Proposed U.F.O.C. changes bode well for franchisors - Uniform Franchise Offering Circular - column

Nation's Restaurant News, Feb 27, 1984 by Ken Rankin

After years of haggling among themselves, state enforcement officials responsible for policing franchise registration and disclosure requirements have reached agreement on a series of "dramatic" changes in the so-called "Uniform Franchise Offering Circular."

The most significant aspect of the "U.F.O.C." accord reached by the North American Securities Administrators Association, according to franchise legal experts, will involve relief for fast-food chains and other franchisors from overly restrictive "earnings claims" rules.

The current requirements, which were adopted during the 1970's to protect investors from overblown franchise profit projections, are so burdensome that many chains have stopped making any earnings estimates or projections for prospective franchisees.

As a result, rather than protecting franchisees, the U.F.O.C. standards cut down on the amount of useful information available to investors comparison shopping among franchisors.

Although it took yeas for the state regulatory officials to hammer out their compromise solution, a more reasonable set of earnings claim rules finally appears at hand. Or does it?

According to International Franchise Association Special Counsel Carl Zwisler III, a new roadblock to more rational franchise regulation has surfaced in Washington which will delay implementation of new earnings claim standards once again.

Problem is that the Federal Trade Commission's national franchise disclosure rule permits franchisors to pass information on to prospective franchisees via the original U.F.O.C., but does not allow for any modifications in that offering circular.

Of course, the FTC's rule can (and probably will) be changed to mesh with the approach adopted by the state regulators. But according to Zwisler, that won't happen until the commission completes its long-promised review of tis franchise regulations.

And given the snail's pace of activity at FTC (and the apparent low priority assigned to franchise enforcement by agency topsiders), there's no telling whether that project will take months or years.

Originally, FTC had planned to finish its review of the Federal franchise disclosure rule last year. But during I.F.A.'s annual convention in Acapulco earlier this month Zwisler told the nation's fast-food chain execs that commission officials are only now starting to work on their "impact analysis" of the franchise rule.

In addition, FTC is also planning a separate "impact" study to measure the cost of franchisor compliance with the rule, and that analysis is likely to stretch on until late 1984.

The Food and Drug Administration's track record in policing Federal food safety laws improved measurably last year, but Reagan Administration critics contend that F.D.A.'s overall level of enforcement remains well below that of previous Administrations.

The latest F.D.A. figures supplied to Nation's Restaurant News show a sharp, 155% increase in the number of court injunctions obtained to halt the distribution of hazardous foods and other regulated products.

But F.D.A. inspections of manufacturing and distribution facilities declined by 4% last year, and the overall level of Federal food and drug enforcement remains substantially below the 1977-80 annual average.

Public interest groups have repeatedly attacked Reagan F.D.A. officials for cutting back on food enforcement efforts, and despite the increase in agency activity last year, that criticism is likely to intensify during the election campaign season.

For the record, a comparison of F.D.A. enforcement actions during fiscal year 1983 and the pre-Reagan FY'77-'80 annual average indicates that prosecutions of Federal food and drug law violators are down 8%; injunctions are off 32%; product seizures are down 49%; recall actions have fallen 12%; F.D.A. "regulatory letters" warning manufacturers of possible violations are down 48%, and inspections are off by 4%.