Regulators Address Disclosure Issues Raised by Amended FTC Rule

At the ABA Forum, Dale Cantone of the Maryland Office of the Attorney General, and Craig Tregillus of the Federal Trade Commission, served as part of a panel discussion entitled "Advanced Disclosure Issues Under the Amended FTC Rule." The panel focused on identifying problematic disclosure and compliance issues that remain unclear under the Amended FTC Rule, and discussed the NASAA, state and FTC responses to such issues. The following is a sample of some of the issues touched upon by the panel that franchisors should keep in mind during the disclosure process:

7 Day Delivery Requirement. The panel pointed out an important issue that arises after a franchisor initially provides disclosure to a potential franchisee. If the franchisor subsequently unilaterally and materially alters the terms or conditions of its form franchise agreement or related agreements, the franchisor is required to redisclose to the potential franchisee seven calendar days prior to execution of the franchise agreement. This does not apply to changes made to the agreements as a result of negotiations that the franchisee initiates and as such, many franchisors assume that this rule does not apply in most circumstances. However, the Amended FTC Rule Statement of Basis and Purpose (available here: http://www.ftc.gov/os/2007/01/r511003FranchiseRuleFRNotice.pdf ) and FTC Frequently Asked Question #10 (available here: http://www.ftc.gov/bcp/franchise/amended-rule-faqss.shtml ) provide that "substantive contractual details" that are written into the agreement and that are not disclosed in the disclosure document, must be included in the franchise agreement and provided to the franchisee in compliance with the seven day requirement. As we have been advising our clients for the last two years, this rule applies to the protected territory, fees or interest rates that are many times handwritten into the form franchise agreement. For example, many form franchise agreements do not include the specific protected territory applicable to the franchisee, and instead leave a blank to be filled in before execution of the document. In such circumstances, the franchisor must write the protected territory into the franchise agreement, and provide the completed agreement to the prospective franchisee seven days prior to execution. Disclosure Requests From Prospective Franchisees. Under the Amended FTC Rule, franchisors must provide a copy of its disclosure document if the prospective...

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