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How a Company Becomes a DSA Member

I’ve received several questions about the process used to review and approve companies for membership and I think it’s an important topic to explore so consumers can get a better understanding of what DSA membership really means.

After submission of a membership application the pending process takes at least one year. There are three main things that happen during this period:

1) DSA reviews company materials, including a starter kit and other documents that represent what a potential recruit would receive, to ensure compliance with the DSA Code of Ethics. Does the company offer a 90% buyback policy? Are the startup costs reasonable? Are there any statements that indicate inventory loading or other prohibited practices?

2) DSA makes inquiries to law enforcement and consumer protection agencies such as the Attorney General in the state where the company is located, the Better Business Bureau, and on a case-by-case basis any other entity that may have relevant information to share. It is also important to note that the mere existence of a complaint with any of these bodies does not preclude membership, but instead what is considered is the way any issues were resolved.

3) It is clear that the two activities above could be completed in far less than a year. However, one of the most important parts of the pending process is what is essentially a waiting period during which potential issues have an opportunity to come to the surface. These are issues that may not necessarily be obvious with a review of the materials, but are exposed by the marketplace over time.

Should questions arise from any of the three activities above, companies must answer and/or address those questions before the company can move forward to full membership. In fact, each year there are dozens of companies that make application and either withdraw their application or are not put before the Board of Directors for approval because of outstanding issues. Additionally, once a member, companies go through the entire review process at least once every five years (possibly more often).

I’m tempted to reiterate here the difference between a law enforcement agency and DSA, but that’s mostly embodied in my last post. What’s key though is that DSA’s review is not a substitute for one’s own review of a company and it also doesn’t guarantee that a law enforcement agency won’t disagree with DSA’s interpretation.

DSA has come under fire by industry critics recently as a result of a complaint filed against YourTravelBiz.com, a subsidiary of YTB, International, Inc., a DSA member company.

It has been interesting for me to recognize disconnect between the perception some people hold about the role of a trade association and the parameters under which a self-regulatory Code of Ethics operates. The questions have been posed to me in various ways – some more civil than others – but the questions essentially boil down to one: How can a company be prosecuted as a pyramid scheme and still be a member?

Using YTB as an example, the basic answer is easy – so far the allegations are merely that – allegations. Nothing has been proven – the company has not even had a chance to respond to the court. The Code of Ethics says companies cannot operate as pyramid schemes – it does not say they can’t be accused of being pyramid schemes. But the tiny little point about due process aside, based on the information presented to DSA at the time of their application, in DSA’s interpretation, this company met the standards of both the Code of Ethics and laws applicable to direct selling. Information presented by the California Attorney General may change that view, or it may not – that’s what due process is all about.

However, until information is presented that runs contrary to the information we evaluated as part of the application process, there are no grounds to revoke their membership. You can be sure, though, that we are keenly following this case and are evaluating information as we receive it.

Here are a couple more questions that have been raised:

What value does DSA membership have if a company can be prosecuted as a pyramid scheme? First, the standards of the Code are designed as a guide for consumers when evaluating a company – member or not. In the case of a member, though, if the Code Administrator determines a company has not met the standards, the company must make it right. DSA cannot guarantee that a company will not violate the Code, just like a government cannot guarantee that people will not break the law. But as with the law, there is a process for recourse when the rules are broken.

Does the Code process guarantee satisfaction for consumers? Of course the Code can’t guarantee satisfaction, but it provides an option that in most cases is exactly what a consumer needs. Instead of a lengthy complaint process with the Attorney General or Better Business Bureau, most complaints can be taken care of through the independent Code Administrator. However, if the Code process doesn’t yield the desired results, more formal legal action can still be pursued. I don’t know about you, but I’d much rather try the easy (and free) route before filing a lawsuit.

Why not kick a company out when they violate the Code? The answer is two-fold. First, a company CAN lose their membership if they are determined to have violated the code – either once or repeatedly. However, in most cases this is not necessarily the best course of action because the company is then not subject to the additional standards provided by the Code at all. From DSA’s perspective it’s far better to keep the company’s feet to the fire by enforcing the Code than by kicking them out, thus releasing them from the Code requirements. I’d much rather see a company reform than go somewhere else and continue to act unethically.

I guess in some respects I’m flattered to learn that DSA’s Code is recognized as such an important example of self-regulation. At the same time I’m disappointed to learn that there is so much misunderstanding about the limits of the Code. However, I view this as a great opportunity to evaluate public opinion and explore ways to both strengthen the Code and help close the gap between public understanding of the role of the Code.

