Most terms of a recent settlement between California and YTB become effective on Monday, and company officials have pledged that YTB's operations will be in "full compliance" nationwide.
The multilevel marketing travel company aims to make the new ground rules clear to sales reps who recruit other sales reps and peddle websites to those wishing to sell travel.
YTB has to update some sales tools, and is required to make available by June 1 a free demo version of the YTB travel website to be used for recruitment purposes.
Nevertheless, the biggest challenge will be managing what YTB's recruiters, who are not company employees, say and do as they solicit on YTB’s behalf. Lloyd Tomer, YTB International’s chairman, said as much in acknowledging the issues that attracted California’s attention.
He said that at recruitment sessions and in all materials, there always has been a "disclaimer" saying that there are two business opportunities: one for sales reps at no entry fee and one for referring travel agents at the initial cost of $500 for a website.
"What would happen is sometimes, in the excitement, our reps made it sound as if these were one and the same, and that was California’s heartburn," Tomer said. "It looked as if people were paying to sell [the websites]," he said.
Under the California settlement, marketing of the recruiting and travel opportunities must be "strictly separate."
"We’re calling this YTB 2.0, and we have put out a series of emails [to sales reps] describing what YTB 2.0 will look like," said Scott Tomer, YTB's co-CEO.
To ensure consistency for the message, he said, the sales force will be authorized to use only websites produced by YTB. In addition, YTB has created a category of participants, called associates, who register for the chance to earn a finder’s fee when they refer a prospect to a salesperson if the prospect buys a website. But associates won’t sell.
"We have come to the realization that many of the misconceptions about YTB occur when new, excited and untrained people attempt to explain our business to others," Scott Tomer said. "That’s one of the reasons we are insisting our associates not participate in the sales process." He said some might eventually become sales reps.
The free demo site, which Scott Tomer called a "test drive" of the travel site a prospect might purchase, will be ready on Monday, as required by the California settlement. He said a separate site would describe the travel business opportunity to those in the new associate category, so they understand what they are suggesting to others.
The California deal, filed in state courts as a stipulated judgment and permanent injunction, also states that 60% of each recruiter’s sales of websites must be to people who are not also YTB recruiters. YTB is required to reduce the income of recruiters who fail to meet the threshold.
YTB has until mid-June to apply to be a franchise company in California.
The state imposed $1 million in penalties and fees: $400,000 in civil penalties, $475,000 for attorneys’ fees and costs and $125,000 for restitution to California residents.
YTB has paid $250,000 so far, as required, and the remaining funds are due in $250,000 installments on June 30, Sept. 30 and Dec. 30. The state will refund $500 to each California consumer who filed a complaint with the attorney general’s office by April 30 regarding YTB’s business practices.
June 1 might be a turning point of another sort for YTB. On Monday, the U.S. District Court for the Southern District of Illinois is scheduled to hear YTB’s motion to dismiss allegations brought by a number of former RTAs in a class action.
The RTAs charge that YTB operates an illegal pyramid scheme and engages in deceptive business practices.
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