FTC Releases Franchise Fee Guidance

In the wake of new fee-disclosure guidance, the International Franchise Association (IFA) called on the Federal Trade Commission (FTC) to adopts the IFA's Responsible Franchising principles.

FTC released new guidance explaining that franchisors cannot lawfully impose and collect fees from franchisees that were not previously disclosed. In response to the FTC's request for information, franchisees reported ever increasing payment processing and technology fees and other undisclosed fees for training, marketing, property improvement, or any other product or service required by the franchisor.

"IFA agrees with bipartisan leaders in Congress that franchising democratizes the American dream of business ownership," said Matthew Haller, president and CEO of IFA. "The FTC's actions are contrary to the reality that the vast majority of franchise relationships are working and that franchising continues to grow each year. We have long supported greater transparency and visibility in the franchise sales process, and IFA encourages the FTC to focus on improving the Franchise Rule by adopting IFA's 2024 Responsible Franchising policy recommendations, which seek to empower prospective franchisees with the best information possible and clarify both parties' obligations as part of a franchise agreement.

"Since the FTC issued its March 2023 Request for Information and IFA released its May 2024 Responsible Franchising recommendations, IFA has further urged the FTC to avoid broad, sweeping changes that do not consider the diverse nature of the business model. The FTC's guidance regarding fee disclosure in franchise agreements stands to unnecessarily restrict franchisors' ability to innovate and evolve their system, damaging the equity of franchisees for whom these FTC actions are purportedly taken. IFA will continue to work with the FTC to improve the model for all parties involved and the customers they serve."

In May, IFA released a series of policy recommendations for franchisor, franchisee, and supplier members to strengthen the franchise relationship through improved pre-sale disclosure. These recommendations are the result of over a year of working group discussions comprised of franchisors, franchisees and supplier partners working to improve the pre-sale process for all parties involved. Click here to review IFA's Responsible Franchising recommendations.

The FTC also released a policy statement that warns that franchisors' use of contract provisions, including non-disparagement clauses that prohibit franchisees' communications with the government, violate the law. The statement emphasizes that franchisee reports and voluntary interviews are a critical part of FTC investigations and franchisees' reluctance or inability to file reports and discuss their experiences may hamper the agency's work to protect franchisees.