Who's Side Is The FTC On?
As reported by columnist Janet Sparks in Franchise Times, October 2009, “The Federal Trade Commission’s 2009 annual report clearly states, 'combating fraud, deception and unfair practices in the marketplace is one of the FTC’s highest priorities’….But in the FTC 2009 report, there is no mention of 'franchising' under its consumer protection section although it lists numerous other categories: identity theft, shop-at-home and catalog sales, Internet services, banks and lenders, prizes and sweepstakes, work-at-home plans and business opportunities.” After failing in her attempts to contact FTC franchise program director Craig Tregillus, Ms. Sparks utilized the Freedom of Information Act (FOIA) to learn the status of three complaints filed against franchisors:
- The Coffee Beanery which has been deeply engaged in legal action with two of its franchisees for the past five years.
Results: No complaints filed and no actions or investigations from the FTC for the past four years.
The UPS Store under franchisor Mail Boxes, Etc. which has been engaged in numerous franchisee lawsuits for more than five years, but on a much larger scale involving hundreds of franchisees.
Results: One complaint brought by a franchisee alleging that MBE will not adhere to the franchise agreement nor participate in arbitration. He also claims that MBE audited him without using generally accepted accounting principles and then charged him an additional $3000. The franchisee cites breach of contract as the law violation. The FTC showed no investigation or enforcement action as a result of the complaint.
Cold Stone Creamery, now under Kahala Corp. which is not only involved in litigation with its franchisees but also with the Internal Revenue Service in Arizona, Texas and New Mexico seeking a judicial decision on whether the franchisor or the IRS had the right to the property and equipment of a terminated franchisee.
Results: This request showed four complaints brought against the franchisor, none resulting in an investigation or enforcement action from the FTC.
Columnist Janet Sparks questions whether:
- The FTC is even interested in receiving complaints from owners who claim they are being victimized fraudulent schemes.
The FTC is sending a strong message to franchisors that they have nothing to fear regarding FTC enforcement.
The FTC thinks that the International Franchise Association (IFA) is a self-regulatory body and doesn’t need help from the federal government.
Any objective observer recognizes that the IFA is heavily skewed in favor of franchisors. It rarely supports any of the critical issues of importance to franchisees:
- Areas of territorial protection
- Choice of venue
- Fair termination provisions
- Appropriate liquidated damages
- Independent franchise owners councils
About the author: Stanley Turkel, MHS, ISHC operates his hotel consulting office as a sole practitioner specializing in franchising issues, asset management and litigation support services. Turkel’s clients are hotel owners and franchisees, investors and lending institutions. Turkel serves on the Board of Advisors and lectures at the NYU Tisch Center for Hospitality, Tourism and Sports Management. He is a member of the prestigious International Society of Hospitality Consultants. His provocative articles on various hotels subjects have been published in the Cornell Quarterly, Lodging Hospitality, Hotel Interactive, Hotel-Online, Blue MauMau, Hotel Resource News, etc. Don’t hesitate to call 917-628-8549 or email [email protected].