Senate
Study
Bill
1162
-
Introduced
SENATE
FILE
_____
BY
(PROPOSED
COMMITTEE
ON
COMMERCE
BILL
BY
CHAIRPERSON
CHAPMAN)
A
BILL
FOR
An
Act
prohibiting
pyramid
promotional
schemes
and
making
1
penalties
applicable.
2
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
3
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Section
1.
Section
714.16,
subsection
2,
Code
2019,
is
1
amended
by
adding
the
following
new
paragraph:
2
NEW
PARAGRAPH
.
q.
(1)
It
is
an
unlawful
practice
for
a
3
person
to
establish,
promote,
or
operate
a
pyramid
promotional
4
scheme.
5
(2)
This
paragraph
shall
not
be
construed
to
prohibit
a
6
plan
or
operation,
or
define
a
plan
or
operation
as
a
pyramid
7
promotional
scheme,
based
on
the
fact
that
participants
in
8
the
plan
or
operation
give
consideration
in
return
for
the
9
right
to
receive
compensation
based
upon
purchases
of
goods,
10
services,
or
intangible
property
by
participants
for
personal
11
use,
consumption,
or
resale
if
the
following
conditions
are
12
satisfied:
13
(a)
The
plan
or
operation
does
not
result
in
inventory
14
loading.
15
(b)
The
plan
or
operation
implements
a
bona
fide
inventory
16
repurchase
program.
17
(3)
For
purposes
of
this
paragraph:
18
(a)
“Bona
fide
inventory
repurchase
program”
means
a
program
19
by
which
a
person
repurchases
current
and
marketable
inventory
20
from
an
independent
salesperson
that
was
originally
purchased
21
from
the
person
for
resale
by
the
independent
salesperson,
upon
22
request
and
within
twelve
months
after
the
date
of
original
23
purchase
at
no
less
than
ninety
percent
of
the
original
24
net
cost,
less
any
appropriate
incidental
costs,
when
the
25
independent
salesperson’s
business
relationship
with
the
person
26
ends,
and
which
program
was
communicated
to
the
independent
27
salesperson
in
writing.
28
(b)
“Compensation”
means
payment
of
any
money,
thing
of
29
value,
or
financial
benefit
conferred
in
return
for
inducing
30
another
person
to
participate
in
a
pyramid
promotional
scheme.
31
(c)
“Consideration”
means
payment
of
any
money
or
32
the
purchase
of
goods,
services,
or
intangible
property.
33
“Consideration”
does
not
include
the
purchase
of
goods
or
34
services
furnished
at
no
cost
to
be
used
in
making
sales
and
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not
for
resale,
or
time
and
effort
spent
in
pursuit
of
sales
or
1
recruitment
activities.
2
(d)
“Current
and
marketable
inventory”
means
any
goods
or
3
services,
including
promotional
materials,
sales
aids,
and
4
sales
kits,
that
an
independent
salesperson
is
required
to
5
purchase
pursuant
to
a
bona
fide
inventory
repurchase
program.
6
“Current
and
marketable
inventory”
does
not
include
inventory
7
that
is
no
longer
within
its
commercially
reasonable
use
or
8
shelf
life
period,
communicated
in
writing
to
an
independent
9
salesperson
prior
to
purchase
as
seasonal,
discontinued,
or
10
a
special
promotion
product
not
subject
to
the
bona
fide
11
inventory
repurchase
program,
or
used
or
opened.
12
(e)
“Inventory
loading”
means
a
plan
or
operation
by
which
13
a
person
requires
or
encourages
an
independent
salesperson
to
14
purchase
inventory
in
an
amount
that
exceeds
the
amount
that
15
the
independent
salesperson
can
expect
to
resell
for
ultimate
16
consumption
or
to
consume
in
a
reasonable
period,
or
both.
17
(f)
“Pyramid
promotional
scheme”
means
a
plan
or
operation
18
by
which
a
person
provides
consideration
for
the
opportunity
19
to
receive
compensation
that
is
primarily
derived
from
the
20
introduction
of
other
persons
into
the
plan
or
operation
21
and
not
from
the
sale
or
consumption
of
goods,
services,
or
22
intangible
property
by
persons
introduced
into
the
plan
or
23
operation.
