Two bills were introduced in the US Congress last week that would significantly impact the franchise relationship as well as the ability to obtain financing from the SBA in order to acquire a franchise. The first bill, The Fair Franchise Act (H.R. 3196), addresses some of the same issues covered by many state relationship laws such as non-renewal, transfer of franchise units and termination. The bill would prohibit mandatory arbitration and requires the franchisor to act in “good faith.”
The second bill, the SBA Franchise Loan Transparency Act (H.R. 3195) would require the Franchisor to provide specific financial information to prospective franchisees in order to obtain SBA financing. The thinking behind H.R. 3195 is that by providing prospective franchisees with additional financial information regarding a franchise system, the prospective franchisee will be able to make a better, well-informed decision regarding the purchase of a franchise.
While the first bill is a re-tread of many state relationship laws, the second bill, H.R.3195, would appear to add significant procedural requirements to an already heavily regulated process in order to obtain SBA financing. The International Franchise Association has already voiced its opposition to both bills while the Coalition of Franchisee Associations praised the Fair Franchise Act. I will monitor these bills as they move through the legislative process.