The American Association of Franchisees and Dealers (AAFD) acts as a consumer protection organization that exposes the

unethical Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and wrong behavior".''Internet Encyclopedia of Philosophy'' The field of ethics, along with aesthetics, concerns ma ...

practices that exist in the franchising community, and to educate the public regarding fair franchise rules, and quality franchise opportunities.

History

The American Association of Franchisees and Dealers (AAFD) came into existence because United States laws which purport to regulate franchising effectively legalize abusive franchising practices, rather than restrict

franchise fraud Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme. Franchise fraud in U.S. federal law The FBI website states: :"pyramid schemes — also referred to as franchise fraud or chain referral scheme ...

. As long as the franchisor discloses the details of its practices, the unethical practices are enforceable. The AAFD seeks to provide a counterbalance to franchisee-unfriendly franchising regulations and franchise misrepresentations in the franchising industry by providing resources to franchise associations, franchisees, franchise owners and prospective buyers. The AAFD is a national

non-profit A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

trade association A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partic ...

dedicated to defining and promoting best franchise practices.

Fair franchising standards

The AAFD established balanced standards of fair franchising practices for the franchising community so that franchise buyers would have objective criteria by which to judge a franchise opportunity.

Franchise regulations

Franchise fraud Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme. Franchise fraud in U.S. federal law The FBI website states: :"pyramid schemes — also referred to as franchise fraud or chain referral scheme ...

is defined by the United States

Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice, ...

as a pyramid scheme. The success of the franchising format of small business ownership has led to a significant imbalance in the relative bargaining power of franchisors and franchisees. Today, in the

franchise agreement A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level. Prior to a franchisee signing a contract, the US Federal Trade Commission regulates ...

contract the modern franchise frequently provides no exclusive territory, restricts the activities of the franchisee as an independent businessman, provides that the franchisor controls the franchise location and restricts the franchisee from continuing in business upon

franchise termination Franchise termination is termination of a franchise business license by a franchisor or a franchisee. The United States Federal Trade Commission administrates oversight of preinvestment franchise disclosures via The Franchise Rule. Franchise ...

. The modern franchisee may be merely a license to operate the business on behalf of the franchisor for the term of the franchise. Some franchises agreements specifically state that the franchisee owns no equity in the business, and that the business really belongs to the franchisor. Most modern franchise agreements promise very few required services and little support from the franchisor.

Franchise Rule

In the United States, franchising is regulated by a complex web consisting of the Federal Trade Commission ''

Franchise Rule The Franchise Rule defines acts or practices that are unfair or deceptive in the franchise industry in the United States. The Franchise Rule is published by the Federal Trade Commission. The Franchise Rule seeks to facilitate informed decisions a ...

'', state laws, and industry guidelines. The most recent version of the Franchise Rule was in 2007, is printed in the Federal Register / Vol. 72, No. 61 / Friday, March 30, 2007 / Rules and Regulations, pages 15544 to 15575. (page 1 to 133 of this cited pdf file) The Franchise Rule specifies what information a franchisor must disclose to a prospective ''franchise business'' as a ''franchise opportunity''. Franchisors that practice franchise fraud will attempt to pressure a franchisee leaving the franchise system sign a non-disclosure agreement,

confidentiality agreement A non-disclosure agreement (NDA) is a legal contract or part of a contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish ...

, or a

gag order A gag order (also known as a gagging order or suppression order) is an order, typically a legal order by a court or government, restricting information or comment from being made public or passed onto any unauthorized third party. The phrase may ...

. The gag order will help prevent prospective new franchisees learning important details about the churning franchise.

References

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External links