We are halfway through 2022, and we wanted to give you a legislative summary on franchise bills AAFD has been engaged on, both federally and in states
- S.1120, the Small Business Administration Transparency Act (Cortez Masto, D-NV). This legislation requires franchisors make specific disclosures in the FDD if their brand is to receive SBA guaranteed loans.
- S.2162, the Small Business Administration Franchise Loan Default Disclosure Act (Cortez Masto, D-NV). This legislation requires the SBA to periodically publish the SBA loan default rates by franchise brand.
Both these bills go directly to the issue of better disclosure, something that is foundational to successful franchising. The SBA loan programs are designed to be self-funding. The SBA attempts to charge enough in rate and fees to cover any loan charge-offs. Passing these bills, with the additional transparency, should lower the default rates of SBA loans, therefore lowering the rates and fees. In reality, brands with low default rates are currently subsidizing the poor performing/high default rate franchises by paying higher rates and fees on their SBA loans. S.2162 has a greater chance of moving forward, and if you have a Senator on the Senate Small Business Committee, especially a Republican Senator, we need to have you contact their office. AAFD has sent in letters of support on both these bills.
- H.R.6551, the Franchisee Freedom Act (Schakowsky, D-IL). This legislation would allow individuals a private right of action on franchisor violations of the FTC Franchise Rule. Currently, franchisees do NOT have a private right of action if a franchisor violates the Rule. Unless they reside in a handful of states that allow for a private right on state investment law, or can prove the high bar of fraud, they can never have their day in court on Rule violations. We need franchisees to contact their House of Representatives member to gain cosponsors on this in hopes of having a subcommittee hearing. AAFD has sent in a letter of support on this bill.
- New Jersey A.1958 (Mukherji, D). This legislation is a comprehensive update to the New Jersey Franchise Practices Act. It is specifically targeted to the hospitality industry. It requires franchisors to disclose all rebates/kickbacks and turn them over to the franchisees. It prohibits fees that were not previously disclosed. It also includes limitations on quotas, guest comments, capital investment, etc. This recently passed the Assembly Judiciary with great support from local hotel franchisees. While this bill only deals with the hospitality industry, passing it will set up a later opportunity to have the amendments to the franchise law cover all franchises. AAFD has sent a letter of support on this bill.