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10 Responses to “How a Company Becomes a DSA Member”

  1. Amy Robinson Says:

    I received some additional questions from a frequent visitor to this site (“Q” aka Bob H.) that had to be edited to remove a couple relatively brief portions that would have otherwise put it in violation of this blog’s rules and thus unpostable. But based on his questions, it seems some of my points need reiterating because apparently they weren’t clear enough the first time. So here is the slightly edited post with my responses inserted:

    Bob: “You think it would be a big red flag when the company applying operates a product based pyramid scheme, chain recruitment, and present only a high percentage of total sales to the distributors only. Oh, I guess that passes as acceptable under the DSA’s distorted view of MLM cons and schemes.”

    Amy’s response: Apparently you missed the substance of my recent posts. Based on DSA’s review of applicable laws at the time of application, company policies were consistent with the law. That does not guarantee a law enforcement agency will not disagree – or that company policies can’t change (that’s the reason behind the periodic reviews of current members). As for sales to distributors only – this is not against the law and is not necessarily contrary to the Code. Internal consumption for some companies makes up a whole category of buyers – people who join only to get the products at a discount. The key is to look at who is using the products that are purchased and on what the compensation is based (product sales vs. recruitment). Inventory loading, however, is a violation of the Code and should be reported if that’s occurring at any company, but don’t confuse the situation by suggesting purchasing the products oneself is against any law or rule.

    Bob: “Aren’t there several other companies currently in hot water for one reason or another?”

    Amy’s Response: Some company names had to be deleted here, but in spite of the inflammatory way in which this question was posed, at any given time in any industry there are companies being accused of wrongdoing either by critics or law enforcement officials. Search online for just about any company and you’ll find some type of lawsuit out there – most companies on the Fortune 500 probably have at least one lawsuit going on at any given time. Being sued doesn’t mean a company has done anything wrong – that’s what the subsequent legal process is designed to determine. However, if and when any information comes to light that might suggest a DSA member company has violated any provisions of the Code, that information will be reviewed and acted upon accordingly. And don’t assume since you haven’t seen headlines pronouncing DSA actions against a member that the Code Administrator isn’t working with companies every day to address complaints filed. But as I’ve pointed out, the goal of the Code is to set standards and enforce those standards when there’s a problem – not immediately kick a member out so they aren’t subject to the Code at all.

    Further, I think I’ve also made it pretty clear that DSA membership does not guarantee a company will not be accused of misconduct; I’ve even made it clear that DSA membership does not mean companies will not, in fact, actually run afoul of the law. Is it so hard to understand the role of DSA?

    Bob: “How many distributor (or consumer) complaints would you think excessive? Several thousand? Surely if the Attorney General of California and Illinois can see problems with YTB, how could the DSA be so blind not too also?”

    Amy’s response: There is no set number of complaints that we would necessarily consider excessive, but the Code Administrator does flag trends that indicate a larger problem. Again, it comes down to the fact that we wouldn’t necessarily revoke a membership merely because complaints were received. Let’s assume a company has 50 complaints and we are able to resolve those 50 complaints. What would those 50 people have otherwise done? Filed a lawsuit? Maybe, but in most cases the expense wouldn’t have been worth it. If there’s a more systemic problem, that would be dealt with either by the Code Administrator or perhaps by law enforcement. As I’ve said ad nauseum, DSA is NOT a law enforcement agency – we are a trade association that sets industry standards. There’s a big difference.

    With regard to the second part of your question, the allegations by the AGs are merely that – allegations. If they are able to present evidence that the current practices of a company violate the law, then the legal process will have done its job.

    Bob: “I wonder what will be the next company to go the YTB route? There will be more, you can be sure of that.”

    Amy response: What route would that be, being subject to a lawsuit? Anyone would be naïve to think that it’s not likely some companies will be sued. Some may even be found guilty of violating the law. It would be ridiculous to think that membership in a trade association precludes companies from being sued or perhaps even doing something wrong. I must repeat here: just as governments cannot guarantee people will not break the law, DSA cannot guarantee companies will not violate the Code – but in both cases, a process for recourse is provided.

    Bob: “I think if I were you, I’d have to dye my hair because it would be going gray.”

    Amy’s response: I do have a natural salt-and-pepper appearance to my hair that’s partially hereditary and partially caused by my kids. I do have some auburn highlights that I started experimenting with about a year ago. If you want to trade beauty secrets, let’s do that offline.

    Bob: “Your code only serves to make these less than legit businesses seem like a good opportunity to the most recent vulnerable suckers coming onto the market.”

    Amy’s response: It’s a shame that you have such a low opinion of the general competence of the people to evaluate something and then make a rational decision. There are certainly instances where people are oversold on or overestimate themselves what direct selling might mean for them. This can happen even in a legitimate company. But don’t generalize to suggest that a whole company or group of companies is fundamentally flawed just because issues arise from time to time. Let’s address the issues instead of clouding the picture by indicting an entire system.

    Bob: “Spin this like you spun this blog post of yours.”

