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House Study Bill 4 - IntroducedA Bill ForAn Act 1prohibiting pyramid promotional schemes and making
2penalties applicable.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 714.16, subsection 2, Code 2019, is
2amended by adding the following new paragraph:
3 NEW PARAGRAPH. q. (1) It is an unlawful practice for a
4person to establish, promote, or operate a pyramid promotional
5scheme.
6(2) This paragraph shall not be construed to prohibit a
7plan or operation, or define a plan or operation as a pyramid
8promotional scheme, based on the fact that participants in
9the plan or operation give consideration in return for the
10right to receive compensation based upon purchases of goods,
11services, or intangible property by participants for personal
12use, consumption, or resale if the following conditions are
13satisfied:
14(a) The plan or operation does not result in inventory
15loading.
16(b) The plan or operation implements a bona fide inventory
17repurchase program.
18(3) For purposes of this paragraph:
19(a) “Bona fide inventory repurchase program” means a program
20by which a person repurchases current and marketable inventory
21from an independent salesperson that was originally purchased
22from the person for resale by the independent salesperson, upon
23request and within twelve months after the date of original
24purchase at no less than ninety percent of the original
25net cost, less any appropriate incidental costs, when the
26independent salesperson’s business relationship with the person
27ends, and which program was communicated to the independent
28salesperson in writing.
29(b) “Compensation” means payment of any money, thing of
30value, or financial benefit conferred in return for inducing
31another person to participate in a pyramid promotional scheme.
32(c) “Consideration” means payment of any money or
33the purchase of goods, services, or intangible property.
34“Consideration” does not include the purchase of goods or
35services furnished at no cost to be used in making sales and
-1-1not for resale, or time and effort spent in pursuit of sales or
2recruitment activities.
3(d) “Current and marketable inventory” means any goods or
4services, including promotional materials, sales aids, and
5sales kits, that an independent salesperson is required to
6purchase pursuant to a bona fide inventory repurchase program.
7“Current and marketable inventory” does not include inventory
8that is no longer within its commercially reasonable use or
9shelf life period, communicated in writing to an independent
10salesperson prior to purchase as seasonal, discontinued, or
11a special promotion product not subject to the bona fide
12inventory repurchase program, or used or opened.
13(e) “Inventory loading” means a plan or operation by which
14a person requires or encourages an independent salesperson to
15purchase inventory in an amount that exceeds the amount that
16the independent salesperson can expect to resell for ultimate
17consumption or to consume in a reasonable period, or both.
18(f) “Pyramid promotional scheme” means a plan or operation
19by which a person provides consideration for the opportunity
20to receive compensation that is primarily derived from the
21introduction of other persons into the plan or operation
22and not from the sale or consumption of goods, services, or
23intangible property by persons introduced into the plan or
24operation. “Pyramid promotional scheme” includes a plan or
25operation by which the number of persons who may participate is
26limited either expressly or by the application of conditions
27affecting the eligibility of persons to receive compensation
28under the plan or operation, or a plan or operation by which a
29person, upon providing consideration, obtains goods, services,
30or intangible property in addition to the right to receive
31compensation.
32 Sec. 2. Section 714H.3, subsection 2, paragraph f, Code
332019, is amended to read as follows:
34f. Section 714.16, subsection 2, paragraphs “b” through “n”,
35and paragraph “q”.
-2-1EXPLANATION
2The inclusion of this explanation does not constitute agreement with
3the explanation’s substance by the members of the general assembly.
4This bill prohibits a person from establishing, promoting,
5or operating a pyramid promotional scheme.
6The bill defines a “pyramid promotional scheme” as a plan
7or operation by which a person provides consideration for the
8opportunity to receive compensation primarily derived from
9introducing other persons into the plan or operation and not
10from the sale or consumption of goods, services, or property.
11The bill provides that a “pyramid promotional scheme” includes
12a plan or operation by which the number of participants is
13limited either expressly or by the application of conditions
14affecting eligibility, or a plan or operation by which a
15person, upon providing consideration, obtains goods, services,
16or property in addition to the right to receive compensation.
17The bill provides that it shall not be construed to
18prohibit a plan or operation, or define a plan or operation
19as a pyramid promotional scheme, based on the fact that
20participants give consideration in return for the right to
21receive compensation based upon purchases by participants for
22personal use, consumption, or resale, if the plan or operation
23does not result in inventory loading and implements a bona fide
24inventory repurchase program as defined in the bill.
25A violation of the bill constitutes an unlawful practice
26under both the “Iowa Consumer Frauds Act” (Code section 714.16)
27and the “Private Right of Action For the Iowa Consumer Frauds
28Act” (Code chapter 714H). Under the “Iowa Consumer Frauds
29Act”, the attorney general may investigate, issue subpoenas,
30and commence civil proceedings seeking restraining orders or
31injunctions prohibiting persons from engaging in unlawful
32practices or seeking termination of the business affairs of a
33person engaging in unlawful practices. In addition, a civil
34penalty of up to $40,000 per violation may be imposed by a
35court against a person found to have committed an unlawful
-3-1practice. Under the “Private Right of Action For the Iowa
2Consumer Frauds Act”, a consumer may sue to recover actual
3damages and may seek punitive damages up to three times the
4actual damages in cases of willful and wanton conduct by a
5defendant. In addition, if the consumer prevails in a private
6right of action lawsuit, the court must award reasonable
7attorney fees.
