1-1 By: Wolens, Saunders (Senate Sponsor - Cain) H.B. No. 2771
1-2 (In the Senate - Received from the House May 11, 1995;
1-3 May 12, 1995, read first time and referred to Committee on Economic
1-4 Development; May 16, 1995, reported favorably by the following
1-5 vote: Yeas 9, Nays 0; May 16, 1995, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to pyramid promotional schemes; providing penalties.
1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-10 SECTION 1. Section 17.46(b), Business & Commerce Code, is
1-11 amended to read as follows:
1-12 (b) Except as provided in Subsection (d) of this section,
1-13 the term "false, misleading, or deceptive acts or practices"
1-14 includes, but is not limited to, the following acts:
1-15 (1) passing off goods or services as those of another;
1-16 (2) causing confusion or misunderstanding as to the
1-17 source, sponsorship, approval, or certification of goods or
1-18 services;
1-19 (3) causing confusion or misunderstanding as to
1-20 affiliation, connection, or association with, or certification by,
1-21 another;
1-22 (4) using deceptive representations or designations of
1-23 geographic origin in connection with goods or services;
1-24 (5) representing that goods or services have
1-25 sponsorship, approval, characteristics, ingredients, uses,
1-26 benefits, or quantities which they do not have or that a person has
1-27 a sponsorship, approval, status, affiliation, or connection which
1-28 he does not;
1-29 (6) representing that goods are original or new if
1-30 they are deteriorated, reconditioned, reclaimed, used, or
1-31 secondhand;
1-32 (7) representing that goods or services are of a
1-33 particular standard, quality, or grade, or that goods are of a
1-34 particular style or model, if they are of another;
1-35 (8) disparaging the goods, services, or business of
1-36 another by false or misleading representation of facts;
1-37 (9) advertising goods or services with intent not to
1-38 sell them as advertised;
1-39 (10) advertising goods or services with intent not to
1-40 supply a reasonable expectable public demand, unless the
1-41 advertisements disclosed a limitation of quantity;
1-42 (11) making false or misleading statements of fact
1-43 concerning the reasons for, existence of, or amount of price
1-44 reductions;
1-45 (12) representing that an agreement confers or
1-46 involves rights, remedies, or obligations which it does not have or
1-47 involve, or which are prohibited by law;
1-48 (13) knowingly making false or misleading statements
1-49 of fact concerning the need for parts, replacement, or repair
1-50 service;
1-51 (14) misrepresenting the authority of a salesman,
1-52 representative or agent to negotiate the final terms of a consumer
1-53 transaction;
1-54 (15) basing a charge for the repair of any item in
1-55 whole or in part on a guaranty or warranty instead of on the value
1-56 of the actual repairs made or work to be performed on the item
1-57 without stating separately the charges for the work and the charge
1-58 for the warranty or guaranty, if any;
1-59 (16) disconnecting, turning back, or resetting the
1-60 odometer of any motor vehicle so as to reduce the number of miles
1-61 indicated on the odometer gauge;
1-62 (17) advertising of any sale by fraudulently
1-63 representing that a person is going out of business;
1-64 (18) using or employing a chain referral sales plan in
1-65 connection with the sale or offer to sell of goods, merchandise, or
1-66 anything of value, which uses the sales technique, plan,
1-67 arrangement, or agreement in which the buyer or prospective buyer
1-68 is offered the opportunity to purchase merchandise or goods and in
2-1 connection with the purchase receives the seller's promise or
2-2 representation that the buyer shall have the right to receive
2-3 compensation or consideration in any form for furnishing to the
2-4 seller the names of other prospective buyers if receipt of the
2-5 compensation or consideration is contingent upon the occurrence of
2-6 an event subsequent to the time the buyer purchases the merchandise
2-7 or goods;
2-8 (19) representing that a guarantee or warranty confers
2-9 or involves rights or remedies which it does not have or involve,
2-10 provided, however, that nothing in this subchapter shall be
2-11 construed to expand the implied warranty of merchantability as
2-12 defined in Sections 2.314 through 2.318 and Sections 2A.212 through
2-13 2A.216 of the Business & Commerce Code to involve obligations in
2-14 excess of those which are appropriate to the goods;
2-15 (20) promoting a pyramid promotional scheme, as
2-16 defined by Section 17.461 <selling or offering to sell, either
2-17 directly or associated with the sale of goods or services, a right
2-18 of participation in a multi-level distributorship. As used herein,
2-19 "multi-level distributorship" means a sales plan for the
2-20 distribution of goods or services in which promises of rebate or
2-21 payment are made to individuals, conditioned upon those individuals
2-22 recommending or securing additional individuals to assume positions
2-23 in the sales operation, and where the rebate or payment is not
2-24 exclusively conditioned on or in relation to proceeds from the
2-25 retail sales of goods>;
2-26 (21) representing that work or services have been
2-27 performed on, or parts replaced in, goods when the work or services
2-28 were not performed or the parts replaced;
2-29 (22) filing suit founded upon a written contractual
2-30 obligation of and signed by the defendant to pay money arising out
2-31 of or based on a consumer transaction for goods, services, loans,
2-32 or extensions of credit intended primarily for personal, family,
2-33 household, or agricultural use in any county other than in the
2-34 county in which the defendant resides at the time of the
2-35 commencement of the action or in the county in which the defendant
2-36 in fact signed the contract; provided, however, that a violation of
2-37 this subsection shall not occur where it is shown by the person
2-38 filing such suit he neither knew or had reason to know that the
2-39 county in which such suit was filed was neither the county in which
2-40 the defendant resides at the commencement of the suit nor the
2-41 county in which the defendant in fact signed the contract;
2-42 (23) the failure to disclose information concerning
2-43 goods or services which was known at the time of the transaction if
2-44 such failure to disclose such information was intended to induce
2-45 the consumer into a transaction into which the consumer would not
2-46 have entered had the information been disclosed; or
2-47 (24) using the term "corporation," "incorporated," or
2-48 an abbreviation of either of those terms in the name of a business
2-49 entity that is not incorporated under the laws of this state or
2-50 another jurisdiction.
