Bill Text: IA SSB3051 | 2017-2018 | 87th General Assembly | Introduced


Bill Title: A bill for an act prohibiting pyramid promotional schemes and making penalties applicable.

Spectrum: Committee Bill

Status: (N/A - Dead) 2018-01-24 - Subcommittee recommends passage. [SSB3051 Detail]

Download: Iowa-2017-SSB3051-Introduced.html
Senate Study Bill 3051 - 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 TLSB 5175XC (3) 87 gh/rn
S.F. _____ Section 1. Section 714.16, subsection 2, Code 2018, is 1 amended by adding the following new paragraph: 2 NEW PARAGRAPH . p. (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 35 -1- LSB 5175XC (3) 87 gh/rn 1/ 4
S.F. _____ 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 2018, is amended to read as follows: 33 f. Section 714.16, subsection 2 , paragraphs “b” through “n” , 34 and paragraph “p” . 35 -2- LSB 5175XC (3) 87 gh/rn 2/ 4
S.F. _____ 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 35 -3- LSB 5175XC (3) 87 gh/rn 3/ 4
S.F. _____ 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. 7 -4- LSB 5175XC (3) 87 gh/rn 4/ 4
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