Consumer Reports Webwatch: Look Before You Leap Into an Online Business Venture
The U.S. Federal Trade Commission offers the following tips for consumers considering an Internet-related business opportunity:
- Consider the offer carefully. If it claims buyers can earn a certain income, then it also must give the number and percentage of previous purchasers who achieved those earnings. If the seller makes an earnings claim but doesn’t back it up with statistics, the seller is probably violating the law.
- Get earnings claims in writing. Business opportunities costing more than $500 must back up earnings claims in writing. This document should include the earnings claim and the number and percentage of recent clients who earned at least as much as suggested. For those opportunities costing less than $500, consumers should request the claims in writing.
- Review the franchise disclosure document. Under the FTC Franchise Rule, many business opportunity promoters must give potential buyers a franchise disclosure document, which features information about the company – including whether it has been the subject of lawsuits or fraud allegations. In particular, look for a statement about previous purchasers. Be wary if the seller offers a list of references instead of purchasers, as they are probably fake.
- Talk with previous business opportunity buyers. Most business opportunity promoters must give you the names, addresses and phone numbers of at least 10 previous purchasers who live nearest to you, according to the FTC. Interview them in person or where they work to minimize risks of being misled by phony references.
- Check for past complaints. Contact the attorney general’s office, state or county consumer protection agency and Better Business Bureau where the business opportunity promoter is based and where you live to find out whether there are any unresolved complaints. (Note, however, that a lack of complaints doesn’t necessarily mean a lack of problems with that particular promoter or business opportunity. Unscrupulous dealers often change names and locations to hide a history of complaints.)
- Consult an adviser first. See an attorney, accountant or other business advisor before you pay any money or sign any papers. If the promoter requires a deposit, ask your attorney to establish an escrow account where the money can sit safely until you close the deal.
Report fraudulent business activities to the state attorney general’s office in the state in which you live (a list can be found here:http://www.naag.org/ag/full_ag_table.php) or file an online complaint with the FTC (www.ftc.gov).