[Senate Hearing 105-820]
[From the U.S. Government Publishing Office]
S. Hrg. 105-820
USE OF MASS MAIL TO DEFRAUD CONSUMERS
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HEARING
before the
SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL
SERVICES
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 1, 1998
__________
Printed for the use of the Committee on Governmental Affairs
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U.S. GOVERNMENT PRINTING OFFICE
51-102 CC WASHINGTON : 1999
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
Hannah S. Sistare, Staff Director and Counsel
Leonard Weiss, Minority Staff Director
Lynn L. Baker, Chief Clerk
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SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL
SERVICES
THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
DON NICKLES, Oklahoma ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
Mitchel B. Kugler, Staff Director
Ann C. Rehfuss, Professional Staff Member
Linda J. Gustitus, Minority Staff Director
Julie A. Sander, Chief Clerk
C O N T E N T S
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Page
Opening statement:
Senator Cochran.............................................. 1
Senator Levin................................................ 2
Senator Collins.............................................. 5
WITNESSES
Tuesday, September 1, 1998
Hon. Ben Nighthorse Campbell, a U.S. Senator from the State of
Colorado....................................................... 6
Ken Hunter, Chief Inspector, U.S. Postal Inspection Service...... 10
Hon. Robert A. Butterworth, Attorney General, State of Florida... 13
Stanley F. Pruss, Assistant Attorney General in Charge, Consumer
Protection Division, Michigan Department of Attorney General,
State of Michigan.............................................. 17
Richard A. Barton, Senior Vice President, Direct Marketing
Association, Inc............................................... 26
William E. Arnold, Director of Gerontology, Arizona State
University..................................................... 32
Alphabetical List of Witnesses
Arnold, William E.:
Testimony.................................................... 32
Prepared statement with charts............................... 89
Barton, Richard A.:
Testimony.................................................... 26
Prepared statement........................................... 82
Butterworth, Hon. Robert A.:
Testimony.................................................... 13
Prepared statement with attachments.......................... 59
Campbell, Hon. Ben Nighthorse:
Testimony.................................................... 6
Prepared statement........................................... 43
Hunter, Ken:
Testimony.................................................... 10
Prepared statement........................................... 47
Pruss, Stanley F.:
Testimony.................................................... 17
Prepared statement........................................... 77
APPENDIX
The New York Times article dated July 28, 1998, entitled
``Sweepstakes Pit Gullibility and Fine Print,'' by Douglas
Frantz......................................................... 102
Letters to Senator Campbell from:
Howard M. Metzenbaum, U.S. Senator (Ret.), Chairman, Consumer
Federation of America, dated Aug. 24, 1998................. 109
Susan Grant, Vice President for Public Policy, Director,
National Fraud Information Center, National Consumers
League, dated July 17, 1998................................ 110
Letter from Senator Levin to:
Richard A. Barton, Direct Marketing Association, dated Sept.
4, 1998, with attachments.................................. 112
Letter to Senator Levin from:
Richard A. Barton, dated Dec. 23, 1998....................... 163
List of other names used by the debtor in the last 6 years....... 165
Additional copy submitted for the record from Senator Levin...... 171
National Association of Attorneys General Resolution,
``Establishment of Sweepstakes Subcommittee,'' adopted at
Summer Meeting July 13-16, 1998, Durango, Colorado............. 178
GAO Report entitled, ``PROPOSED LEGISLATION, Issues Related to
Honesty in Sweepstakes Act of 1998 (S. 2141),'' by Bernard L.
Ungar, Director, Government Business Operations Issues, General
Government Division, GAO/T-GGD-98-198.......................... 180
``Synopses of Sweepstakes Complaint Letters'' provided to the
Subcommittee by the Florida Attorney General Bob Butterworth... 207
Magazine Publishers of America, Inc., prepared statement......... 216
USE OF MASS MAIL TO DEFRAUD CONSUMERS
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TUESDAY, SEPTEMBER 1, 1998
U.S. Senate,
Subcommittee on International Security,
Proliferation and Federal Services,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:25 p.m. in
room SD-342, Senate Dirksen Building, Hon. Thad Cochran,
Chairman of the Subcommittee, presiding.
Present: Senators Cochran, Levin, and Collins.
OPENING STATEMENT OF SENATOR COCHRAN
Senator Cochran. The committee will please come to order.
We are pleased to have all of you here for our hearing
today. We are considering at this hearing a subject that
aggravates and frustrates many Americans, the use of mass
mailings that confuse and sometimes defraud consumers. We will
examine some government look-alike mailings and sweepstakes-
type solicitations and try to determine what Congress can do to
discourage the use of these fraudulent and misleading mailings.
Each year the Postal Service receives thousands of postal
customer complaints regarding the legitimacy of these mailings.
A New York Times article on July 28 disclosed that from a
contest at Reader's Digest Magazine in 1962, there now are over
300 firms mailing more than 400 million sweepstakes offerings
annually. Sweepstakes offers can result in big profits for the
companies involved; in fact, consumers are four to five times
as likely, we are told, to buy a product if a sweepstakes offer
is involved.
Since scheduling this hearing, our Subcommittee has been
deluged with stories of consumers who have lost thousands of
dollars--sometimes their life savings--to deceptive mailings.
It is not just the sweepstakes offers that lure consumers into
opening mail. Some mailers imply an association with the
government. Other mailers cleverly entice consumers to join and
contribute to or support organizations, or to buy unneeded
products and services.
In 1990, President Bush signed into law the Deceptive
Mailings Prevention Act, a bill which was specifically designed
to crack down on government look-alike mailings. Nevertheless,
consumers continue to receive a lot of mail looking
suspiciously like government documents, or offering services
already provided by the government.
