New Bills in Congress Take Run at Franchising Rules
Rep. Keith Ellison at a minimum wage protest last year.
A bill designed to “bring about transparency” in the Small Business Administration loan process would require first-year revenue estimates in the documents franchisors must give franchisees, according to sponsor U.S. Rep. Keith Ellison, (D-Minn.)
Such information is “often left out” of franchise disclosure documents, Ellison says in a summary of the bill, called H.R. 3195. When franchisors did include first-year revenue projections in their FDDs, “they were significantly higher than historical actuals,” Ellison maintains. He cites a 2013 Government Accountability Office study and a 2011 audit conducted by the SBA Office of the Inspector General to back up his claims.
“This proposal would prevent this intentionally deceptive behavior, which leads to franchise failures and defaults,” Ellison’s summary says. Introduced yesterday, the bill would require franchisors to include year one average unit revenue for the previous five years; year one unit failures for the previous five years; and average unit revenue for the top 25 percent, middle 50 percent and bottom 25 percent of all franchised units.
The International Franchise Association blasted the bill as “a harmful piece of legislation,” which, if enacted, “would dry up SBA loans for franchising, cripple the U.S. economy, and crush a large portion of the economic job growth this post-recession economy has to offer.”
Another bill introduced by Ellison yesterday seeks to give franchisees more rights, making it harder for a franchisor to terminate a contract, for example. The purpose is “to establish minimum standards of fair conduct in franchise sales and franchise business relationships,” according to its summary.
The IFA also condemned that bill, known as H.R. 3196, saying it is “purporting to be pro-franchisee” but actually is “anti-opportunity and unnecessary considering the many franchisee protections already in place.
“Rep. Ellison’s new legislation is a misguided attempt to ‘protect’ franchisees by burdening them with new regulations and restrictions on how they run their businesses,” said IFA President and CEO Steve Caldeira in a statement.
Asked to characterize the threat these bills pose to franchising, Matt Haller, IFA senior vice president, responded: “I would not say these are ‘significant’ threats if only because even their sponsors and sponsoring organizations agree they will never become law. These are ‘messaging bills’ designed to generate headlines and justify certain organizations (CFA) and to advance political interests (SEIU and Ellison.)”
Those acronyms stand for Coalition of Franchisee Associations and Service Employees International Union.