IFA Calls For Additional Regulations On Third-Party Franchise Sellers

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WASHINGTON – Today, the International Franchise Association (IFA) endorsed amending the California Franchise Investment Law (CFIL) to expand disclosure requirements to apply to third-party franchise sellers engaged in franchise sales in California.

“The IFA was founded on the belief that responsible franchising leads to strong franchise relationships, driven by clear communication of the terms of a franchise offering to prospective franchisees through robust presale disclosures as established under Article 11 more than a decade ago,” said Matt Haller, IFA President and CEO. “While the Federal Trade Commission (FTC) and many states require franchisors to provide extensive pre-sale disclosures about the franchise offering, the IFA believes healthy franchise relationships are established when prospective franchisees understand not only the franchise investment but the roles of the individuals with whom they engage during the franchise sales process, including third-party franchise sellers like brokers and franchise sales organizations.”

“While franchise brokers and franchise sales organizations (FSOs) are critical to the franchise development and growth of franchise systems, it is equally, if not more important, that prospective franchisees have clarity about the roles of these third-party franchise sellers and services performed for franchisors so they can make an informed purchasing decision that best aligns their needs with a brand. The proposed amendment includes registration requirements for third-party franchise sellers, providing visibility into the various parties that engage with a prospective franchisee during the sales process and a pathway for recovery against bad actors, while requiring minimal resources to implement the registration and disclosure requirements.”

The proposed amendments to the CFIL would require third-party franchise sellers to:

  • Register with the DFPI annually and pay the applicable registration fee
  • Provide prospective franchisees with a standardized form of disclosure, including professional experience, litigation history, general description of services performed for the franchisor and compensation received, industries of brands represented, and a list of franchisees who purchased franchises during the preceding year.

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About the International Franchise Association:

Celebrating over 60 years of excellence, education, and advocacy, the International Franchise Association (IFA) is the world’s oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations, and educational programs to protect, enhance and promote franchising and the approximately 806,270 franchise establishments that support nearly 8.7 million direct jobs, $858.5 billion of economic output for the U.S. economy, and almost 3 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees, and companies that support the industry in marketing, law, technology, and business development

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Katherine Knight Patterson

Email:

kpatterson@franchise.org

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