How a Company Becomes a DSA Member

I’ve received several questions about the process used to review and approve companies for membership and I think it’s an important topic to explore so consumers can get a better understanding of what DSA membership really means.

After submission of a membership application the pending process takes at least one year. There are three main things that happen during this period:

1) DSA reviews company materials, including a starter kit and other documents that represent what a potential recruit would receive, to ensure compliance with the DSA Code of Ethics. Does the company offer a 90% buyback policy? Are the startup costs reasonable? Are there any statements that indicate inventory loading or other prohibited practices?

2) DSA makes inquiries to law enforcement and consumer protection agencies such as the Attorney General in the state where the company is located, the Better Business Bureau, and on a case-by-case basis any other entity that may have relevant information to share. It is also important to note that the mere existence of a complaint with any of these bodies does not preclude membership, but instead what is considered is the way any issues were resolved.

3) It is clear that the two activities above could be completed in far less than a year. However, one of the most important parts of the pending process is what is essentially a waiting period during which potential issues have an opportunity to come to the surface. These are issues that may not necessarily be obvious with a review of the materials, but are exposed by the marketplace over time.

Should questions arise from any of the three activities above, companies must answer and/or address those questions before the company can move forward to full membership. In fact, each year there are dozens of companies that make application and either withdraw their application or are not put before the Board of Directors for approval because of outstanding issues. Additionally, once a member, companies go through the entire review process at least once every five years (possibly more often).

I’m tempted to reiterate here the difference between a law enforcement agency and DSA, but that’s mostly embodied in my last post. What’s key though is that DSA’s review is not a substitute for one’s own review of a company and it also doesn’t guarantee that a law enforcement agency won’t disagree with DSA’s interpretation.

DSA has come under fire by industry critics recently as a result of a complaint filed against, a subsidiary of YTB, International, Inc., a DSA member company.

It has been interesting for me to recognize disconnect between the perception some people hold about the role of a trade association and the parameters under which a self-regulatory Code of Ethics operates. The questions have been posed to me in various ways – some more civil than others – but the questions essentially boil down to one: How can a company be prosecuted as a pyramid scheme and still be a member?

Using YTB as an example, the basic answer is easy – so far the allegations are merely that – allegations. Nothing has been proven – the company has not even had a chance to respond to the court. The Code of Ethics says companies cannot operate as pyramid schemes – it does not say they can’t be accused of being pyramid schemes. But the tiny little point about due process aside, based on the information presented to DSA at the time of their application, in DSA’s interpretation, this company met the standards of both the Code of Ethics and laws applicable to direct selling. Information presented by the California Attorney General may change that view, or it may not – that’s what due process is all about.

However, until information is presented that runs contrary to the information we evaluated as part of the application process, there are no grounds to revoke their membership. You can be sure, though, that we are keenly following this case and are evaluating information as we receive it.

Here are a couple more questions that have been raised:

What value does DSA membership have if a company can be prosecuted as a pyramid scheme? First, the standards of the Code are designed as a guide for consumers when evaluating a company – member or not. In the case of a member, though, if the Code Administrator determines a company has not met the standards, the company must make it right. DSA cannot guarantee that a company will not violate the Code, just like a government cannot guarantee that people will not break the law. But as with the law, there is a process for recourse when the rules are broken.

Does the Code process guarantee satisfaction for consumers? Of course the Code can’t guarantee satisfaction, but it provides an option that in most cases is exactly what a consumer needs. Instead of a lengthy complaint process with the Attorney General or Better Business Bureau, most complaints can be taken care of through the independent Code Administrator. However, if the Code process doesn’t yield the desired results, more formal legal action can still be pursued. I don’t know about you, but I’d much rather try the easy (and free) route before filing a lawsuit.

Why not kick a company out when they violate the Code? The answer is two-fold. First, a company CAN lose their membership if they are determined to have violated the code – either once or repeatedly. However, in most cases this is not necessarily the best course of action because the company is then not subject to the additional standards provided by the Code at all. From DSA’s perspective it’s far better to keep the company’s feet to the fire by enforcing the Code than by kicking them out, thus releasing them from the Code requirements. I’d much rather see a company reform than go somewhere else and continue to act unethically.

I guess in some respects I’m flattered to learn that DSA’s Code is recognized as such an important example of self-regulation. At the same time I’m disappointed to learn that there is so much misunderstanding about the limits of the Code. However, I view this as a great opportunity to evaluate public opinion and explore ways to both strengthen the Code and help close the gap between public understanding of the role of the Code.

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