Howard E. Bundy: NASAA Proposed Statement of Policy Changes No Laws

NASAA Proposed Statement of Policy Changes No Laws by Howard E. Bundy,  Attorney at Law

It may well be the most important development involving franchising in half a century. The North American Securities Administrators Association (NASAA) has given interested persons until January 5, 2022, to comment on a proposed Statement of Policy that could lead to enforcement of state anti-fraud laws and state anti-waiver laws.

Franchisors have, for decades now, included in their FDDs a long list of “questions” that franchisees are required to answer “correctly” if they want a franchise. The questions, taken together are the equivalent of saying that “the franchisor can lie about anything, leave out important facts and, in essence steal my money, but I can never make a claim.”

The questions, taken together are the equivalent of saying that ‘the franchisor can lie about anything, leave out important facts and, in essence steal my money, but I can never make a claim.’ 

– Howard Bundy

The whole purpose of such clauses is to deprive franchisees of any remedies—regardless of how awful the franchisor’s behavior was.

In the view of this attorney, they make many franchise agreements too dangerous to even consider. They ask franchisees to agree to statements they do not understand (except as quickly and dismissively explained by a salesperson) and at a time (at the beginning of the relationship) when the franchisees do not fully understand either the business at hand or the nature of the franchise relationship.

The result of signing seemingly innocuous statements is that franchisees routinely give up all of their legal rights—forever.

The result of signing seemingly innocuous statements is that franchisees routinely give up all of their legal rights—forever. 

                                                                                                                               – Howard Bundy

Consider this in light of the fact that twenty-one states have adopted anti-fraud laws that say it is unlawful to offer or sell a franchise through misrepresentations or through leaving out important facts that would have affected the franchisee’s decision.

In addition, most of the franchise registration states (12 of 13) have laws that prohibit franchisees from waiving their rights under those anti-fraud laws. Those laws have been in force for several decades, but courts and arbitrators continue to not understand or enforce them.

The apparent purpose of the proposed NASAA Statement of Policy is to prohibit certain types of questionnaires and disclaimers that could be construed as waiving franchisees important rights under the anti-fraud laws—waivers that already violate those state laws. NASAA would also require franchisors to add a paragraph at certain places in the FDD and franchise agreement to the effect that any such disclaimers are void and should not be enforced.

It is very important to remember that NASAA’s proposed Statement of Policy changes no law; it adds no regulation; it adds nothing new. All the proposed Statement of Policy does is tell franchisors and the courts and arbitrators that certain contract language commonly used by franchisors is illegal and should not be enforced.

NASAA’s proposed Statement of Policy changes no law; it adds no regulation; it adds nothing new.

All the proposed Statement of Policy does is tell franchisors and the courts and arbitrators that certain contract language commonly used by franchisors is illegal and should not be enforced.

It lets franchisors know that, in registration states, they will not be able to get registered if they have such language in their documents.

Most importantly, it gives franchisees some assurance that, just by signing a franchise agreement, they will not be required to give up their most important legal rights.

If you care about honesty in franchising, please submit a comment to NASAA at the following addresses:

NASAAComments@nasaa.org with a cc to Andrea.Seidt@com.state.oh.us and a cc to dcantone@oag.state.md.us.

About Howard Bundy

Howard Bundy is a Seattle-based franchise and small business lawyer with more than 40 years of experience. 

His firm, Bundy Law, is focused on franchising, distribution and small business issues, assisting clients with transactions and disputes involving franchise issues and relationships.

Howard Bundy is also a passionate advocate for fair franchising practices and legislation.

Learn more at MyFranchiseLawyer.com

More articles on this issue:

Franchise Discussion, Documents, Links: NASAA Proposed S.O.P.

Peter Lagarias: Let’s Revoke Franchising’s Newest “Get-Out-of-Jail-Free” Card!

Sean Kelly: The “Trojan Earnings Claim” Deceives Franchisees & Courts

TAGS:  Howard Bundy, Attorney Howard Bundy, Seattle Franchise Attorney, Bundy Law, NASAA, North American Securities Administrators Association, Federal Trade Commission, FTC, Franchise Legislation, Franchise Disclosure Document, FDD, NASAA SOP, Franchisor questionnaires, Franchise Disclosure Document, FDD

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