[Federal Register Volume 73, Number 136 (Tuesday, July 15, 2008)]
[Notices]
[Pages 40580-40582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16092]


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FEDERAL TRADE COMMISSION


Franchise Rule Information Collection Activities; Proposed 
Collection; Comment Request

AGENCY: Federal Trade Commission (``Commission'' or ``FTC'').

ACTION: Notice.

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SUMMARY: The information collection requirements described below will 
be submitted to the Office of Management and Budget (``OMB'') for 
review, as required by the Paperwork Reduction Act (``PRA''). The FTC 
is seeking public comments on its proposal to extend through October 
31, 2011, the current PRA clearance for information collection 
requirements contained in its Trade Regulation Rule on Disclosure 
Requirements and Prohibitions Concerning Franchising (``Franchise 
Rule''). That clearance expires on October 31, 2008.

DATES: Comments must be submitted on or before September 15, 2008.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``16 CFR Part 436, Paperwork Comment, FTC File 
No. R511003'' to facilitate the organization of comments. A comment 
filed in paper form should include this reference both in the text and 
on the envelope and should be mailed or delivered to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-135 
(Annex J), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. 
Because paper mail in the Washington area and at the FTC is subject to 
delay, please consider submitting your comments in electronic form, as 
prescribed below. If, however, the comment contains any material for 
which confidential treatment is requested, the comment must be filed in 
paper form, and the first page of the document must be clearly labeled 
``Confidential.''\1\
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    Comments filed in electronic form should be submitted by following 
the instructions on the web-based form at: (https://secure.commentworks.com/ftc-franchiserule.) To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at (https://secure.commentworks.com/ftc-franchiserule.) 
You may also visit http://www.regulations.gov to read this notice, and 
may file an electronic comment through that website. The Commission 
will consider all comments that www.regulations.gov forwards to it.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments will be 
considered by the Commission and will be available to the public on the 
FTC website, to the extent practicable, at www.ftc.gov. As a matter of 
discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy at (http://www.ftc.gov/ftc/privacy.shtm).

FOR FURTHER INFORMATION CONTACT: Requests for additional information or 
copies of the proposed information requirements for the Franchise Rule 
should be addressed to Craig Tregillus, Staff Attorney, Division of 
Marketing Practices, Bureau of Consumer Protection, Federal Trade 
Commission, Room H-238, 600 Pennsylvania Ave., N.W., Washington, D.C. 
20580, (202) 326-2970.

SUPPLEMENTARY INFORMATION: Under the PRA, 44 U.S.C. 3501-3521, federal 
agencies must obtain approval from OMB for each collection of 
information they conduct or sponsor. ``Collection of information'' 
means agency requests or requirements that members of the public submit 
reports, keep records, or provide information to a third party. 44 
U.S.C. 3502(3); 5 CFR 1320.3(c). As required by section 3506(c)(2)(A) 
of the PRA, the FTC is providing this opportunity for public comment 
before requesting that OMB extend the existing paperwork clearance for 
the Franchise Rule, 16 CFR Part 436 (OMB Control Number 3084-0107).
    The FTC invites comments on: (1) whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (2) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) ways 
to minimize the burden of the collection of information on those who 
are to respond, including

[[Page 40581]]

