Direct Selling Regulation Explained: The FTC, State AGs and What Changed in 2026

Updated: October 27, 2026

U.S. MLM regulations are enforced mainly by the FTC and state attorneys general, and in 2026 the rules didn’t change on paper so much as in practice. No new federal MLM rule took effect. Instead, the FTC used court orders to set concrete expectations on earnings claims, retail sales, and recruiting. This explainer covers the legal tests, the agencies involved, and what 2026’s cases mean for companies and distributors. For a broader view of how to follow these developments, see our network marketing news hub.

Who Regulates Direct Selling in the U.S.?

There is no single federal “MLM license.” Instead, several overlapping authorities apply:

• The Federal Trade Commission polices deceptive and unfair practices under Section 5 of the FTC Act, including pyramid structures and false earnings or product claims.
• State attorneys general enforce state consumer protection laws and, in many states, specific anti-pyramid statutes. Washington State was a co-plaintiff in the 2026 Amway case.
• The SEC becomes involved when an opportunity is really an investment, and it oversees disclosures by publicly traded direct sellers.
• Industry self-regulation through the Direct Selling Association’s code and its Direct Selling Self-Regulatory Council exists, but the FTC’s guidance states plainly that membership in a self-regulatory organization does not shield a company from enforcement.

MLM Regulations and the FTC: The Legal Tests

The Koscot standard

The FTC’s guidance cites Koscot as the most widely used description of a pyramid scheme: participants pay money for the right to sell a product and the right to receive rewards for recruiting that are unrelated to sales to ultimate users. Courts have applied this in cases such as FTC v. BurnLounge (9th Cir. 2014) and FTC v. Vemma (2015).

No percentage safe harbor

One of the most important points in current FTC multi-level marketing guidance is what it rejects. Staff wrote that there is “no percentage-based test” for whether an MLM is a pyramid scheme. Having real products, or even many retail customers, is not a safe harbor. The agency looks at how the plan works in practice: what it rewards, how participants are trained, and whether purchases are driven by real demand or by qualification requirements.

Earnings claims

The guidance says earnings claims must reflect what a typical participant achieves, account for expenses, and be backed by reliable data. “Results not typical” disclaimers are not enough, and lifestyle imagery such as luxury cars counts as an implied earnings claim. Under the FTC’s Notices of Penalty Offenses, sent in October 2021 to more than 1,100 businesses, companies that make deceptive earnings claims after receiving notice can face civil penalties.

What Changed in 2026

Forever Living (April 14, 2026)

The FTC alleged that Forever Living used deceptive earnings claims and that, according to company data, at least 77% of participants who purchased, sold, or recruited in each of the prior five years received no compensation. The stipulated order requires substantiation for any earnings claim and bars misrepresenting why participants fail to earn.

Amway and affiliates (September 17, 2026)

The FTC and Washington State alleged that Amway and two “approved provider” training groups, World Wide Group and Leadership Team Development, used false earnings claims and pressured participants to buy products they couldn’t resell, and that some participants were taught to report sales that didn’t happen. The proposed $225 million order would require participants to resell at least 70% of monthly purchases, report customer sales with actual prices, submit to independent audits, and bar approved providers from charging new participants for training in their first year. The company settled without a trial; the allegations were not proven in court.

Rulemaking stalled

The proposed Earnings Claim Rule for MLMs, released in January 2025, was never published in the Federal Register. The current regulatory agenda says the Commission “continues to explore and evaluate potential options.” In practice, the 2026 orders now function as a detailed template of what the FTC expects.

Direct Selling Laws at the State Level

Many states have their own pyramid-scheme statutes and consumer protection acts, and attorneys general can sue independently of the FTC. Some states also regulate “business opportunity” sales or require specific cancellation rights for in-home sales. Because these rules vary, companies typically maintain state-by-state compliance programs, and prospects can check their attorney general’s site for complaints, as the FTC recommends.

MLM Compliance Rules: What Distributors Should Do

• Don’t make income claims unless they reflect typical results and link to the company’s income disclosure statement.
• Avoid lifestyle imagery in recruiting posts; the FTC treats it as an implied earnings claim.
• Buy only what you will use or can sell. Purchases made to qualify for rank are a red flag in FTC cases.
• Keep honest sales records. The Amway order shows regulators now expect verifiable retail sales.
• Name the company and the opportunity up front. FTC guidance calls hiding the nature of the opportunity unfair and deceptive.

Key Takeaways

• MLM regulation in the U.S. rests on Section 5 of the FTC Act, state law, and decades of case law.
• The FTC says no percentage test or product quality makes a plan automatically legal.
• 2026’s Forever Living and Amway orders set practical expectations for earnings claims and retail sales verification.
• The proposed federal Earnings Claim Rule remains unfinished.

Frequently Asked Questions

Does the FTC regulate MLM companies?

Yes. The FTC enforces Section 5 of the FTC Act against unfair or deceptive practices, which covers pyramid structures, deceptive earnings claims, and unsupported product claims by MLMs and their participants. It has published staff guidance for the industry and brings cases in federal court, often alongside state attorneys general.

Is there a new FTC rule for MLMs in 2026?

No final rule took effect. The FTC released a proposed Earnings Claim Rule in January 2025, but it was never published in the Federal Register and is listed at the pre-rule stage. In 2026 the FTC instead relied on enforcement, including settlements with Forever Living and Amway.

Can MLM distributors be held responsible for income claims?

Yes. FTC guidance says earnings claims are judged wherever they are made, including social media and private chats, and that companies are liable for their participants’ claims. Individual promoters have also been named in FTC cases, such as top AdvoCare promoters in 2019.

What is the 70% rule in direct selling?

It requires participants to resell a share of the products they buy, historically 70%, before earning certain bonuses. Amway cited such a rule in its 1979 FTC case. The 2026 proposed Amway order requires participants to sell to others at least 70% of their monthly purchases.

Sources

• FTC: Business Guidance Concerning Multi-Level Marketing
• FTC: Action against Amway, WWG and LTD (Sept. 17, 2026)
• FTC: Forever Living order (Apr. 14, 2026)
• FTC: Notices of Penalty Offenses to 1,100+ businesses (Oct. 2021)
• Reginfo.gov: Earnings Claims Trade Regulation Rule
• FTC: AdvoCare $150 million settlement (Oct. 2019)

QastMe does not endorse any company. Information is for education only and is not financial or legal advice. Earnings in direct selling vary widely, and most participants earn little or no money. Review each company’s income disclosure statement before deciding.

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