On Thursday, May 19, AAHOA President and CEO Laura Lee Blake and Keith Miller, of Franchisee Advocacy Consulting, both testified on key franchise issues before the Federal Trade Commission (FTC).
One of the key roles of the FTC is protecting American consumers.
At the virtual open commission meeting, Blake and Miller both spoke about the nuances of the franchisee and franchisor relationship and the many unfair practices in the franchising industry, especially for hoteliers.
They both raised concerns that AAHOA Members have brought to their attention, concerns that they say have gotten increasingly worse in recent years.
One of those concerns is “preferred” vendor mandates imposed on the franchisees, and the franchisors’ receipt of rebates, commissions, kickbacks, services, or other considerations from these vendors without fully disclosing them to the franchisees.
“The undisclosed kickbacks are arising because the franchisors are requiring their hotel franchisees to purchase products and services from only a select group of mandated vendors,” said Blake. “These vendors then return the money to the franchisors, meanwhile, the franchisees are often paying double, even a triple, the normal price of these products and services. We are seeing numbers of up to 10% or more of the franchisor's revenues that are coming from these undisclosed kickbacks.”
Blake also mentioned that AAHOA recently revamped its 12 Points of Fair Franchising as a new resource guide for AAHOA Member-franchisees.
During Miller’s testimony, he said in franchising, the FTC has a Franchise Rule of presale disclosure. Any oversight is based on whether the FDD (Franchise Disclosure Document) is complete and accurate at the time it’s published.
“Franchisees are signing franchise agreements up to 20 years. The FDD is outlining the business the franchisor is selling. We need to look at that document going forward as a warranty. I’ll repeat that: The FDD should be a warranty into what the franchisor is selling,” Miller said.
“After all, shouldn’t the franchisee be buying what the franchisor is selling? And if what is being sold is changed after you buy it, wouldn’t we normally call that bait and switch?” Miller added. “Yes, things can change, but after you buy, one party shouldn’t be able to unilaterally change the terms, and in a sense, void that warranty. As we move forward looking at the rule, I think it is important to protect that simple concept, to protect what the franchisee has bought, as what they were sold.”
FTC Commissioner Christine Wilson made a point to thank the commenters who raised many important issues, like franchising.
“I hope that leadership takes those concerns to heart,” Wilson said.
FTC Commissioner Alvaro Bedoya also expressed interest in fair franchising.
“It’s a topic I am eager to learn more about,” Bedoya said.
You can watch the whole meeting here. Laura Lee Blake’s testimony begins at 12:20, and Keith Miller’s testimony starts at 17:15.