The proposed American Franchise Act of 2026 would be the most significant shift in federal franchise law since the FTC Franchise Rule took effect under 16 CFR Parts 436-437. If it passes, franchisors would face new obligations around good faith dealing, termination rights, renewal, and encroachment protections. If you own or are considering buying a franchise, here is what you need to understand right now, before this bill either becomes law or quietly dies in committee.

This post is informational and does not constitute legal advice. For guidance specific to your franchise agreement, speak with a licensed attorney.

What Is the American Franchise Act?

The American Franchise Act is proposed federal legislation aimed at establishing baseline standards for how franchisors must treat franchisees throughout the entire franchise relationship. This is a major departure from the current federal framework.

Right now, the FTC Franchise Rule (16 CFR Parts 436-437) only governs pre-sale disclosure. It requires franchisors to deliver a Franchise Disclosure Document (FDD) at least 14 calendar days before you sign anything or pay any money. What happens after that signature is largely governed by the franchise agreement itself, which franchisors draft in their own favor.

The American Franchise Act would change that by reaching into the ongoing relationship and setting federal minimums that franchise agreements could not override.

What Would the Act Actually Change?

Four core areas would see meaningful reform under the proposed legislation.

Good Faith and Fair Dealing. Currently, most states apply a general implied duty of good faith to contracts. But in franchise relationships, courts have interpreted that duty narrowly. The Act would codify an explicit good faith dealing standard, making it harder for franchisors to exercise contract rights in bad faith, such as auditing franchisees selectively to build a termination case.

Termination Restrictions. Today, many franchise agreements allow termination for relatively minor, uncured defaults, sometimes with notice periods as short as 30 days. The Act would require “good cause” for termination and mandate reasonable cure periods. This matters enormously when a single missed royalty payment or a technical operations manual violation can currently end a franchise representing hundreds of thousands of dollars in investment.

Renewal Rights. Franchisors are not currently required by federal law to renew a franchise agreement at the end of its term, even if the franchisee performed well for 10 or 20 years. The Act would create a presumptive right to renewal under commercially reasonable terms, with narrow exceptions. At Lopes Law LLC, we regularly counsel franchisees who are stunned to learn their franchisor can simply decline to renew after a decade of operation.

Encroachment Protections. Encroachment happens when a franchisor opens a new company-owned or franchised location close enough to hurt an existing franchisee’s sales. Many FDDs limit territorial protection or exclude digital sales channels entirely. The proposed Act would create federal minimums protecting franchisees from encroachment on their customer base.

Where Does the Bill Stand in Congress?

As of April 2026, the American Franchise Act has been introduced in both chambers but has not moved out of committee. The bill faces significant headwinds from well-funded opposition and a divided Congress.

The International Franchise Association (IFA), which represents primarily franchisors, has lobbied aggressively against the legislation. The IFA argues the bill would disrupt the franchise model and create legal uncertainty for the 800,000-plus franchise establishments currently operating in the United States.

On the other side, franchisee advocacy groups including the American Association of Franchisees and Dealers (AAFD) support the legislation. The NASAA (North American Securities Administrators Association), which coordinates franchise registration requirements across states, has taken a more neutral monitoring stance while tracking the bill’s potential impact on state-level disclosure regimes.

The bill could pass, fail, or be significantly amended before any vote. At Lopes Law LLC, we are tracking this legislation daily and will update this page as developments occur.

Who Would Benefit Most From This Legislation?

Franchisees in systems where the franchisor exercises heavy-handed control would benefit most. This includes franchisees facing:

• Termination threats over technical defaults rather than genuine performance failures
• Forced system-wide renovations at the franchisee’s expense, often tied to renewal conditions
• New corporate stores or digital channels eating into their territory
• Non-renewal after years of successful operation, with no explanation or compensation

Smaller franchise systems with fewer than 50 units might see less practical change, since the real-world enforcement of even current contract terms is often negotiated informally. For franchisees in large national systems, the Act’s protections would matter far more.

What Does This Mean for the FDD and Item 22?

Item 22 of the FDD lists all franchise agreement exhibits, including the actual franchise agreement. If the American Franchise Act passes, franchise agreements would need to be updated to comply with federal minimums. That means franchisors would need to revise their FDDs, which in registration states requires regulatory approval.

During any transition period, there could be significant uncertainty about which version of an agreement controls: the signed contract or the new federal minimum. Courts would almost certainly need to interpret this over several years of litigation.

The FTC Franchise Rule itself (16 CFR Parts 436-437) would also likely require amendment to harmonize with the Act, potentially changing what must be disclosed in Items 12 (territorial rights) and 17 (renewal, termination, transfer, and dispute resolution).

What Should Franchisees Do Right Now?

Do not wait for Congress to act. Whether the American Franchise Act passes or not, your rights today are defined by your current franchise agreement. Here is a practical three-step plan:

Step 1: Get your agreement reviewed. If you have not had a franchise attorney review your agreement in the last two years, do it now. Pay particular attention to your termination provisions, renewal terms, and territorial protections. A review at lopeslawllc.com/franchise-agreement-review/ typically costs $1,500 to $3,000 and can identify leverage points you did not know you had.

Step 2: Document your performance. In a world where termination-for-cause protection matters, documentation is everything. Keep detailed records of royalty payments, operations manual compliance, and all communications with your franchisor. If legislation does pass with cause-based termination standards, your records will either protect you or expose you.

Step 3: Know your renewal date. If your agreement comes up for renewal within the next three years, the timing of any new legislation matters a great deal. An attorney can help you understand whether to seek early renewal under current terms or wait to see if the law changes.

How Would the Act Interact With State Franchise Laws?

Fourteen states currently require franchise registration before offers or sales can be made (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin). Another two states, Oregon and Texas, require filing rather than full registration.

Several of these states, particularly California and Minnesota, already have relationship laws offering franchisee protections that go beyond anything currently in federal law. The American Franchise Act would likely create a federal floor, not a federal ceiling. States with stronger existing protections would probably retain them.

This means that for franchisees in states like California, the Act might provide less incremental benefit than for franchisees in states with no relationship laws at all.

IFA Opposition vs. Franchisee Advocacy: The Real Debate

The debate over the American Franchise Act is fundamentally a debate about power in the franchise relationship. Franchisors argue they need flexibility to maintain system standards and protect their brand. Franchisees argue that flexibility has become a tool for extracting value and eliminating franchisees who push back.

The IFA points to the economic contribution of franchise systems: over $860 billion in economic output, more than 8.7 million jobs, and a model that has created enormous middle-class wealth. They argue that regulating the relationship too heavily will discourage franchising and hurt the very franchisees the bill aims to protect.

Franchisee advocates counter that the current FDD-only framework leaves franchisees legally exposed once they have committed their life savings to a system. The AAFD has documented cases where franchisees with strong performance records were terminated or non-renewed through technical agreement terms, with no federal recourse available.

Both sides have valid points. The policy question is where to draw the line. At Lopes Law LLC, we represent franchisees, which means we see the gap between contractual rights and economic reality every day.

Sources: FTC Franchise Rule, 16 CFR Parts 436-437 (ftc.gov); International Franchise Association (franchise.org); American Association of Franchisees and Dealers (aafd.org); NASAA (nasaa.org). This page is updated as legislative developments occur.