CFA Calls for Grassroots Support for Pro-Franchisee Bills in Congress!

CFA asks all franchisees to contact their Members of Congress and ask for their support of H.R. 3195 and 3196!

On July 24, 2015, Rep. Keith Ellison, D-MN-05, introduced two bills, which, if signed into law, would benefit franchisees across the country. The Fair Franchise Act of 2015 (H.R. 3196) and the Small Business Administration (SBA) Franchise Loan Transparency Act (H.R. 3195) help franchisees like you by requiring financial transparency in franchise disclosure documents and granting franchisees more rights in the operations, transfer and sale of their businesses (among other provisions).

The Fair Franchise Act of 2015 (H.R. 3196) is aimed at leveling the playing field in regard to the franchisee-franchisor relationship. Among other provisions, H.R. 3196 prohibits unfair and discriminatory practices by franchisors. It also requires all parties to act in good faith and allows franchisees to seek judicial remedies for alleged violations of the contract — a right currently prohibited in many franchise agreements. An updated version of the bipartisan Coble-Conyers bill introduced decades ago, H.R. 3196 gives franchisees more control in the sale, transfer and renewal of their franchise and requires reasonable notice and cure periods in regard to the termination of an agreement.

The Small Business Administration (SBA) Franchise Loan Transparency Act (H.R. 3195) ensures transparency in the loan processes of the Small Business Administration. It requires franchisors to disclose average first-year revenues, number of franchise locations sold/out of business and average revenues for all franchise locations to prospective franchisees via the franchise disclosure document. As a result, franchisees like you will have a more accurate representation of sales and be able to purchase and run their business accordingly.

As franchisees, you are the true stakeholder in your business. CFA asks for your support by clicking here and asking your representatives to co-sponsor H.R. 3195 and 3196!

Comments

And this citizen will be

And this citizen will be calling Congress and telling them this is a State's right issue, and even then the State's have zero reason to intervene in a private contract. A franchise is not compulsory like insurance, it is an agreement voluntarily entered into.

Franchises are no different than other regulated contracts

Citizen said, "A franchise is not compulsory like insurance, it is an agreement voluntarily entered into."

So is a mortgage. So is an agreement to buy a cheap used car. The government has permeated those contracts very deeply.

A franchise often involves the life savings on an entire family, so the government should have no interest whatsoever?

If you rent a flophouse apartment, the government gives the tenant substantial rights regardless of what the lease contract says.

And you actually think any of

And you actually think any of these examples are a valid reason for government intervention? You think it is a good idea?

Citizen: Zero logic in your zero reasons

Citizen - a rather interesting argument: states' rights.  Perhaps actually reviewing one of those new laws you reference and using rational thought might clear the air.

The SBA law simply requires any franchisor seeking access to federal money to publish average revenue generation of first year franchisees for each of the preceding 5 years.  Now, let me step back for a moment on that first sentence.  Does the word "federal" mean anything to you?  The SBA is a federal agency utilizing federal tax dollars (whoops, that dang "federal" word keeps popping up).to lend to franchise business models.  So a federal agency will simply require that if a franchisor wants to utilize its services it must provide the data.  If the franchisor does not want to access federal money via the SBA then it doesn't.  Very, very simple - well, at least for most people.

Second, franchisors for quite some time have claimed no business nexus within states - especially those high tax states.  Therefore the franchisor, who receives royalty payments from a franchisee in another state, uses the federal tax code to show that it does not do business in that high tax state so the money can cross state lines and be deposited in a low (to no) tax state.  Once again, "federal".  

Now, if your claim is to allow franchisors to continue to use false, fraudulent revenue data when in discussions with prospective franchisees then, I guess, I can follow your logic.  However, considering there have been several FEDERAL government reports proving pervasive fraudulent revenue data flowing to franchisees and finding its way onto a certain FEDERAL agency's loan applications (SBA) this no longer is a states rights issue but one of "federal" magnitude.  

I still don't expect you, Citizen, to call your Congressman requesting his vote in favor of the legislation.  My gut tells me you have another agenda.

Your gut is wrong. In

Your gut is wrong. In general when you try and plug a hole legislatively, you simply create new avenues to exploit or do not solve the real problem. The latter part is relevant in this case.

The issue is, the Federal Government has no business making loans to small businesses in the first place. That is THE ISSUE. If there were no SBA loans, the problem actually goes away. Why, because as you know the only way a franchisee is going to get a loan is if they either have enough assets to make the loan unnecessary or they will actually have to prove to a loan committee that the business actually is viable.

In either case your typical former corporate employee turned entrepreneur is likely going to be somewhat insulated from their own inexperience in actual small business. The existence of the SBA is the problem.

My letter to my Congressman will be to highlight the mess that the SBA created and why it should be eliminated.

Re: your gut is wrong

My God, someone who actually gets it. I posted that in 2009.  However shutting down the SBA is a giant leap as opposed to a small step.  With franchisees knowing actual average first year revenues it would be highly doubtful most franchises would be purchased. It effectively does the same thing.  I would prefer, and specifically requested, second and third year average revenues as well so Franchisors can't lie and state that second year revenues balloon once you're up and running. However that did not get approved.

I would argue that writing your congressman to shut down all SBA loans to franchises would fall on deaf ears because it is too extreme. Requiring the first year revenue data is a strong first step.  If you're interested in furthering a conversation email the CFA at info@thecfainc.com. Your personal info will remain confidential. 

States Rights has Nothing to do with the SBA Problem

States Rights has nothing to do with the SBA, as citizen writer above alludes. States rights is a political philosophy that was in vogue decades ago. The SBA is governed by federal code.

The promise of the SBA is to provide economic development, jobs growth and opportunity. It is true that SBA franchise loan administration has gotten off track, with fuzzy underwriting and lack of care and attention to default analysis and reporting. But this is all fixable and legislation is needed.