“Pyramid
promotional
scheme”
includes
a
plan
or
24
operation
by
which
the
number
of
persons
who
may
participate
is
25
limited
either
expressly
or
by
the
application
of
conditions
26
affecting
the
eligibility
of
persons
to
receive
compensation
27
under
the
plan
or
operation,
or
a
plan
or
operation
by
which
a
28
person,
upon
providing
consideration,
obtains
goods,
services,
29
or
intangible
property
in
addition
to
the
right
to
receive
30
compensation.
31
Sec.
2.
Section
714H.3,
subsection
2,
paragraph
f,
Code
32
2019,
is
amended
to
read
as
follows:
33
f.
Section
714.16,
subsection
2
,
paragraphs
“b”
through
“n”
,
34
and
paragraph
“q”
.
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EXPLANATION
1
The
inclusion
of
this
explanation
does
not
constitute
agreement
with
2
the
explanation’s
substance
by
the
members
of
the
general
assembly.
3
This
bill
prohibits
a
person
from
establishing,
promoting,
4
or
operating
a
pyramid
promotional
scheme.
5
The
bill
defines
a
“pyramid
promotional
scheme”
as
a
plan
6
or
operation
by
which
a
person
provides
consideration
for
the
7
opportunity
to
receive
compensation
primarily
derived
from
8
introducing
other
persons
into
the
plan
or
operation
and
not
9
from
the
sale
or
consumption
of
goods,
services,
or
property.
10
The
bill
provides
that
a
“pyramid
promotional
scheme”
includes
11
a
plan
or
operation
by
which
the
number
of
participants
is
12
limited
either
expressly
or
by
the
application
of
conditions
13
affecting
eligibility,
or
a
plan
or
operation
by
which
a
14
person,
upon
providing
consideration,
obtains
goods,
services,
15
or
property
in
addition
to
the
right
to
receive
compensation.
16
The
bill
provides
that
it
shall
not
be
construed
to
17
prohibit
a
plan
or
operation,
or
define
a
plan
or
operation
18
as
a
pyramid
promotional
scheme,
based
on
the
fact
that
19
participants
give
consideration
in
return
for
the
right
to
20
receive
compensation
based
upon
purchases
by
participants
for
21
personal
use,
consumption,
or
resale,
if
the
plan
or
operation
22
does
not
result
in
inventory
loading
and
implements
a
bona
fide
23
inventory
repurchase
program
as
defined
in
the
bill.
24
A
violation
of
the
bill
constitutes
an
unlawful
practice
25
under
both
the
“Iowa
Consumer
Frauds
Act”
(Code
section
714.16)
26
and
the
“Private
Right
of
Action
For
the
Iowa
Consumer
Frauds
27
Act”
(Code
chapter
714H).
Under
the
“Iowa
Consumer
Frauds
28
Act”,
the
attorney
general
may
investigate,
issue
subpoenas,
29
and
commence
civil
proceedings
seeking
restraining
orders
or
30
injunctions
prohibiting
persons
from
engaging
in
unlawful
31
practices
or
seeking
termination
of
the
business
affairs
of
a
32
person
engaging
in
unlawful
practices.
In
addition,
a
civil
33
penalty
of
up
to
$40,000
per
violation
may
be
imposed
by
a
34
court
against
a
person
found
to
have
committed
an
unlawful
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practice.
Under
the
“Private
Right
of
Action
For
the
Iowa
1
Consumer
Frauds
Act”,
a
consumer
may
sue
to
recover
actual
2
damages
and
may
seek
punitive
damages
up
to
three
times
the
3
actual
damages
in
cases
of
willful
and
wanton
conduct
by
a
4
defendant.
In
addition,
if
the
consumer
prevails
in
a
private
5
right
of
action
lawsuit,
the
court
must
award
reasonable
6
attorney
fees.
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