benefit IFA members: simple-- credit card fees are a big part of costs for any retailer. If you can get a panel of judges to reduce your rate from 2% to 1%, well bingo-- that's less money in MasterCard's pocket and more money in yours.
Don't get me wrong, there are significant antitrust issues here and I think that both pieces of legislation (the failed SBFA and this new credit card proposal) have their merits and demerits. And I am not a nutcase laissez-faire type who ignores externalities and other public policy considerations.
But I would like for Mr. Gay to explain why MasterCard can't be allowed to bully the Quizno's franchisee because the free market leads to an "unfair" outcome, but Quizno's can screw the franchisee because the free market doesn't have to be "fair."
It is not a conceptually logical position.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Doubly ironic that the poor restaurant owners have no bargaining power post signing their agreement with Visa or Mastercard, eh.
Didn't they get the proper disclosure?
Nobody told them to sign with Visa or put a gun to their heads. Right?
And so all the other providers had similar provisions. Tough luck.
(very good catch, Paul.)
Michael Webster PhD LLB
Franchise News
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"