Te patchwork of federal and state franchise disclosure laws and other applicable laws impose penalties for violations in several genres: Federal civil and criminal penalties pursued by the Federal Trade Commission; state civil and criminal penalties pursued by state regulatory authorities under state franchise disclosure laws; and state civil actions brought directly by aggrieved franchisees under state franchise disclosure laws and other state statutes or causes of action that courts have ruled are applicable to franchise transactions.
Federal Penalties: The authority for the FTC’s Franchise Rule1 under Section 5 of the Federal Trade Commission Act mandates that the commission prevent unfair and deceptive acts and practices affecting commerce. But Congress has not provided a federal private right of action to aggrieved franchisees who believe they are the victims of disclosure violations. Redress under the FTC Act and Franchise Rule must proceed through an enforcement proceeding brought by the commission. A private right of action was created by a federal court in 1947 for violations of federal securities disclosure rules under the Securities Exchange Act of 1934; no federal court has seen fit to do the same for the FTC Franchise Rule.