2004 Legislation
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SENATE BILL NO. 1237 – Pyramid promotional schemes/prohbtd

SENATE BILL NO. 1237

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Bill Status



S1237................................................by JUDICIARY AND RULES
PYRAMID PROMOTIONAL SCHEMES - Amends existing law to revise terminology; to
prohibit certain actions relating to pyramid promotional schemes; to revise
definitions; and to provide that certain plans or operations shall not be
prohibited or defined as pyramid promotional schemes.
                                                                        
01/27    Senate intro - 1st rdg - to printing
01/28    Rpt prt - to Jud
02/05    Rpt out - rec d/p - to 2nd rdg
02/06    2nd rdg - to 3rd rdg
02/11    3rd rdg - PASSED - 34-0-1
      AYES -- Andreason, Bailey, Brandt, Bunderson, Burkett, Burtenshaw,
      Cameron, Compton, Darrington, Davis(Davis), Gannon, Geddes, Goedde,
      Hill, Ingram, Kennedy, Keough, Little, Lodge, Malepeai, Marley,
      McKenzie, McWilliams, Noble, Noh, Pearce, Richardson, Schroeder,
      Sorensen, Stegner, Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- Calabretta
    Floor Sponsor - Richardson
    Title apvd - to House
02/12    House intro - 1st rdg - to Jud
03/01    Rpt out - rec d/p - to 2nd rdg
03/02    2nd rdg - to 3rd rdg
03/08    3rd rdg - PASSED - 67-0-3
      AYES -- Andersen, Barraclough, Barrett, Bauer, Bayer, Bedke, Bell,
      Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins,
      Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth, Eskridge,
      Field(18), Field(23), Gagner, Garrett, Henbest, Jaquet, Jones,
      Kellogg, Kulczyk, Lake, Langford, Langhorst, Martinez, McGeachin,
      McKague, Meyer, Miller, Mitchell, Moyle, Naccarato, Nielsen,
      Pasley-Stuart, Raybould, Ridinger, Ring, Ringo, Roberts, Robison,
      Rydalch, Sali, Sayler, Schaefer, Shirley, Skippen, Smith(30),
      Smith(24), Smylie, Snodgrass, Stevenson, Trail, Wills, Wood, Mr.
      Speaker
      NAYS -- None
      Absent and excused -- Crow, Harwood, Shepherd
    Floor Sponsor - Clark
    Title apvd - to Senate
03/09    To enrol
03/10    Rpt enrol - Pres signed
03/11    Sp signed
03/12    To Governor
03/16    Governor signed
         Session Law Chapter 51
         Effective: 07/01/04

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-seventh Legislature                 Second Regular Session - 2004
                                                                        
                                                                        
                                       IN THE SENATE
                                                                        
                                    SENATE BILL NO. 1237
                                                                        
                              BY JUDICIARY AND RULES COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO PYRAMID SCHEMES; AMENDING SECTION 18-3101, IDAHO CODE,  TO  REVISE
  3        TERMINOLOGY,  TO  PROHIBIT CERTAIN ACTIONS RELATING TO PYRAMID PROMOTIONAL
  4        SCHEMES, TO DELETE THE DEFINITION FOR "CHAIN DISTRIBUTOR" OR "PYRAMID DIS-
  5        TRIBUTOR SCHEME," TO DEFINE TERMS, TO REVISE DEFINITIONS, TO PROVIDE  THAT
  6        CERTAIN  PLANS OR OPERATIONS SHALL NOT BE PROHIBITED OR DEFINED AS PYRAMID
  7        PROMOTIONAL SCHEMES, TO PROVIDE CORRECT TERMINOLOGY AND TO MAKE A  TECHNI-
  8        CAL CORRECTION.
                                                                        
  9    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 10        SECTION  1.  That  Section 18-3101, Idaho Code, be, and the same is hereby
 11    amended to read as follows:
                                                                        
 12        18-3101.  CHAIN OR PYRAMID DISTRIBUTOR PROMOTIONAL SCHEMES  PROHIBITED  --
 13    PENALTIES  --  SALE OF INTEREST VOIDABLE -- SCOPE OF REMEDY. (1) It is illegal
 14    and prohibited for any person, or any agent or employee thereof, to establish,
 15    promote, offer, operate, advertise or grant participation in a  chain  or  any
 16    pyramid distributor promotional scheme.
 17        (2)  As used herein in this section:
 18        (a)  A  "chain distributor scheme" or a "pyramid distributor scheme" means
 19        any plan or operation whereby a person gives consideration for the  oppor-
 20        tunity  to receive consideration to be derived primarily from any person's
 21        introduction of other persons into participation in the plan or  operation
 22        rather than from the sale of goods, services, or other intangible property
 23        by  the  person  or  other  persons  introduced into the plan or operation
 24        "Appropriate inventory repurchase program" means a program by which a plan
 25        or  operation  repurchases,  upon  request  at  the   termination   of   a
 26        participant's  business  relationship with the plan or operation and based
 27        upon commercially reasonable terms, current and marketable inventory  pur-
 28        chased  and  maintained by the participant for resale, use or consumption,
 29        provided such plan or operation  clearly  describes  the  program  in  its
 30        recruiting  literature,  sales  manual,  or  contracts  with participants,
 31        including the manner in which the repurchase is exercised  and  disclosure
 32        of any inventory that is not eligible for repurchase under the program.
 33        (b)  "Commercially  reasonable  terms" means the repurchase of current and
 34        marketable inventory within twelve (12) months from the date  of  original
 35        purchase at not less than ninety percent (90%) of the original net cost to
 36        the  participant,  less  appropriate set-offs and legal claims, if any. In
 37        the case of service products, the  repurchase  of  such  service  products
 38        shall  be  on  a pro rata basis, unless clearly disclosed otherwise to the
 39        participant, in order to qualify as "commercially reasonable terms."
 40        (c)  "Compensation" means a payment of  any  money,  thing  of  value,  or
 41        financial benefit.
 42        (d)  "Consideration"  means  anything of value, a payment of any money, or
 43        the purchase of goods, services, or  intangible  property  but  shall  not
                                                                        
