Linking Pyramid Schemes (aka Multilevel Marketing Companies) and Con...

A couple weeks ago, on Last Week Tonight, John Oliver started what promises to be the greatest pyramid scheme ever. In an effort to help him, watch the segment here (warning: language). More seriously, multilevel marketing companies that sell products directly to customers through salespeople working out of their homes (Herbalife, Amway, Nu Skin, the relatively new Rodan + Fields) operate by way of a concerning sales structure. Salespeople recruit salespeople, who recruit more salespeople, who recruit yet more salespeople. The salespeople at the top make money off of the salespeople at the bottom. And the salespeople at the bottom often are left with stockpiles of soon-to-expire product in their homes and garages. Indeed, as noted by John Oliver, in July of this year, Herbalife consented to a $200 million settlement with the FTC in which they agreed to change their business tactics. When asked about Herbalife's business model, FTC Chairwoman Ramirez said, "they were not determined not to be a pyramid."  

Now, the potential (probable?) connection to bankruptcy filings. There is evidence that people sign up to sell these products because they need to make extra money--which makes sense. Signing up to be a salesperson for a multilevel marketing company could be one of many coping tactics used by someone hopelessly deep in debt. Get a second job, sell some belongings, go without insurance or food . . . and try to sell products from your home. People may get the idea from friends or financial gurus. For instance, Dave Ramsey's website has a page titled, "Guide to Joining a Multilevel Marketing Company," which includes some of the same inspirational, "go-getter," pull yourself up by your own bootstraps, you hold the key to your own success language that accompany Facebook posts that try to entice people to join Rodan + Fields. Of course, that means it is your fault when you fail, right?

Yet merely failing isn't the biggest problem for people who may be using this coping strategy. The first thing that people must do when they join the sales team is buy the products they will sell. If they are in already precarious financial situations, they may do so with credit cards, plunging themselves further into debt, and making it even more likely that they ultimately file bankruptcy. Which leads to my main question after watching the segment: What do we know about people who file bankruptcy, in part, because they got trapped in multilevel marketing companies?