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Franchise Rule Information Collection Activities; Proposed Collection; Comment Request

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Federal Trade Commission (“Commission” or “FTC”).




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.


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


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

Comments filed in electronic form should be submitted by following the instructions on the web-based form at: (​ftc-franchiserule.) To ensure that the Commission considers an electronic comment, you must file it on the web-based form at (​ftc-franchiserule.) You may also visit to read this notice, and may file an electronic comment through that website. The Commission will consider all comments that 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 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 (​ftc/​privacy.shtm).

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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.

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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 Start Printed Page 40581through 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.

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

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

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

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 Start Printed Page 40582websites 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)).

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William Blumenthal

General Counsel

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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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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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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.

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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.

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6. 16 CFR 436.8(a)(5). This exemption was added by the amended Rule.

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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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[FR Doc. E8-16092 Filed 7-15-08: 8:45 am]

[BILLING CODE 6750-01-S]