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Posted July 16, 2016
Herbalife Agrees to Business Restructure and $200 Million Payment to Settle FTC Charges of Deception
The FTC charged that as part of Herbalife's multi-level marketing business structure, customers who became distributors of the company's products were compensated for recruiting others to join and encouraged to purchase products in advance, rather than purchasing products to fulfill actual orders.
According to the FTC, Herbalife claimed that customers who became product distributors could expect to quit their job, earn thousands of dollars per month or get rich, while in reality, the majority of distributors earned little or no money. It cited the company's own survey of participants which found that Herbalife "Nutrition Club" owners spent an average of $8,500 to open a club, but 57% of club owners did not make a profit, or lost money. It contended that due to the financial loss, the majority of Herbalife distributors stop ordering products within their first year, and that almost half of distributors quit within any given year.
The settlement will require the company change how it compensates distributors, and differentiate between consumers who join to buy products at a discount and those who join for the business opportunity. It will also require the majority of compensation to distributors to be based on actual retail sales. Herbalife will hire an independent auditor to oversee its adherence to all of the business restructuring provisions. The $200 million settlement will be used to compensate consumers who purchased large quantities of Herbalife products and lost money.
(See ConsumerLab.com Reviews of Herbalife products).
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For read the FTC's press release, use the link below.