Franchisors - New FTC Franchise Rule Proposed Revisions

Franchisors - New FTC Franchise Rule Proposed Revisions

Federal Trade Commission Notice of Proposed Revised Trade Regulation Rule

August 25, 2004

After nearly 10 years in progress, today the FTC released its Staff Report on the new Franchise Rule.

While the FTC Staff recommends the Franchise Rule be retained, there are significant proposed revisions recommended in the 423-page report. A few significant aspects of the recommendation include:

• Creation of a separate FTC Rule for business opportunities
• Elimination of the "first personal meeting rule" and that instead disclosure documents be delivered no later than 14 days before contract signing or payment of any fees, unless the document is requested before that date
• Changes in disclosure requirements, a few of which include:
  • Item 17 tables showing inflow and outflow of franchised units
  • Disclosure of franchisee associations
  • Annual update requirements within 120 days vs. 90 days
• Exemptions for franchises that involve:
  • Significant investments
  • Large and sophisticated franchisees
  • Franchisees part of the franchisor's ownership or management
• Consistency between some new FTC disclosures and UFOC guidelines used in franchise registration states
• Electronic transmission of disclosure documents will be permitted, subject to certain rules.

Note. Franchise.com has been providing, and is currently the only company providing FTC approved electronic disclosure Franchise E-Disclosure™to franchisors for the last two years per FTC Demonstration Project guidelines. The North American Securities Administrators Association (NASAA) has also recommended their franchise registration member states also approve electronic disclosure.

Many franchise systems of all sizes utilize Franchise E-Disclosure™, which is a low cost complete franchise disclosure management system, that includes:

• UFOC Tracking
• Full reporting
• Instant return of Acknowledgement of Receipt
• Exact version control of disclosure document sent to prospective franchisee
• Online archiving of all versions sent and received

The FTC will accept public comments on the proposed revised rule until November 12, 2004.