                                           2
                                                                        
  1        include:
  2             1.  The  not  for  profit  sale  of sales demonstration equipment and
  3             materials for use purchase of goods or services furnished at cost  to
  4             be used in making sales and not for resale.
  5             2.  Time  or and effort spent in selling pursuit of sales or recruit-
  6             ing activities.
  7        (e)  "Current and marketable" includes inventory that, in the case of con-
  8        sumable or durable goods, is unopened, unused and within its  commercially
  9        reasonable  use of shelf-life period. In the case of services and intangi-
 10        ble property, including internet sites, "current and marketable" means the
 11        unexpired portion of any contract or agreement. The term "current and mar-
 12        ketable" does not include inventory that has been clearly described to the
 13        participant prior to purchase as a seasonal, discontinued, or special pro-
 14        motion product not subject to the plan or operation's inventory repurchase
 15        program.
 16        (f)  "Inventory" includes both  goods  and  services,  including  company-
 17        produced promotional materials, sales aids and sales kits that the plan or
 18        operation requires independent salespersons to purchase.
 19        (g)  "Inventory  loading"  means  that  the  plan or operation requires or
 20        encourages its independent salespersons to purchase inventory in an amount
 21        that unreasonably exceeds that which the salesperson can expect to  resell
 22        for  ultimate  consumption,  or  to  use  or consume, in a reasonable time
 23        period.
 24        (h)  "Participant" means a natural person who joins a plan or operation.
 25        (ci)  "Person" means a natural person,  partnership,  corporation,  trust,
 26        estate,  business trust, joint venture, unincorporated association, or any
 27        other legal or commercial entity.
 28        (j)  "Promote" means  to  contrive,  prepare,  establish,  plan,  operate,
 29        advertise  or otherwise induce or attempt to induce another person to be a
 30        participant.
 31        (k)  "Pyramid promotional scheme" means any plan or operation in  which  a
 32        participant gives consideration for the right to receive compensation that
 33        is derived primarily from the recruitment of other persons as participants
 34        in  the plan or operation rather than from the sales of goods, services or
 35        intangible property to participants or by participants to others.
 36        (3)  A limitation as to the number of persons who may participate, or  the
 37    presence  of  additional  conditions affecting eligibility, or upon payment of
 38    anything of value by a person whereby the person obtains any other property in
 39    addition to the right to receive consideration, does not change  the  identity
 40    of the scheme as a chain or pyramid distributor promotional scheme.
 41        (4)  Any  person,  or any agent or employee thereof who wilfully willfully
 42    and knowingly promotes, offers, advertises, or grants participation in a chain
 43    or pyramid distributor promotional scheme shall be guilty of a felony.
 44        (5)  All chain or pyramid distribution promotional schemes offered by  the
 45    same  person,  or  agents or employees thereof, or any person controlled by or
 46    affiliated with such person, for the same type of consideration,  at  substan-
 47    tially  the  same  period  of  time and for the same general purpose, shall be
 48    deemed to be one (1)  integrated  chain  or  pyramid  distributor  promotional
 49    scheme,  even though such chain or pyramid distributor promotional schemes may
 50    be given different names or other designations.
 51        (6)  Nothing in this section or in any rule promulgated pursuant  to  this
 52    section  shall be construed to prohibit a plan or operation, or to define such
 53    plan or operation as a pyramid promotional scheme, based upon  the  fact  that
 54    participants  in  the  plan  or operation give consideration in return for the
 55    right to receive compensation based  upon  purchases  of  goods,  services  or
                                                                        
                                           3
                                                                        
  1    intangible  property  by participants for personal use, consumption or resale,
  2    provided the plan or operation implements an appropriate inventory  repurchase
  3    program and does not promote inventory loading.
  4        (7)  Any  violation of this act section shall also be deemed an unfair and
  5    deceptive practice in violation of the Idaho consumer protection act. Any per-
  6    son aggrieved by a violation of this section can recover monetary damages pur-
  7    suant to the Idaho consumer protection act.
  8        (78)  The rights and remedies that are granted  under  the  provisions  of
  9    this section to purchasers in chain or pyramid distributor promotional schemes
 10    are  independent  of and in addition to any other right or remedy available to
 11    them in law or equity, and nothing contained  herein  shall  be  construed  to
 12    diminish or abrogate any such right or remedy.

Statement of Purpose / Fiscal Impact


                      STATEMENT OF PURPOSE
                                
                           RS 13717C1
                                
                                
This legislation amends Section 18-3101, Idaho Code, to more clearly
define and strengthen the current law relating to the prohibition of
pyramid promotional schemes in Idaho.

This bill will differentiate between legitimate direct selling
opportunities and inherently fraudulent pyramid schemes by creating a
clear and specific set of definitions, and thus, protect Idaho
residents from becoming potential victims of illegal pyramid
promotional schemes by giving law enforcement better tools to
prosecute.

Not only will this bill protect the potential victims of current and
future fraudulent pyramid schemes, but it will also protect the
estimated 60,000 Idaho citizens who supplement their incomes through
legitimate direct selling opportunities.

                         FISCAL IMPACT
                                
There is no anticipated fiscal impact.


Contact
Name:  Dean Heyl, Direct Selling Association 
Phone: (202) 220-9420
Name:  Pam Eaton, Idaho Retailers Association 
Phone: (208) 342-0010 x2                               S 1237