74R12058 E
By Wolens, Saunders H.B. No. 2771
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to pyramid promotional schemes; providing penalties.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 17.46(b), Business & Commerce Code, is
1-5 amended to read as follows:
1-6 (b) Except as provided in Subsection (d) of this section,
1-7 the term "false, misleading, or deceptive acts or practices"
1-8 includes, but is not limited to, the following acts:
1-9 (1) passing off goods or services as those of another;
1-10 (2) causing confusion or misunderstanding as to the
1-11 source, sponsorship, approval, or certification of goods or
1-12 services;
1-13 (3) causing confusion or misunderstanding as to
1-14 affiliation, connection, or association with, or certification by,
1-15 another;
1-16 (4) using deceptive representations or designations of
1-17 geographic origin in connection with goods or services;
1-18 (5) representing that goods or services have
1-19 sponsorship, approval, characteristics, ingredients, uses,
1-20 benefits, or quantities which they do not have or that a person has
1-21 a sponsorship, approval, status, affiliation, or connection which
1-22 he does not;
1-23 (6) representing that goods are original or new if
2-1 they are deteriorated, reconditioned, reclaimed, used, or
2-2 secondhand;
2-3 (7) representing that goods or services are of a
2-4 particular standard, quality, or grade, or that goods are of a
2-5 particular style or model, if they are of another;
2-6 (8) disparaging the goods, services, or business of
2-7 another by false or misleading representation of facts;
2-8 (9) advertising goods or services with intent not to
2-9 sell them as advertised;
2-10 (10) advertising goods or services with intent not to
2-11 supply a reasonable expectable public demand, unless the
2-12 advertisements disclosed a limitation of quantity;
2-13 (11) making false or misleading statements of fact
2-14 concerning the reasons for, existence of, or amount of price
2-15 reductions;
2-16 (12) representing that an agreement confers or
2-17 involves rights, remedies, or obligations which it does not have or
2-18 involve, or which are prohibited by law;
2-19 (13) knowingly making false or misleading statements
2-20 of fact concerning the need for parts, replacement, or repair
2-21 service;
2-22 (14) misrepresenting the authority of a salesman,
2-23 representative or agent to negotiate the final terms of a consumer
2-24 transaction;
2-25 (15) basing a charge for the repair of any item in
3-1 whole or in part on a guaranty or warranty instead of on the value
3-2 of the actual repairs made or work to be performed on the item
3-3 without stating separately the charges for the work and the charge
3-4 for the warranty or guaranty, if any;
3-5 (16) disconnecting, turning back, or resetting the
3-6 odometer of any motor vehicle so as to reduce the number of miles
3-7 indicated on the odometer gauge;
3-8 (17) advertising of any sale by fraudulently
3-9 representing that a person is going out of business;
3-10 (18) using or employing a chain referral sales plan in
3-11 connection with the sale or offer to sell of goods, merchandise, or
3-12 anything of value, which uses the sales technique, plan,
3-13 arrangement, or agreement in which the buyer or prospective buyer
3-14 is offered the opportunity to purchase merchandise or goods and in
3-15 connection with the purchase receives the seller's promise or
3-16 representation that the buyer shall have the right to receive
3-17 compensation or consideration in any form for furnishing to the
3-18 seller the names of other prospective buyers if receipt of the
3-19 compensation or consideration is contingent upon the occurrence of
3-20 an event subsequent to the time the buyer purchases the merchandise
3-21 or goods;
3-22 (19) representing that a guarantee or warranty confers
3-23 or involves rights or remedies which it does not have or involve,
3-24 provided, however, that nothing in this subchapter shall be
3-25 construed to expand the implied warranty of merchantability as
4-1 defined in Sections 2.314 through 2.318 and Sections 2A.212 through
4-2 2A.216 of the Business & Commerce Code to involve obligations in
4-3 excess of those which are appropriate to the goods;
4-4 (20) promoting a pyramid promotional scheme, as
4-5 defined by Section 17.461 <selling or offering to sell, either
4-6 directly or associated with the sale of goods or services, a right
4-7 of participation in a multi-level distributorship. As used herein,
4-8 "multi-level distributorship" means a sales plan for the
4-9 distribution of goods or services in which promises of rebate or
4-10 payment are made to individuals, conditioned upon those individuals
4-11 recommending or securing additional individuals to assume positions
4-12 in the sales operation, and where the rebate or payment is not
4-13 exclusively conditioned on or in relation to proceeds from the
4-14 retail sales of goods>;
4-15 (21) representing that work or services have been
4-16 performed on, or parts replaced in, goods when the work or services
4-17 were not performed or the parts replaced;
4-18 (22) filing suit founded upon a written contractual
4-19 obligation of and signed by the defendant to pay money arising out
4-20 of or based on a consumer transaction for goods, services, loans,
4-21 or extensions of credit intended primarily for personal, family,
4-22 household, or agricultural use in any county other than in the
4-23 county in which the defendant resides at the time of the
4-24 commencement of the action or in the county in which the defendant
4-25 in fact signed the contract; provided, however, that a violation of
5-1 this subsection shall not occur where it is shown by the person
5-2 filing such suit he neither knew or had reason to know that the
5-3 county in which such suit was filed was neither the county in which
5-4 the defendant resides at the commencement of the suit nor the
5-5 county in which the defendant in fact signed the contract;
5-6 (23) the failure to disclose information concerning
5-7 goods or services which was known at the time of the transaction if
5-8 such failure to disclose such information was intended to induce
5-9 the consumer into a transaction into which the consumer would not
5-10 have entered had the information been disclosed; or
5-11 (24) using the term "corporation," "incorporated," or
5-12 an abbreviation of either of those terms in the name of a business
5-13 entity that is not incorporated under the laws of this state or
5-14 another jurisdiction.
