She Strengthens

The Dark Side of Multi-Level Marketing Schemes

A Threat to Financial Stability

Multi-level marketing (MLM) schemes have been a hot topic in the personal finance world, particularly due to their tendency to target and exploit women. These schemes have been around for decades, but their popularity has surged during the COVID-19 pandemic.

What is an MLM?

An MLM is a sales strategy that encourages existing distributors to recruit new distributors. According to Investopedia, “In MLM schemes, there can be hundreds or thousands of members worldwide, but relatively few earn meaningful incomes from their efforts, indicating a possible pyramid scheme.” While many MLM practices are legal, the Federal Trade Commission (FTC) has been investigating multi-level marketing companies for decades and has found many with questionable legitimate practices.

The History of MLMs

One of the largest and most well-known MLM companies in the U.S., AVON, was founded in 1886. Another pioneer in the industry, Amway, was founded in 1959 and is still in existence today. In 1975, the FTC accused Amway of being a pyramid scheme, but the investigation concluded in 1979 that Amway was not a pyramid scheme. However, the FTC did find that Amway lied about potential earnings to new recruits and engaged in other questionable practices.

The Problem with MLMs

The issue with MLMs lies in their business model. Salespeople involved in MLMs don’t make the bulk of their earnings from selling the company’s actual products or services. Instead, they make the majority of their earnings from recruiting new salespeople, which often comes with hefty startup costs for those being recruited. This creates a system where only a select few at the top of the pyramid reap the benefits, while the majority of participants lose money.

The Impact of COVID-19

The pandemic has only contributed to the growth of MLM companies. With many people losing their jobs or experiencing financial hardship, MLMs have been quick to capitalize on the desperation. The Direct Selling Association, a lobbying group for MLMs, claimed the industry produced $35.4 billion in retail sales in 2018. Since COVID-19, MLMs have been more active than ever, targeting people who have been recently laid off or are struggling financially.

The Harmful Practices of MLMs

MLMs have a history of making dubious health and wellness claims. In 1948, the FDA seized shipments of Nutrilite products due to unfounded claims that they cured diseases. During the pandemic, MLM recruiters have been using predatory practices to exploit others’ financial hardships. The FTC has warned MLM companies to stop making false claims about their products and to stop promising huge, unlikely payoffs.

Real-Life Examples of MLM Recruitment

We spoke with several women who have been on the receiving end of MLM recruitment attempts since the beginning of COVID. Their stories highlight the tactics used by MLM recruiters to prey on people’s vulnerabilities. From using community Slack channels to target people to making false promises of financial independence, MLM recruiters will stop at nothing to get people to join their schemes.

The Bigger Picture

While it’s easy to get annoyed at the #girlboss-level recruitment or sales posts on social media, we must sympathize with people who are in dire financial situations that lead them to turn to MLMs. The real issue lies in the economic framework that leaves people vulnerable to exploitation and the lack of regulation surrounding MLM companies. It’s time to take a closer look at the systems that allow MLMs to thrive and to demand change.