Rep. Ellison Introduces Bills to Improve the Franchise System
WASHINGTON—Rep. Keith Ellison (D-MN) introduced two bills to strengthen the ability of franchisees to succeed as business owners. The Fair Franchise Act of 2015 (H.R. 3196) and the Small Business Administration (SBA) Franchise Loan Transparency Act (H.R. 3559) ensure franchisees receive accurate financial information prior to buying a business and sign agreements that enhance their ability to profit from the business. (h.
“If we want an economy built on fairness, we must protect the Americans investing, hiring, and paying taxes in our communities,” Rep. Ellison said. “But the current model for franchising tilts the balance of power too strongly to the franchisor. The two bills introduced today will give small business owners more information and more say in the businesses they run. When we empower franchisees, we encourage small business owners to invest in their employees and our communities.”
"Franchisees often invest their life savings in their franchise businesses, leaving many of these small business owners personally vulnerable to deceptive, unfair, or predatory practices," Rep. Jared Huffman (D-CA) said. "This bill simply guarantees franchisees across the country basic business protections—already afforded to most other businesses—to help avoid bankruptcy and ensure good faith in contracts. I am glad to be continuing the work I started in the California State Assembly and I am grateful to Rep. Ellison for his leadership to support these small businesses."
“We thank Rep. Ellison for his leadership in introducing these bills. The Fair Franchise Act addresses many of our key principles as stated in the Universal Franchisee Bill of Rights”, said Keith Miller, Chairman of the Coalition of Franchisee Associations. “We also appreciate the support of initial cosponsors, Rep. Conyers, who worked closely with Rep. Coble on similar legislation in the late 1990’s, and Rep. Huffman, who four years ago authored legislation in California to protect franchisees. The CFA board looks forward to working on this legislation with stakeholders in the industry towards a solution that protects franchisee profitability and equity”
While researching the Fair Franchise Act of 2015 and the SBA Franchise Loan Transparency Act, Rep. Ellison and his staff interviewed several franchisees to discuss franchise practices that made it harder for them to succeed in business. A collection of those interviews can be found here.
The Fair Franchise Act insists on transparent franchise agreements that prevent misleading or false information in franchise disclosure documents. It prohibits mandatory arbitration. It allows franchisees to exercise their first amendment rights to discuss their experiences with the brand and participate in franchisee associations without retaliation. It requires franchisor practices that are in good faith and protect the ability of the business owner to build equity in the business. These include renewal, transfer and termination protection for franchisees. This bill builds on one proposed by Representative Howard Coble (R-NC) H.R.3308, the Small Business Franchise Act of 1999.
The SBA Franchise Loan Transparency Act requires any franchise business obtaining an SBA-guaranteed loan receive from the franchisor in their Franchise Disclosure Document (FDD), Year 1 average unit revenues and failure rates for the previous 5 years. In addition, the franchisor must provide average unit revenues for all franchised units. Having this information available when applying for an SBA loan will enable franchisees to receive a loan and payment schedule that they can adequately service decreasing the likelihood that they will default thus causing taxpayers to compensate the lender. GAO and SBA Inspector General reports highlighted the need for this information, and the difficulties for prospective franchisees in obtaining it to assist in projections required for SBA loans. These reports also highlighted high default rates for some brands. Since the SBA lending programs are self-funding, lower default rates will make more money available to viable brands with the reduced rates and fees improving the franchisees bottom line.
The Fair Franchise Act is supported by the Coalition of Franchisee Associations (CFA); Edible Arrangements Independent Franchisee Association (EAIFA); Independent Organization of Little Caesar Franchisees (IOLCF); International Association of Kumon Franchisees (IAKF); Meineke Dealers Association (MDA); North American Association of Subway Franchisees (NAASF); Service Station Franchisee Association, Inc. (SSFA); Dady & Gardner, P.A.; Lagarias Law Offices; and Law Office of Jonathan E. Fortman, LLC.