through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology, e.g., permitting electronic submission of responses.
    The Franchise Rule ensures that consumers who are considering a 
franchise investment have access to the material information they need 
to make an informed investment decision provided in a format that 
facilitates comparisons of different franchise offerings. The Rule 
requires that franchisors disclose this information to consumers and 
maintain records to facilitate enforcement of the Rule. Revisions to 
the Rule promulgated on March 30, 2007,\2\ which took final effect on 
July 1, 2008, after a one-year phase-in, largely merged the Rule's 
disclosure requirements with the Uniform Franchise Offering Circular 
(``UFOC'') disclosure format accepted by 15 states that have franchise 
registration and disclosure laws. This should significantly minimize 
any compliance burden beyond what is now required by state law.
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    \2\ 72 FR 15444 et seq.
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    As amended, the Rule requires franchisors to furnish to prospective 
purchasers a disclosure document that provides information relating to 
the franchisor, its business, the nature of the proposed franchise, and 
any representations by the franchisor about financial performance 
regarding actual or potential sales, income, or profits made to a 
prospective franchise purchaser. The franchisor must preserve 
materially different copies of its disclosures and franchise 
agreements, as well as information that forms a reasonable basis for 
any financial performance representation it elects to make. These 
requirements are subject to the PRA, and for which the Commission seeks 
to extend existing clearance.\3\
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    \3\ The current clearance under OMB Control Number 3084-0107 
covers the disclosure and recordkeeping requirements of the original 
Franchise Rule, 16 CFR Part 436, which applied both to the sale of 
franchises and of business opportunity ventures. The disclosure and 
recordkeeping requirements applicable to business opportunity 
ventures are now separately set forth in 16 CFR Part 437, and are 
covered under recently assigned OMB Control Number 3084-0142. The 
portion of the prior clearance applicable to business format 
franchisors under Part 436 retains the pre-existing OMB Control 
Number 3084-0107.
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Estimated annual hours burden: 16,750 hours

    Based on a review of trade publications and information from state 
regulatory authorities, staff believes that, on average, from year to 
year, there are approximately 2,500 sellers of franchises covered by 
the Rule, with perhaps about 10% of that total reflecting an equal 
amount of new and departing business entrants.\4\ Staff's burden hour 
estimate reflects the incremental burden that part 436 may impose 
beyond the information and recordkeeping requirements imposed by state 
law and/or followed by franchisors who have been using the UFOC 
disclosure format nationwide.\5\ This estimate likely overstates the 
actual incremental burden because some franchisors, for various 
reasons, may not be covered by the Rule (e.g., they sell only 
franchises that qualify for the Rule's large franchise investment 
exemption of at least $1 million).\6\
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    \4\ This is one-half of the number used in the 2005 clearance 
request, when both franchises and busienss opportunities were 
covered by the Rule, and reflects the fact that business 
opportunities are now separately covered by Part 437 and a separate 
OMB clearance. This number appears to be consistent with the number 
of business format franchise offerings registered in compliance with 
state franchise laws, and listed in franchise directories.
    \5\ Staff estimates that about 95 percent of all franchisors use 
the UFOC format because the original Franchise Rule authorized use 
of the UFOC in lieu of the Rule disclosure format to satisfy the 
Rule's disclosure requirements in order to reduce compliance 
burdens.
    \6\ 16 CFR 436.8(a)(5). This exemption was added by the amended 
Rule.
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    For October 31, 2008 to October 31, 2009, the first twelve months 
of prospective 3-year renewed PRA clearance, staff estimates that the 
average annual disclosure burden to update existing disclosure 
documents will be three hours each year for the 2,250 established 
franchisors, or 6,750 hours (3 x 2,250), and 30 hours each year for the 
250 or so new entrant franchisors to prepare their initial disclosure 
documents, or 7,500 hours (30 x 250). These estimates for the amended 
Rule are based on staff's prior estimates for the original Rule, and 
further adopt the analysis of the 2005 clearance request and the 
Statement of Basis and Purpose (``SBP'') for the amended Rule.\7\
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    \7\ 70 FR 28937, 28940 (May 19, 2005); 70 FR 51817, 51819 (Aug. 
31, 2005) (``2005 Notices''); 72 FR 15444, 15542 (Mar. 30, 2007). 
Although the 2005 Notices and the amended Rule's SBP assumed that 
additional time (cumulatively, 2,750 hours) would be required to 
prepare disclosures during the transition to compliance with the 
amended Rule, the one-year transition period ended on July 1, 2008, 
when the amended Rule took full effect.
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    As discussed in the 2005 Notices and the SBP, as under the original 
Rule, covered franchisors also may need to maintain additional 
documentation for the sale of franchises in non-registration states, 
which could take up to an additional hour of recordkeeping per year. 
This yields an additional cumulative total of 2,500 hours per year for 
covered franchisors (1 hour x 2,500 franchisors).
    Part 436 of the amended Rule would also increase franchisors' 
recordkeeping obligations. Specifically, a franchisor would be required 
to retain copies of receipts for disclosure documents, as well as 
materially different versions of its disclosure documents. Such 
recordkeeping requirements, however, are consistent with, or less 
burdensome, than those imposed by the states.
    Thus, staff estimates the average hours burden for new and 
established franchisors during the three-year clearance period ahead 
would be 16,750 ((30 hours of annual disclosure burden x 250 new 
franchisors = 7,500 hours) + (3 hours of average annual disclosure 
burden x 2,250 established franchisors = 6,750 hours) + (1 hour of 
annual recordkeeping burden x 2,500 franchisors = 2,500 hours)).

