BILL ANALYSIS


                                                        H.B. 2771
                                                By: Wolens (Cain)
                                             Economic Development
                                                         05-17-95
                              Senate Committee Report (Unamended)
BACKGROUND

People are often defrauded from sales schemes in which participants
receive compensation primarily from drawing a newcomer into the
sales operation rather than by selling the product.  
PURPOSE

As proposed, H.B. 2771 prohibits a person from certain involvement
in pyramid promotional schemes and provides a penalty for promotion
and participation in such schemes.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 17.46(b), Business and Commerce Code, to
add promoting a pyramid promotional scheme, as defined by Section
17.461, to the list of "false, misleading, or deceptive acts or
practices."  Deletes reference to a multi-level distributorship.

SECTION 2. Amends Chapter 17E, Business and Commerce Code, by
adding Section 17.461, as follows:

     Sec. 17.461.  PYRAMID PROMOTIONAL SCHEME.  (a) Defines
     "compensation," "consideration," "participate," "product,"
     "promoting a pyramid promotional scheme," and "pyramid
     promotional scheme."
     
     (b) Requires an agreement, to qualify as a repurchase
       agreement for the purposes of Subsection (a)(2)(B), to be an
       enforceable agreement by the seller to repurchase all
       unencumbered products that are in an unused, commercially
       resalable condition at a price not less than 90 percent of
       the amount paid by the purchaser for the products being
       returned, less any consideration received by the purchaser
       for purchase of the products being returned.  Considers a
       product to be resalable if the product is in an unused,
       commercially resalable condition and is returned to the
       seller not later than the first anniversary of the
       purchaser's date of purchase.  Declares that a product is
       not considered resalable if, before the purchaser purchased
       the product, it was clearly disclosed to the purchaser that
       the product was sold as a nonreturnable, discontinued,
       seasonal, or special promotion item.
       
       (c) Declares that a person commits a state jail felony if
       the person contrives, prepares, establishes, operates,
       advertises, sells, or promotes a pyramid promotional scheme.
       
       (d) Declares that it is not a defense to prosecution for an
       offense under this section that the pyramid promotional
       scheme involved both a franchise to sell a product and the
       authority to sell additional franchises, if the emphasis of
       the scheme is on the sale of additional franchises.
       
     SECTION 3.     Repealer: Section 32.48, Penal Code (Endless Chain
Scheme).

SECTION 4. Effective date: September 1, 1995.

SECTION 5. Emergency clause.