IFA Calls On FTC To Abandon Baseless Scrutiny of Franchise Model

In formal comments to the Federal Trade Commission's (FTC) reopened Request for Information (RFI) on franchisor practices and franchise agreements, the International Franchise Association (IFA) urged the FTC to respect the boundaries of its authority and adhere to its rulemaking requirements, which were disregarded by the FTC's recent Policy Statement and Staff Guidance. The comments further highlight the damage potential regulation could have for viability of the entire franchise business model.

IFA President and CEO Matt Haller said:

"In spite of all available legal, empirical, and anecdotal evidence to the contrary, the FTC seems to be operating under the false premise that franchisor control is inherently bad for franchisees. Federal courts have repeatedly ruled, and empirical studies have repeatedly demonstrated, that franchisees (and consumers) benefit from the uniformity and predictability that result from a franchisor's imposition of standards on its system. Imposing unilateral, substantial, and burdensome regulations on the franchise community will result in significant harm on existing and future franchisees and reduce the viability of the franchise model. The FTC should focus its limited resources on improving the Franchise Rule's outdated disclosure regime as recommended by the IFA, state regulators, bipartisan members of Congress, and the GAO."

The comments detail the ways the FTC continues to exceed its authority, including its attempts to "regulate private contracts and impair franchisors' trademark and other intellectual property rights without complying with the extensive rulemaking procedures mandated by the FTC Act." The full comments are available here.

Thousands of members of the franchising community joined IFA in responding to the RFI since it was issued in March 2023. They highlighted the ways the franchise business model should be protected and cautioned the FTC against imposing unworkable, overly broad regulation that could put franchised businesses at a disadvantage to their nonfranchised counterparts, eliminating competition and diminishing the equity franchisees have built in their businesses.

Rather than overregulating franchise relationships, IFA highlights the ways the franchise community and its key stakeholders have worked together to improve disclosure and strengthen franchise relationships since the RFI was issued, including:

• IFA spearheaded legislation to amend the California Franchise Investment Law (S.B. 919) by adding registration and disclosure requirements for franchise brokers, addressing concerns raised to the commission as early as November 2020. The bipartisan bill was signed into law by Governor Gavin Newsom last month.
• IFA and its members developed IFA's Responsible Franchising principles released in May 2024 as a roadmap for improved disclosure for franchisors, franchisees, and suppliers.
• IFA supported the Model Broker Registration Act proposed by the North American Securities Administrators Association (NASAA) in May 2024 that protects the franchise model through improved franchise disclosures.

IFA's second comment supplements the concerns expressed in its initial response to the RFI submitted in June 2023 and reiterates the call for the FTC to focus its efforts on enforcement and improvement of presale disclosures under the Franchise Rule as described in IFA's Responsible Franchising principles.