[Federal Register Volume 60, Number 192 (Wednesday, October 4, 1995)]
[Rules and Regulations]
[Pages 51895-51896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24678]



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FEDERAL TRADE COMMISSION

16 CFR Part 436


Trade Regulation Rule: Disclosure Requirements and Prohibitions 
Concerning Franchising and Business Opportunity Ventures

AGENCY: Federal Trade Commission.

ACTION: Revocation of authorization to use disclosures prepared in 
compliance with the 1986 Uniform Franchise Offering Circular Guidelines 
in lieu of disclosures required by the Commission's Franchise Rule.

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SUMMARY: On January 1, 1996, the Commission will revoke acceptance of 
disclosures prepared in accordance with the 1986 Uniform Franchise 
Offering Circular Guidelines (``UFOC''), adopted by the North American 
Securities Administrators Association (``NASAA'') on November 21, 1986, 
for compliance with the pre-sale disclosure requirements of the 
Commission's Franchise Rule (16 CFR 436.1(a)-(e)).

DATES: Authorization to prepare disclosures that comply with the 1986 
UFOC Guidelines is revoked on January 1, 1996. UFOC disclosures 
required to be prepared, amended, revised, or filed on and after the 
revocation date by the Rule or state law must satisfy the requirements 
of the UFOC Guidelines as amended by NASAA on April 25, 1993, and 
approved by the FTC on December 30, 1993, (58 FR 69,224) for use in 
compliance with the Franchise Rule.

ADDRESSES: Questions about Franchise Rule compliance obligations 
arising from this notice should be addressed to Franchise Rule Staff, 
Division of Marketing Practices, Federal Trade Commission, Washington, 
DC 20580.

FOR FURTHER INFORMATION CONTACT:
Steven Toporoff, Division of Marketing Practices, Room 238, Federal 
Trade Commission, Washington, D.C. 20580 (202) 326-3135.

SUPPLEMENTARY INFORMATION: The Commission's trade regulation rule 
entitled ``Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures'' (``Franchise Rule'' or 
``Rule'') (16 CFR Part 436) requires franchisors to provide pre-sale 
disclosures of material information to prospective franchisees. The 
form and content of the required disclosures is prescribed by 
Secs. 436.1(a)-(e) of the Rule.
    When the Rule was issued, the Commission authorized the use of an 
alternative disclosure format, known as the Uniform Franchise Offering 
Circular (``UFOC''), in lieu of the disclosures required by 
Secs. 436.1(a)-(e) of the Rule (43 FR 59,614, 59,722). The UFOC had 
been prepared by state franchise law administrators to enable 
franchisors to use a single document to comply with the differing pre-
sale disclosure requirements of the franchise registration and 
disclosure laws in their jurisdictions.
    The Commission's initial approval of the UFOC extended only to 
disclosures that complied with the UFOC Guidelines as adopted by the 
Midwest Securities Commissioners Association (``MSCA'') on September 2, 
1975 (43 FR 69,614, 59,722). The Commission subsequently granted a 
petition from the MSCA's successor, the North American Securities 
Administrators Association (``NASAA''), for approval of amendments to 
the UFOC Guidelines that NASAA had adopted on November 21, 1986 (52 FR 
22,686).
    In a request filed July 2, 1993, NASAA asked the Commission to 
approve new amendments to the UFOC Guidelines, adopted on April 25, 
1993 (Extra Edition, Bus. Fran. Guide (CCH), Rpt. No. 161 (May 25, 
1993)). The Commission approved the amendments to the UFOC on December 
30, 1993 (58 FR 69,224). The new amendments include significant changes 
and additions to the present Guidelines, most notably the requirement 
that UFOC disclosure documents use ``plain English.'' After analyzing 
the differences between the amended UFOC and the Commission's Rule, the 
Commission found that, viewed as a whole, the amendments to the UFOC 
provide prospective franchisees with protection equal to or greater 
than that provided by the Franchise Rule.
    In approving the amendments to the UFOC, the Commission authorized 
the use, as of January 1, 1994, of disclosures prepared in accordance 
with the amended UFOC Guidelines. At the same time, the Commission 
stated that it would revoke its prior authorization for preparation of 
disclosures in accordance with the 1986 UFOC Guidelines ``effective six 
months to the day after the date on which the last state requiring pre-
sale registration of a franchise adopts the amended UFOC Guidelines.'' 
The Commission added that ``UFOC disclosures required to be prepared, 
amended, revised, or filed on and after the revocation date by the Rule 
or state law must satisfy the requirements of the UFOC Guidelines as 
amended by NASAA on April 25, 1993, for use in compliance with the 
Franchise Rule.'' 58 FR at 69,225.
    On July 28, 1995, the State of New York became the final franchise 
registration state to adopt the amendments to the UFOC. Accordingly, 
the revocation date for the Commission's acceptance of disclosure 
documents prepared according to the 1986 UFOC Guidelines should be 
January 28, 1996. The Commission, however, adopts January 1, 1996, as 
the revocation date of the 1986 UFOC Guidelines. A January 1, 1996, 
revocation date creates a brightline that would comport with the 
practice of many franchisors who use a calendar fiscal year. Moreover, 
a January 1, 1996, revocation date would be easier for franchise 
regulators to administer. The Commission notes that if it adopted a 
January 28, 1996, revocation date, then some franchisors would be able 
to delay converting to the amended UFOC until January 1997. This would 
delay the phase-in period of the amended UFOC unnecessarily and would 
deny many prospective franchisees the benefit of the significant 
improvements set forth in the new UFOC format. Finally, the Commission 
notes that a January 1, 1996, revocation date likely would cause 
minimal harm to franchisors. Franchisors have been on notice since 
December 30, 1993, that the 

[[Page 51896]]
Commission would revoke acceptance of the 1986 UFOC Guidelines in the 
near future. Indeed, Section 265 of the amended UFOC Guidelines states 
NASAA's view that the amended UFOC should take effect ``no later than 
January 1, 1995.'' Although the Commission did not adopt the January 1, 
1995, due date set out in the amended UFOC Guidelines, franchisors were 
clearly on notice that the franchise registration states preferred an 
early conversion from the 1986 UFOC to the amended UFOC Guidelines.
    For these reasons, the Commission adopts January 1, 1996, as the 
revocation date for acceptance of disclosures prepared under the 1986 
UFOC Guidelines. UFOC disclosures required to be prepared, amended, 
revised, or filed on and after January 1, 1996, must satisfy the 
requirements of the 1993 UFOC Guidelines as adopted by NASAA on April 
25, 1993, and approved by the Commission on December 30, 1993 (58 FR 
69,224) for use in compliance with the Franchise Rule.

List of Subjects in 16 CFR Part 436

    Advertising, Business and industry, Franchising, Trade practices.

    Authority: 15 U.S.C. 42-58.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-24678 Filed 10-3-95; 8:45 am]
BILLING CODE 6750-01-M