Franchise Questions

How to Utilize Electronic Receipt Pages for Your FDD

1. Ensure your franchisee can authenticate his or her identity.

The purpose of the amended Rule’s Item 23 Receipt is to ensure a Franchisee has directly acknowledged their receipt and understanding of your disclosure documents. The amended Rule allows for an electronically signed receipt, provided it can be used to authenticate the franchisee’s identity. This could include electronic signatures, unique passwords, and security codes provided to the franchisee. Bottom line: make sure you can prove who signed the receipt.

2. Provide clear signing instructions.

No matter which method you prefer, you must provide your franchisee with clear instructions on how to sign, authenticate and return the receipt. In many cases, you may want the franchisee to utilize a different delivery system from returning the receipt than you used for providing the disclosure documents. For example, you may send the disclosure documents by email, but expect the receipt to be returned through a software built for authenticating electronic signatures. Regardless of what method you choose, you will want the franchisee to have a clear understanding of what is expected from them. Otherwise, you may end up in a situation where the signature is invalid, improperly authenticated or lost.

3. Eliminate the potential for misinformation.

Generally, the amended Rule prohibits the use of external links in disclosure documents because the FTC believes they could allow the franchisee to access materials that are providing false or misleading information. However, the FTC has said that external links can be used for obtaining electronic signatures of the receipt, provided that: 1) they can only be accessed by the potential franchisee; and 2) they don’t include any additional external links or content other than the information permitted by Item 23. Similarly, the FTC has indicated that icons within the disclosure documents allowing the franchisee to print the receipt page for signature are permitted as well. If you do use a link, it must be limited to that the only thing the franchisee could possibly access are the signature page and instructions. As a general rule, the FTC tends to frown on anything that has the potential to cause the franchisee to rely on anything other than the disclosure documents.

4. Make sure your franchisee reads (or is at least forced to open) your disclosure documents.

The FTC expects that franchisors present their documents in a way that does not allow a franchisee to access the receipt without access the disclosure documents. For example, an email containing a separate receipt document would not be allowed, because there is nothing the ensure that that franchisee accesses the disclosure documents before signing the receipt. So, if you plan on sending an electronic receipt, you better make sure that it can’t be accessed without also accessing your disclosure documents.