Bill Text: IA HF2172 | 2017-2018 | 87th General Assembly | Introduced
Bill Title: A bill for an act prohibiting pyramid promotional schemes and making penalties applicable. (Formerly HSB 557.)
Spectrum: Committee Bill
Status: (Engrossed - Dead) 2018-03-15 - Referred to Commerce. S.J. 692. [HF2172 Detail]
Download: Iowa-2017-HF2172-Introduced.html
House File 2172 - Introduced HOUSE FILE BY COMMITTEE ON COMMERCE (SUCCESSOR TO HSB 557) A BILL FOR 1 An Act prohibiting pyramid promotional schemes and making 2 penalties applicable. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 5175HV (1) 87 gh/rn PAG LIN 1 1 Section 1. Section 714.16, subsection 2, Code 2018, is 1 2 amended by adding the following new paragraph: 1 3 NEW PARAGRAPH. p. (1) It is an unlawful practice for a 1 4 person to establish, promote, or operate a pyramid promotional 1 5 scheme. 1 6 (2) This paragraph shall not be construed to prohibit a 1 7 plan or operation, or define a plan or operation as a pyramid 1 8 promotional scheme, based on the fact that participants in 1 9 the plan or operation give consideration in return for the 1 10 right to receive compensation based upon purchases of goods, 1 11 services, or intangible property by participants for personal 1 12 use, consumption, or resale if the following conditions are 1 13 satisfied: 1 14 (a) The plan or operation does not result in inventory 1 15 loading. 1 16 (b) The plan or operation implements a bona fide inventory 1 17 repurchase program. 1 18 (3) For purposes of this paragraph: 1 19 (a) "Bona fide inventory repurchase program" means a program 1 20 by which a person repurchases current and marketable inventory 1 21 from an independent salesperson that was originally purchased 1 22 from the person for resale by the independent salesperson, upon 1 23 request and within twelve months after the date of original 1 24 purchase at no less than ninety percent of the original 1 25 net cost, less any appropriate incidental costs, when the 1 26 independent salesperson's business relationship with the person 1 27 ends, and which program was communicated to the independent 1 28 salesperson in writing. 1 29 (b) "Compensation" means payment of any money, thing of 1 30 value, or financial benefit conferred in return for inducing 1 31 another person to participate in a pyramid promotional scheme. 1 32 (c) "Consideration" means payment of any money or 1 33 the purchase of goods, services, or intangible property. 1 34 "Consideration" does not include the purchase of goods or 1 35 services furnished at no cost to be used in making sales and 2 1 not for resale, or time and effort spent in pursuit of sales or 2 2 recruitment activities. 2 3 (d) "Current and marketable inventory" means any goods or 2 4 services, including promotional materials, sales aids, and 2 5 sales kits, that an independent salesperson is required to 2 6 purchase pursuant to a bona fide inventory repurchase program. 2 7 "Current and marketable inventory" does not include inventory 2 8 that is no longer within its commercially reasonable use or 2 9 shelf life period, communicated in writing to an independent 2 10 salesperson prior to purchase as seasonal, discontinued, or 2 11 a special promotion product not subject to the bona fide 2 12 inventory repurchase program, or used or opened. 2 13 (e) "Inventory loading" means a plan or operation by which 2 14 a person requires or encourages an independent salesperson to 2 15 purchase inventory in an amount that exceeds the amount that 2 16 the independent salesperson can expect to resell for ultimate 2 17 consumption or to consume in a reasonable period, or both. 2 18 (f) "Pyramid promotional scheme" means a plan or operation 2 19 by which a person provides consideration for the opportunity 2 20 to receive compensation that is primarily derived from the 2 21 introduction of other persons into the plan or operation 2 22 and not from the sale or consumption of goods, services, or 2 23 intangible property by persons introduced into the plan or 2 24 operation. "Pyramid promotional scheme" includes a plan or 2 25 operation by which the number of persons who may participate is 2 26 limited either expressly or by the application of conditions 2 27 affecting the eligibility of persons to receive compensation 2 28 under the plan or operation, or a plan or operation by which a 2 29 person, upon providing consideration, obtains goods, services, 2 30 or intangible property in addition to the right to receive 2 31 compensation. 2 32 Sec. 2. Section 714H.3, subsection 2, paragraph f, Code 2 33 2018, is amended to read as follows: 2 34 f. Section 714.16, subsection 2, paragraphs "b" through "n", 2 35 and paragraph "p". 3 1 EXPLANATION 3 2 The inclusion of this explanation does not constitute agreement with 3 3 the explanation's substance by the members of the general assembly. 3 4 This bill prohibits a person from establishing, promoting, 3 5 or operating a pyramid promotional scheme. 3 6 The bill defines a "pyramid promotional scheme" as a plan 3 7 or operation by which a person provides consideration for the 3 8 opportunity to receive compensation primarily derived from 3 9 introducing other persons into the plan or operation and not 3 10 from the sale or consumption of goods, services, or property. 3 11 The bill provides that a "pyramid promotional scheme" includes 3 12 a plan or operation by which the number of participants is 3 13 limited either expressly or by the application of conditions 3 14 affecting eligibility, or a plan or operation by which a 3 15 person, upon providing consideration, obtains goods, services, 3 16 or property in addition to the right to receive compensation. 3 17 The bill provides that it shall not be construed to 3 18 prohibit a plan or operation, or define a plan or operation 3 19 as a pyramid promotional scheme, based on the fact that 3 20 participants give consideration in return for the right to 3 21 receive compensation based upon purchases by participants for 3 22 personal use, consumption, or resale, if the plan or operation 3 23 does not result in inventory loading and implements a bona fide 3 24 inventory repurchase program as defined in the bill. 3 25 A violation of the bill constitutes an unlawful practice 3 26 under both the "Iowa Consumer Frauds Act" (Code section 714.16) 3 27 and the "Private Right of Action For the Iowa Consumer Frauds 3 28 Act" (Code chapter 714H). Under the "Iowa Consumer Frauds 3 29 Act", the attorney general may investigate, issue subpoenas, 3 30 and commence civil proceedings seeking restraining orders or 3 31 injunctions prohibiting persons from engaging in unlawful 3 32 practices or seeking termination of the business affairs of a 3 33 person engaging in unlawful practices. In addition, a civil 3 34 penalty of up to $40,000 per violation may be imposed by a 3 35 court against a person found to have committed an unlawful 4 1 practice. Under the "Private Right of Action For the Iowa 4 2 Consumer Frauds Act", a consumer may sue to recover actual 4 3 damages and may seek punitive damages up to three times the 4 4 actual damages in cases of willful and wanton conduct by a 4 5 defendant. In addition, if the consumer prevails in a private 4 6 right of action lawsuit, the court must award reasonable 4 7 attorney fees. LSB 5175HV (1) 87 gh/rn