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2penalties applicable.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 714.16, subsection 2, Code 2019, is
2amended by adding the following new paragraph:
3 NEW PARAGRAPH. q. (1) It is an unlawful practice for a
4person to establish, promote, or operate a pyramid promotional
5scheme.
6(2) This paragraph shall not be construed to prohibit a
7plan or operation, or define a plan or operation as a pyramid
8promotional scheme, based on the fact that participants in
9the plan or operation give consideration in return for the
10right to receive compensation based upon purchases of goods,
11services, or intangible property by participants for personal
12use, consumption, or resale if the following conditions are
13satisfied:
14(a) The plan or operation does not result in inventory
15loading.
16(b) The plan or operation implements a bona fide inventory
17repurchase program.
18(3) For purposes of this paragraph:
19(a) “Bona fide inventory repurchase program” means a program
20by which a person repurchases current and marketable inventory
21from an independent salesperson that was originally purchased
22from the person for resale by the independent salesperson, upon
23request and within twelve months after the date of original
24purchase at no less than ninety percent of the original
25net cost, less any appropriate incidental costs, when the
26independent salesperson’s business relationship with the person
27ends, and which program was communicated to the independent
28salesperson in writing.
29(b) “Compensation” means payment of any money, thing of
30value, or financial benefit conferred in return for inducing
31another person to participate in a pyramid promotional scheme.
32(c) “Consideration” means payment of any money or
33the purchase of goods, services, or intangible property.
34“Consideration” does not include the purchase of goods or
35services furnished at no cost to be used in making sales and
-1-1not for resale, or time and effort spent in pursuit of sales or
2recruitment activities.
3(d) “Current and marketable inventory” means any goods or
4services, including promotional materials, sales aids, and
5sales kits, that an independent salesperson is required to
6purchase pursuant to a bona fide inventory repurchase program.
7“Current and marketable inventory” does not include inventory
8that is no longer within its commercially reasonable use or
9shelf life period, communicated in writing to an independent
10salesperson prior to purchase as seasonal, discontinued, or
11a special promotion product not subject to the bona fide
12inventory repurchase program, or used or opened.
13(e) “Inventory loading” means a plan or operation by which
14a person requires or encourages an independent salesperson to
15purchase inventory in an amount that exceeds the amount that
16the independent salesperson can expect to resell for ultimate
17consumption or to consume in a reasonable period, or both.
18(f) “Pyramid promotional scheme” means a plan or operation
19by which a person provides consideration for the opportunity
20to receive compensation that is primarily derived from the
21introduction of other persons into the plan or operation
22and not from the sale or consumption of goods, services, or
23intangible property by persons introduced into the plan or
24operation. “Pyramid promotional scheme” includes a plan or
25operation by which the number of persons who may participate is
26limited either expressly or by the application of conditions
27affecting the eligibility of persons to receive compensation
28under the plan or operation, or a plan or operation by which a
29person, upon providing consideration, obtains goods, services,
30or intangible property in addition to the right to receive
31compensation.
32 Sec. 2. Section 714H.3, subsection 2, paragraph f, Code
332019, is amended to read as follows:
34f. Section 714.16, subsection 2, paragraphs “b” through “n”,
35and paragraph “q”.
-2-1EXPLANATION
2The inclusion of this explanation does not constitute agreement with
3the explanation’s substance by the members of the general assembly.
4This bill prohibits a person from establishing, promoting,
5or operating a pyramid promotional scheme.
6The bill defines a “pyramid promotional scheme” as a plan
7or operation by which a person provides consideration for the
8opportunity to receive compensation primarily derived from
9introducing other persons into the plan or operation and not
10from the sale or consumption of goods, services, or property.
11The bill provides that a “pyramid promotional scheme” includes
12a plan or operation by which the number of participants is
13limited either expressly or by the application of conditions
14affecting eligibility, or a plan or operation by which a
15person, upon providing consideration, obtains goods, services,
16or property in addition to the right to receive compensation.
17The bill provides that it shall not be construed to
18prohibit a plan or operation, or define a plan or operation
19as a pyramid promotional scheme, based on the fact that
20participants give consideration in return for the right to
21receive compensation based upon purchases by participants for
22personal use, consumption, or resale, if the plan or operation
23does not result in inventory loading and implements a bona fide
24inventory repurchase program as defined in the bill.
25A violation of the bill constitutes an unlawful practice
26under both the “Iowa Consumer Frauds Act” (Code section 714.16)
27and the “Private Right of Action For the Iowa Consumer Frauds
28Act” (Code chapter 714H). Under the “Iowa Consumer Frauds
29Act”, the attorney general may investigate, issue subpoenas,
30and commence civil proceedings seeking restraining orders or
31injunctions prohibiting persons from engaging in unlawful
32practices or seeking termination of the business affairs of a
33person engaging in unlawful practices. In addition, a civil
34penalty of up to $40,000 per violation may be imposed by a
35court against a person found to have committed an unlawful
-3-1practice. Under the “Private Right of Action For the Iowa
2Consumer Frauds Act”, a consumer may sue to recover actual
3damages and may seek punitive damages up to three times the
4actual damages in cases of willful and wanton conduct by a
5defendant. In addition, if the consumer prevails in a private
6right of action lawsuit, the court must award reasonable
7attorney fees.
-4-gh/rn