AN ACT TO AMEND TITLE 6 OF THE DELAWARE CODE RELATING TO MULTILEVEL DISTRIBUTION COMPANIES.
Summary
HB162, as amended by House Substitute No. 1, creates a new framework in Title 6 of the Delaware Code for multilevel distribution companies and multilevel marketing programs. It defines those terms, with exclusions for licensed insurance, real estate, and securities professionals, and places the law in a separate subchapter addressing cumulative remedies and enhanced penalties.
The bill requires multilevel distribution companies to provide prospective purchasers with a written disclosure document before a contract is signed or before any consideration is accepted, whichever comes first. The disclosure must include the seller’s identity, compensation plan, inventory requirements, the actual services to be performed, training details if promised, any buy-back or security arrangement, and certain earnings-related information. It also requires a clear statement that no earnings are guaranteed and that purchasers have a three-month right to cancel.
Impact
The bill would impose new statutory duties on multilevel distribution companies operating in Delaware, including mandatory pre-sale disclosures, a three-month cancellation right, and a repurchase obligation for goods purchased as a condition of participation if they are in resalable condition. It also requires contract language stating that cancellation may be made by email or first-class mail and that repurchase must be at least 90% of the original price paid. Violations of the disclosure requirements are treated as violations of Chapter 25, Subchapter II, and the bill creates a private right of action for damages, treble damages, costs, and attorneys’ fees for violations of the repurchase requirement.
Sentiment
The bill appears to have generally favorable support, as reflected by its passage on House Third Reading by a 27-11 vote. The synopsis suggests the measure is aimed at consumer protection and transparency in multilevel marketing arrangements, which likely contributed to support from sponsors and co-sponsors across both chambers. The substitute version indicates lawmakers sought to preserve the bill’s core protections while making the disclosure standards more flexible and reducing some of the more detailed reporting requirements.
Contention
The main points of contention appear to center on how much disclosure multilevel marketing companies should be required to provide and how prescriptive the law should be. The House substitute reduced some original disclosure obligations, including certain timing and participant-count disclosures, and replaced specific formatting requirements with a broader “clearly and conspicuously” standard. These changes suggest a balance between consumer-protection advocates, who favored stronger transparency and repurchase rights, and business interests concerned about compliance burden and rigid disclosure rules.