Franchise Advertising in the Philippines: Legal Limits Under the Consumer Act

Franchise advertising in the Philippines is primarily governed by the Consumer Act of the Philippines (Republic Act No. 7394), which declares it State policy to protect consumers against deceptive, unfair and unconscionable sales acts and practices. The law defines advertising broadly as the business of making available to the public, through any form of mass media, facts or information about the attributes, features, quality or availability of consumer products, services or credit. Because a franchise offer is a commercial solicitation, promotional materials must be truthful, clear, and must not mislead prospective franchisees.

What counts as advertising under the Consumer Act

The law defines "advertising" as the business of conceptualizing, presenting or making available to the public, through any form of mass media, fact, data or information about the attributes, features, quality or availability of consumer products, services or credit. "Mass media" covers television, radio, magazines, cinema, billboards, posters, streamers, handbills, leaflets, mails and similar means.

An "advertiser" is the client or sponsor on whose account the advertising is prepared, conceptualized, presented or disseminated. A franchisor that commissions or runs a franchise promo is therefore an advertiser and is accountable for the content.

The core prohibition: no deceptive or unfair sales acts

Article 2 of the Consumer Act states that one objective of State policy is protection against deceptive, unfair and unconscionable sales acts and practices. Article 3 instructs that the best interest of the consumer shall be considered in interpreting and implementing the law. For franchise advertising, this means earnings claims, territory promises, and support commitments must be accurate and not create a false impression.

A franchise opportunity is a "consumer transaction" under the law's definition, which includes a solicitation or promotion by a supplier with respect to a disposition of services or a grant of credit. The term "supplier" includes a person who, in the course of business, solicits, offers, advertises, or promotes the disposition or supply of a consumer product, whether or not privity of contract exists with the consumer.

Pyramid and referral schemes are treated differently

The Consumer Act defines "chain distribution plans" or "pyramid sales schemes" as sales devices where a person, upon making an investment, is granted the right to recruit for profit additional persons who will also be granted such right upon similar investments — where profits are derived primarily from recruitment rather than from the sale of consumer products, services and credit. The limitation on the number of participants does not change the nature of the plan.

"Referral selling" is separately defined as a sales device where the buyer is induced to acquire goods or services by representing that he will receive a rebate, commission or other benefit in return for submitting names of potential customers, if receipt of that benefit depends on an event occurring after the sale.

Franchise advertising should therefore avoid framing recruitment payments or referral rewards as the primary path to profit.

Practical compliance points for franchisors

• Describe the business honestly. Do not overstate earnings, market demand, or the level of training and support provided.
• Disclose material conditions. If a benefit depends on a future event, say so clearly rather than implying it is guaranteed.
• Avoid recruitment-driven messaging. Promotions that emphasize earning from recruiting other franchisees rather than from selling products or services risk being characterized as a pyramid or referral scheme.
• Keep records. Because an advertiser is the sponsor of the advertisement, the franchisor should retain copies of promotional materials and the factual basis for claims made.

Frequently asked questions

Is franchise advertising regulated in the Philippines? Yes. The Consumer Act of the Philippines regulates advertising of consumer products, services and credit, and prohibits deceptive, unfair and unconscionable sales acts and practices.

Can a franchisor advertise projected earnings? Any earnings or benefit claim must be truthful and not misleading. The Consumer Act protects consumers against deceptive sales acts, so projections must be accurate and not create false expectations.

What is a pyramid sales scheme under Philippine law? It is a sales device where a person invests and is granted the right to recruit others for profit, with profits derived primarily from recruitment rather than from the sale of consumer products, services and credit.

Practical takeaways

• Franchise advertising is covered by the Consumer Act of the Philippines (Republic Act No. 7394).
• Deceptive, unfair and unconscionable sales acts and practices are prohibited.
• Advertising through any mass media — print, broadcast, billboards, leaflets, mail — is covered.
• Pyramid sales schemes and referral selling are specifically defined and restricted.
• Franchisors, as advertisers or suppliers, are accountable for the accuracy of promotional claims.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 7394 - THE CONSUMER ACT OF THE PHILIPPINES

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.