Estimated annual labor cost burden for part 436: $3,595,000

    Labor costs are derived by applying appropriate hourly cost figures 
to the burden hours described above. The hourly rates used below are 
estimated averages.
    As stated in the 2005 Notices, staff believes that an attorney will 
prepare the disclosure document, and at an estimated $250 per hour. 
Accordingly, staff estimates that 250 new franchisors will each 
annually incur $7,500 in labor costs (30 hours x $250 per hour) and 
2,250 established franchisors will each incur $750, annually, in labor 
costs (3 hours x $250 per hour).
    Further, staff anticipates that recordkeeping under part 436 will 
be performed by clerical staff at approximately $13 per hour. Thus, 
2,500 hours of recordkeeping burden per year for all covered 
franchisors will amount to a total annual labor cost of $32,500.
    Cumulatively, then, total estimated labor costs under part 436 is 
$3,595,000 (($7,500 attorney costs x 250 new franchisors = $1,875,000) 
+ ($750 attorney costs x 2,250 established franchisors =$1,687,500) + 
($13 clerical costs x 2,500 franchisors = $32,500)).

Estimated non-labor costs for part 436: $8,000,000

    As an initial matter, in developing cost estimates, Commission 
staff consulted with practitioners who prepare disclosure documents for 
a cross-section of franchise systems. Accordingly, the Commission 
believes that its cost estimates are representative of the costs 
incurred by franchise systems generally. In addition, many franchisors 
establish and maintain

[[Page 40582]]

websites for ordinary business purposes, including advertising their 
goods or services and to facilitate communication with the public. 
Accordingly, any costs franchisors would incur specifically as a result 
of electronic disclosure under part 436 appear to be minimal.
    As set forth in the 2005 Notices, staff estimates that the non-
labor burden incurred by franchisors under part 436 will differ based 
on the length of the disclosure document and the number of disclosure 
documents produced. Staff estimates that 2,000 franchisors (80% of 
total franchisors covered by the Rule) will print and mail 100 
disclosure documents at $35 each. Thus, these franchisors will each 
incur $3,500 in printing and mailing costs. Staff estimates that the 
remaining 20% of covered franchisors (500) will transmit 50% of their 
100 disclosure documents electronically, at $5 per electronic 
disclosure. Thus, these franchisors will each incur $2,000 in 
distribution costs (($250 for electronic disclosure [$5 for electronic 
disclosure x 50 disclosure documents]) + ($1,750 for printing and 
mailing [$35 for printing and mailing x 50 disclosure documents])).
    Accordingly, the cumulative annual non-labor costs for part 436 of 
the amended Rule is approximately $8,000,000 (($3,500 printing and 
mailing costs x 2,000 franchisors = $7,000,000) + ($250 electronic 
distribution costs + $1,750 printing and mailing costs) x 500 
franchisors = $1,000,000)).

William Blumenthal
General Counsel
[FR Doc. E8-16092 Filed 7-15-08: 8:45 am]
[BILLING CODE 6750-01-S]