5-15 SECTION 2. Subchapter E, Chapter 17, Business & Commerce
5-16 Code, is amended by adding Section 17.461 to read as follows:
5-17 Sec. 17.461. PYRAMID PROMOTIONAL SCHEME. (a) In this
5-18 section:
5-19 (1) "Compensation" means payment of money, a financial
5-20 benefit, or another thing of value. The term does not include
5-21 payment based on sale of a product to a person, including a
5-22 participant, who purchases the product for actual use or
5-23 consumption.
5-24 (2) "Consideration" means the payment of cash or the
5-25 purchase of a product. The term does not include:
6-1 (A) a purchase of a product furnished at cost to
6-2 be used in making a sale and not for resale;
6-3 (B) a purchase of a product subject to a
6-4 repurchase agreement that complies with Subsection (b); or
6-5 (C) time and effort spent in pursuit of a sale
6-6 or in a recruiting activity.
6-7 (3) "Participate" means to contribute money into a
6-8 pyramid promotional scheme without promoting, organizing, or
6-9 operating the scheme.
6-10 (4) "Product" means a good, a service, or intangible
6-11 property of any kind.
6-12 (5) "Promoting a pyramid promotional scheme" means:
6-13 (A) inducing or attempting to induce one or more
6-14 other persons to participate in a pyramid promotional scheme; or
6-15 (B) assisting another person in inducing or
6-16 attempting to induce one or more other persons to participate in a
6-17 pyramid promotional scheme, including by providing references.
6-18 (6) "Pyramid promotional scheme" means a plan or
6-19 operation by which a person gives consideration for the opportunity
6-20 to receive compensation that is derived primarily from a person's
6-21 introduction of other persons to participate in the plan or
6-22 operation rather than from the sale of a product by a person
6-23 introduced into the plan or operation.
6-24 (b) To qualify as a repurchase agreement for the purposes of
6-25 Subsection (a)(2)(B), an agreement must be an enforceable agreement
7-1 by the seller to repurchase, on written request of the purchaser
7-2 and not later than the first anniversary of the purchaser's date of
7-3 purchase, all unencumbered products that are in an unused,
7-4 commercially resalable condition at a price not less than 90
7-5 percent of the amount actually paid by the purchaser for the
7-6 products being returned, less any consideration received by the
7-7 purchaser for purchase of the products being returned. A product
7-8 that is no longer marketed by the seller is considered resalable if
7-9 the product is otherwise in an unused, commercially resalable
7-10 condition and is returned to the seller not later than the first
7-11 anniversary of the purchaser's date of purchase, except that the
7-12 product is not considered resalable if before the purchaser
7-13 purchased the product it was clearly disclosed to the purchaser
7-14 that the product was sold as a nonreturnable, discontinued,
7-15 seasonal, or special promotion item.
7-16 (c) A person commits an offense if the person contrives,
7-17 prepares, establishes, operates, advertises, sells, or promotes a
7-18 pyramid promotional scheme. An offense under this subsection is a
7-19 state jail felony.
7-20 (d) It is not a defense to prosecution for an offense under
7-21 this section that the pyramid promotional scheme involved both a
7-22 franchise to sell a product and the authority to sell additional
7-23 franchises if the emphasis of the scheme is on the sale of
7-24 additional franchises.
7-25 SECTION 3. Section 32.48, Penal Code, is repealed.
8-1 SECTION 4. This Act takes effect September 1, 1995.
8-2 SECTION 5. The importance of this legislation and the
8-3 crowded condition of the calendars in both houses create an
8-4 emergency and an imperative public necessity that the
8-5 constitutional rule requiring bills to be read on three several
8-6 days in each house be suspended, and this rule is hereby suspended.