Support sensible safeguards for Latino small businesses

Hispanic-owned small businesses are the fastest growing segment of small businesses in the United States; in fact, the purchasing power of Latinos will soon surpass $1.3 trillion.  As more and more Latinos achieve upward economic mobility, it’s important that opportunities for small business ownership continue to be encouraged.

Thanks to direct selling — the original, face-to-face way of getting goods and services into the hands of consumers — more than 20 million Americans have an opportunity to build a small business or larger, entrepreneurial venture.  It isn’t surprising that a full fifth (nearly 20%) of people involved in direct selling are Hispanic-Americans. 

{mosads}Recently, a well-financed group of direct selling opponents, which many news stories say is being backed financially by billionaire short seller Bill Ackman — suggested that direct selling legislation in the United States House of Representatives would harm Latino small business owners.  Direct selling is an economic engine for millions of individuals and working families within my community, who — with plenty of initiative and energy — stand to benefit by joining the growing ranks of Latino small business owners.  It is important to set the record straight.

H.R. 5230 — The Anti-Pyramid Promotional Scheme Act of 2016 — is bi-partisan legislation supported by more than 15 members of Congress that would protect Latinos and all Americans from the financial risk associated with a direct selling small business by clearly defining in federal statute the difference between a legitimate small business and a fraud.  The famous mens retailer, entrepreneur and philanthropist Sy Syms once preached in his television commercials that “an educated consumer is our best customer.”  That is precisely what this legislation hopes to achieve and why Hispanic leaders, in particular, need to support it.  By knowing what constitutes pyramid scheme fraud, it will be easier for consumers to steer clear and for law enforcement to prosecute.

None of the legislation’s central provisions — that a pyramid scheme exists when compensation is based primarily on the act of recruitment (as opposed to retail sales) and that personal use, or being able to purchase products at a discount, is a legitimate business practice in direct selling — are new or outlandish.  In fact, 49 states already have laws on the books banning pyramid schemes, numerous court decisions have used the same definition of a scheme that H.R. 5230 seeks to enact at the federal level and more than a third of the states have anti-pyramid statutes in force that protect personal use.

While this sensible, pro-consumer legislation is an important step forward when it comes to safeguarding Latinos and all Americans from financial risk, it is also worth remembering that direct selling, by its nature, involves substantially less risk than other entrepreneurial business efforts.  First, it is attractive because of the low start-up costs — often only $100 or less — as opposed to the thousands or even millions associated with franchises or other types of small businesses.  Second, the industry put into place years ago a rule that mandates all members of the Direct Selling Association buy back unused inventory at no less than 90% of the original purchase price.

Like so many other American families from all kinds of backgrounds, the key to my own family’s upward mobility was business ownership – a course that is still unparalleled in its ability to raise the income level and quality of life for all Americans.  Let’s support H.R. 5230, sensible pro-consumer legislation that would build on the direct selling industry’s heritage of education and responsible self-regulation by helping Latinos and all Americans enjoy additional safeguards without compromising the direct selling model that has done so much for so many.

Hector Barreto is the Chairman of The Latino Coalition and was Administrator of the Small Business Administration from 2001 to 2006.