2-51 SECTION 2. Subchapter E, Chapter 17, Business & Commerce
2-52 Code, is amended by adding Section 17.461 to read as follows:
2-53 Sec. 17.461. PYRAMID PROMOTIONAL SCHEME. (a) In this
2-54 section:
2-55 (1) "Compensation" means payment of money, a financial
2-56 benefit, or another thing of value. The term does not include
2-57 payment based on sale of a product to a person, including a
2-58 participant, who purchases the product for actual use or
2-59 consumption.
2-60 (2) "Consideration" means the payment of cash or the
2-61 purchase of a product. The term does not include:
2-62 (A) a purchase of a product furnished at cost to
2-63 be used in making a sale and not for resale;
2-64 (B) a purchase of a product subject to a
2-65 repurchase agreement that complies with Subsection (b); or
2-66 (C) time and effort spent in pursuit of a sale
2-67 or in a recruiting activity.
2-68 (3) "Participate" means to contribute money into a
2-69 pyramid promotional scheme without promoting, organizing, or
2-70 operating the scheme.
3-1 (4) "Product" means a good, a service, or intangible
3-2 property of any kind.
3-3 (5) "Promoting a pyramid promotional scheme" means:
3-4 (A) inducing or attempting to induce one or more
3-5 other persons to participate in a pyramid promotional scheme; or
3-6 (B) assisting another person in inducing or
3-7 attempting to induce one or more other persons to participate in a
3-8 pyramid promotional scheme, including by providing references.
3-9 (6) "Pyramid promotional scheme" means a plan or
3-10 operation by which a person gives consideration for the opportunity
3-11 to receive compensation that is derived primarily from a person's
3-12 introduction of other persons to participate in the plan or
3-13 operation rather than from the sale of a product by a person
3-14 introduced into the plan or operation.
3-15 (b) To qualify as a repurchase agreement for the purposes of
3-16 Subsection (a)(2)(B), an agreement must be an enforceable agreement
3-17 by the seller to repurchase, on written request of the purchaser
3-18 and not later than the first anniversary of the purchaser's date of
3-19 purchase, all unencumbered products that are in an unused,
3-20 commercially resalable condition at a price not less than 90
3-21 percent of the amount actually paid by the purchaser for the
3-22 products being returned, less any consideration received by the
3-23 purchaser for purchase of the products being returned. A product
3-24 that is no longer marketed by the seller is considered resalable if
3-25 the product is otherwise in an unused, commercially resalable
3-26 condition and is returned to the seller not later than the first
3-27 anniversary of the purchaser's date of purchase, except that the
3-28 product is not considered resalable if before the purchaser
3-29 purchased the product it was clearly disclosed to the purchaser
3-30 that the product was sold as a nonreturnable, discontinued,
3-31 seasonal, or special promotion item.
3-32 (c) A person commits an offense if the person contrives,
3-33 prepares, establishes, operates, advertises, sells, or promotes a
3-34 pyramid promotional scheme. An offense under this subsection is a
3-35 state jail felony.
3-36 (d) It is not a defense to prosecution for an offense under
3-37 this section that the pyramid promotional scheme involved both a
3-38 franchise to sell a product and the authority to sell additional
3-39 franchises if the emphasis of the scheme is on the sale of
3-40 additional franchises.
3-41 SECTION 3. Section 32.48, Penal Code, is repealed.
3-42 SECTION 4. This Act takes effect September 1, 1995.
3-43 SECTION 5. The importance of this legislation and the
3-44 crowded condition of the calendars in both houses create an
3-45 emergency and an imperative public necessity that the
3-46 constitutional rule requiring bills to be read on three several
3-47 days in each house be suspended, and this rule is hereby suspended.
3-48 * * * * *