Multi Level Marketing Scams – Is Prepaid Legal a Scam?

In this article we examine one of the most popular companies in the network marketing industry, Prepaid Legal Services.  Many people are currently asking if Prepaid Legal is a scam, just based on the latest Google search results, so we took interest and wanted to research the issue.  We’ll examine the company and what is behind so many questions about its legitimacy.

The company is part of the network marketing industry, which many automatically equate with pyramid schemes such as the one made famous by Bernie Madoff.  But the FTC ruled in 1979 that network marketing was a completely legal business model as long as payments to distributors were made based on product sales vs. recruiting bonuses.  While some companies may tread this line closely, Prepaid Legal doesn’t appear to be in this category at all, although one online report equates its model to an endless chain scheme, that is soon apt to collapse.

The company was founded in 1972 as the Sportsman’s Motor Club and currently underwrites and markets pre-paid legal services plans through a network of more than 50 independent law firms across the U.S. and Canada.  Pre-Paid Legal began utilizing network marketing in 1983. The company went public on the NASDAQ in 1984, and two years later moved to the American Stock Exchange.

Some former distributors, making a different type of “scam” claim, point out that the company’s recruiting video may not give a true picture of the efforts needed to be successful.  For instance, one points out that their product has a 52% cancellation rate in year one, 65% in year two, 72% in year three, etc.  Selling 100 memberships today, will retain less than 10 ( according the company’s quarterly reports) in seven years.  Speculation is that initial purchasers may have a particular legal issue at the time of purchase, such as a traffic ticket or need a will prepared, but don’t have any actual continuing need for legal services.

Also, according to company SEC filings, there is a high failure rate of associates.  According to their published figure, 97% fail to sell policies (only 3% made 10 sales) of the 450,000.  In addition, 93% of the 455,000 associates never make ONE (1) sale.  One reviewer also reports that there may be an ongoing effort to prop-up the stock with a company buy-back.  If these facts are accurate, perhaps this company may be in danger of its own survival, and in fact was reportedly  under SEC and FTC investigation,  although  FTC’s investigation recently closed.

There are many enthusiastic, happy customers but also  many questions about this company, which may explain why current Google search results are showing high interest in the term “prepaid legal scam” at this time.  We would suggest that anyone considering joining any company first do some due diligence and make their own conclusions.  We can’t  advise any individual whether or not to join.  This decision should only be made according to and after your own due diligence.  But regardless of the truth behind these facts and/or rumors  there are certainly strong opinions on either side of the question if Prepaid Legal is a scam or not.