    Amy’s response: First, you suggest “spin” is a negative term, but spin is nothing more than a particular perspective. Each statement you have made is your “spin” – and in a debate I would expect you to give your perspective – it’s kind of the point.

    But that little digression aside, I did have to edit out a paragraph that would have again run afoul of the blog rules, but it essentially dealt with sales aids (referred to by some as “tools”). This is an issue that you are well aware individual companies are already addressing. It’s also an issue DSA and the Code Administrator are reviewing. If the facts we have received to date and that we might receive on an ongoing basis indicate a need to refine the Code, we will certainly do so. It’s part of the ongoing Code review process. Might I reiterate yet another point from my post that the Code is designed to change over time to address changing issues and trends in the industry? It will not change overnight. It takes time to identify the exact parameters of an issue and then promulgate an appropriate response that will actually address that issue. It would be far worse to act hastily.

    OK, so even though I’ve now reiterated nearly my entire post, hopefully the point-by-point responses make it easier to understand.

  2. quixtarisacult Says:

    Amy…

    You took the teeth out of my argument by editing it. You make my comment as toothless as your DSA code and its enforcement. The code administrator as you call him must be blind, deaf and dumb.

    These charges of operating a pyramid scheme are not the same as run of the mill suit varieties like you make them out to be. Let’s let the legal system play itself out. I agree that accusations alone don’t make any of your companies guilty. Like I said, there may be more of your associations companies fall under state attorney general charges. These companies aren’t being merely sued by a few disgruntled distributors although that is happening also. The state of California is bring the charges against YTB and it is the state of Illinois that is also launching an investigation of YTB. Hardly the minor deal you make all this out to be? My original unedited comment can be read without editing on Quixtar Cult Intervention in the comment section under my August 9th post awarding Amy Robinson with the wine house trophy.

  3. Amy Robinson Says:

    Bob – I hardly took the “teeth” out of your argument by removing three company names (one of which is not even a DSA member) and removing a paragraph that repeats the same thing you say regardless of the topic of the post. Look back at any of your comments on this blog and you’ll see the same basic argument about the company you oppose. Repeating it again doesn’t make it any more true – nor does it make it any more acceptable for this blog which is about issues, not specific companies.

    The only reason the “teeth” were taken out of your argument is because I responded to each of your assertions with the facts.

    I do agree with you on one point (finally) – let’s let the legal system play itself out. You’re the one who has tried and convicted the company already. We do take these charges very seriously and as I have said from the beginning, we are anxious to see the evidence presented by the California AG. If that evidence runs contrary to what we found in our review of the company, then there is no question we will take action.

    I think I MAY have said this before – DSA is not a law enforcement agency and we are not empowered to enforce the law. Once you can understand that important point we might be able to get somewhere.

  4. DSA Question Says:

    Has anyone ever tried to submit a complaint on a DSA member. The process is not nearly as seamless as they make you believe.

    You send the complaint to the “independent” committee so DSA cannot influence it.

    They send it to the offending company for response (so much for anonymity)

    They pass along the company’s response to you (any guesses if the company is siding with you or not?) and mark it as resolved and report it to the DSA.

    When further questioned, I was told that a member of the DSA legal team wodul be in touch. Never happened. Three phone calls and countless emails and no response, I took the organization for what it is–just a shill for the members.

  5. Amy Robinson Says:

    DSA Question –
    I regret that your experience did not meet your expectations. DSA staff are not involved in the resolution of Code complaints, but will sometimes discuss the process itself with individuals. If you were told someone would contact you, I’d like to make sure that happens. Please email me at amy@directselling411.com with relevant details and let me help you get the answers you are seeking.

    Beyond that, I would like to address a couple things you mentioned.

    First, the Code Administrator is an independent individual not affiliated with any company nor is he a part of the DSA staff.

    DSA staff do not receive copies of complaints submitted (the basis of the anonymity) but complaints are in fact sent to the company for a response (which is necessary to resolve an issue one might have).

    The company then has 30 days to respond. The administrator reviews the response and can come to several conclusions:
    1) The company resolved the issue directly with the complainant, so the case is closed.
    2) The complaint is either not covered under the Code of Ethics OR a Code violation did not occur – no further action can be taken
    3) A violation did occur and a remedy must be prescribed to resolve the issue.

    There is no predisposition toward a company – the facts presented by both sides are considered. In fact, the Administrator has the authority to resolve an issue in favor of a complainant without even going to the company if the facts are so clear cut that justice delayed would be justice denied.

    It sounds as though in your case, the Administrator may not have agreed with your position, so I regret that you left the process unsatisfied.

    The complaint process is designed to enforce the specific provisions of the Code, but it is also often a conduit for consumers to find relief for a variety of customer service issues. Often all that is needed is to faciliate contact between the parties to arrive at a resolution.

    I appreciate your feedback on this matter as we are continually trying to improve the Code complaint process.

  6. Randy Kuipers Says:

    Thank you do much for all the Great information. It helps to diffuse all the rumors flying around out there. I found a link to your site at [link removed].

  7. ibofightback Says:

    The findings that YTB is indeed an illegal pyramid somewhat damage the DSA’s credibility. In my opinion, and the opinion of many other industry observers such as Len Clements, the YTB model was obviously problematic right from the start, and clearly in trouble when it was revealed by far the majority of their revenues were from signup fees.

    No offence, but failure on the part of the DSA to see this would end badly should make you seriously question your processes.

  8. Amy Robinson Says:

    No offense taken. And you are absolutely right – we should (and do) constantly review both the Code of Ethics and the processes used to review companies and enforce the Code’s provisions.

    Here’s what DSA’s president, Neil Offen, said about the matter:

    “DSA prides itself in serving as a steward of consumer and distributor protection through its efforts to create and enforce acceptable business standards that often go beyond the requirements of the law. This situation is a clear indication that we must redouble our efforts to make sure our processes are sound and that our members not only understand the requirements of the Code of Ethics but that they are incorporating them into every aspect of their business operations.”

    You can view DSA’s complete statement on its Web site.

  9. Q Says:

    Amy,

    Don’t you find it strange that this IBOFB character (David Steadson) will condemn another DSA member company (YTB) and basically contrast the supposed bad (YTB) with the supposed good (Amway).

    Regardless of all the wonderful claims you make for your DSA, it would seem like the only mechanism that really triggers any meaningful investigation is a scandal, or the indictment of one of the DSA members.

    Amy, I agree that it isn’t unlawful for a company to sell goods to their own distributors. The problem arises when a company violates certain retail selling rules in the contract requiring sales to customers outside of the distribution chain. Retail selling rules require selling a percentage of goods or services to persons outside of the distribution chain. Wouldn’t you basically agree that these rules many times are completely disregarded?

    It is obvious that the only real customers that many MLM operations have are the ‘distributors’ themselves. Most of these erstwhile ‘distributors’ distribute nothing or next to nothing. Their commissions basically are paid out of revenues brought in by purchases made by other ‘distributors’ and not customers outside the chain of distribution.

    Aren’t many companies really selling a ‘business opportunity’ rather than a product? They buy into the idea that it is okay to pay more for these goods simply because they believe that this loyalty will in the end reward them with ‘financial freedom’ at some unknown future time?

    Believers in the business opportunity become customers to qualify for ‘financial freedom’ in some Soviet style ‘plan’. One company likes to call sales to their own distributors ‘retail’ whle theses are actually ‘wholesale’ sales to the distribution chain.

    Under the terms of some MLM contracts, a minimum number of ‘true’ customers must be maintained in order for any commission to be paid out. Also, there may be a percentage rule, say 70%, that must be met as well.

    Without sales to outsiders, all the commissions and bonuses must be paid out of the ‘distributors’ own money. Where does this money come from in the end? It must come from other ‘distributors’ at the bottom to pay the distributors closer to the top of the sales pyramid.

    Amy, the DSA is a ‘steward’ for bad practices. The largest
    supposedly ‘direct selling’ company doesn’t enforce their own sales (to outsiders) rules, all of which had been mandated by the Federal Trade Commission). You like IBOFB Steadson seem to ignore this point or claim that sales to distributors isn’t illegal.

    Why not investigate this truth honestly? Sales to distributors and no sales to outsiders is a violation of the rules of the supposed ‘largest direct selling company’ isn’t it?

  10. Amy Robinson Says:

    Oh, Q, You need to catch up!!

    While I won’t address the assertions you make about a particular company (if you have evidence of wrongdoing or a violation of law, please submit that to the DSA Code Administrator and/or a law enforcement official) I will tell you that the type of practice you refer to is specifically addressed within one of the new Code of Ethics provisions, approved by the DSA Board of Directors in September.

    As one of many new provisions in the Code, this one states that companies must reasonably ensure sellers who receive compensation for downline sales are consuming, using or reselling the products they purchase. In other words, salespeople should not be purchasing product for the sole purpose of qualifying for their downline commissions.

    You can take all the shots you want to at DSA’s Code, but the truth is the Code is very effective at preventing many “bad practices.” Your expectations of the Code equate to actions only a law enforcement body can take. DSA is not a law enforcement body. Instead, our role is to help set industry standards and facilitate relief if those standards are not upheld. DSA’s goal is to help companies find, stay on, and/or return to the right path. If a law enforcement body feels a company has violated the law they can (and do) prosecute. The role trade associations and self-regulatory codes play in the marketplace is a specific one. Understanding that role will perhaps allow you to more fully appreciate the preemptive effect and avenue for relief that comes from the existence of the Code.

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