We really have no way of finding out how many people have
been taken in by deceptive mailings or the amounts of money
they have lost or spent, but estimates for both of these are
very high. According to the Federal Trade Commission, 52
percent of the complaints they receive on their Consumer
Information System are related to sweepstakes, and over $40
billion is lost to consumers annually as a result of
telemarketing and sweepstakes scams, with telemarketing scams
often originating in the mailbox.
Over the years the Federal Trade Commission, the Postal
Inspection Service, and State Attorneys General have joined
forces to crack down on prize promotion operators. Just last
year, three Federal agencies, 25 State Attorneys General, and
numerous local law enforcement agencies formed a strike force
to collect and review direct mail. Project Mailbox resulted in
190 actions against companies that use the mail to con
consumers.
This afternoon we will hear from three sets of witnesses.
The first will be the distinguished Senator from Colorado, the
Hon. Ben Nighthorse Campbell. He is the sponsor of S. 2141, the
Honesty in Sweepstakes Act of 1998.
Our second panel includes Ken Hunter, Chief Inspector of
the U.S. Postal Inspection Service; the Hon. Robert A.
Butterworth, Attorney General for the State of Florida; and
Stanley Pruss, Assistant Attorney General for the State of
Michigan.
The third panel will be Richard A. Barton, Senior Vice
President of the Direct Marketing Association, and Dr. William
Arnold, Director of Gerontology at Arizona State University.
We are very pleased to have the cooperation and the
assistance of this distinguished group of witnesses. We have
also received some written statements from interested persons,
and we are including those statements in our hearing record.\1\
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\1\ The two prepared statements referred to appear in the Appendix
on pages 207 thru 219.
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Before welcoming and recognizing our friend from Colorado,
let me yield to my distinguished colleague on the panel, the
Senator from Michigan.
Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Mr. Chairman, thank you for holding these
hearings. It is a subject that I and my staff have devoted a
tremendous amount of time to, and it is important that this
Subcommittee take up this subject.
``You are a guaranteed cash winner.'' ``You are a
guaranteed winner.'' ``Guaranteed winner notification.'' Those
phrases and others like them are used in millions of deceptive
mail solicitations every year to get unsuspecting consumers to
spend money to collect their hoped-for prizes. Not only are
they told in black and white that they are winners, they are
told that they are guaranteed winners of cash, cars, vacations,
or other prizes. All the recipient has to do, according to many
of these so-called sweepstakes offers, is paste the right
color-coded sticker on the right envelope and send it to the
right address at the right time, and Ed McMahon or some company
representative or a ``prize patrol'' will be at the consumer's
doorstep to present the winnings.
Is such a guarantee real? No. It's a deception. The odds of
winning some of the major sweepstakes, such as the Publishers
Clearinghouse and American Family Publishers, range from 120
million to 1 to as much as 600 million to 1. With these odds
and deceptive practices, it's not surprising that sweepstakes
complaints account for more than 50 percent of the Federal
Trade Commission's Consumer Information System complaints, and
are one of the top problems reported to the U.S. Postal Service
and State Attorneys General.
Deceptive language and complex prize package solicitations
are received by unsuspecting consumers every day. In fact, one
response to a sweepstakes solicitation usually guarantees that
a person will get dozens more. The more you buy from a company
offering the sweepstakes, such as magazine subscriptions,
gardening supplies, or jewelry, the more sweepstakes
solicitations you're going to receive. Sweepstakes
solicitations often include two envelopes--one if you place an
order to buy a product promoted by the company, and one if no
order is placed. The envelopes have different addresses, or
require different color-coded labels to identify those entries
that contain orders from those that do not. Because of this,
consumers are led to believe that they have a better chance of
winning if they buy something, although current law prohibits
different treatment between customers and non-customers.
Unfortunately, the elderly are the most vulnerable to the
deceptions. Senior citizens are inclined to read their junk
mail more than the rest of the population, and often live alone
and on limited incomes. The thought of winning a big prize to
give them resources for a better, less lonely lifestyle and to
provide an inheritance to their children or grandchildren is
very appealing. In the extreme cases--and there are far too
many of them--senior citizens can spend so much money on
sweepstakes promotions that they can no longer pay the rent.
Frequently, a family member or a caregiver must step in.
State Attorneys General throughout the country receive
thousands of complaints about deceptive sweepstakes promotions
from the elderly. In Florida, a judge in the Guardianship
Division wrote the Attorney General of Florida regarding the
exploitation of the elderly by the sweepstakes industry. He
said, ``Several times a week it is necessary for our Court to
determine the capacity of a senior citizen and to protect their
assets from these types of sweepstakes exploitations.''
Solicitations are cleverly presented--the color, print
size, and graphics of the solicitation. The materials are
assembled in a way to deceive the mind and the eye.
Take a look at this solicitation up here. The big print is
that--it's an ``Official Notification, Guaranteed and Bonded
Sweepstakes.'' Big print: ``The judging is now final. Mr. Bruce
[last name] is one of our $1,666,675 winners.'' Boy, you can't
miss that if you're that Mr. Bruce whatever your last name
is.\1\
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\1\ The information submitted by Senator Levin appears in the
Appendix on page 172.
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And then look at the next big print. ``It's confirmed. Mr.
Jack Sears and Mr. Bruce so-and-so have both won that prize.''
Well, if you look at the print--which nobody can read--but
if you get a magnifying glass, you'll see a little tiny line
under that green line. That's the hook. That little line says,
if anybody ever pauses to read it--and if you can't read it, if
you don't have a magnifying glass--``If you have and return the
grand prize winning number, we'll officially declare that it's
confirmed that Jack Sears and Mr. Bruce have both won
$1,666,675.''
Now, that to me is about as deceptive as you could possibly
even conceive of. That little line, unreadable, is what takes
these deceptive practice schemes off the hook under current
law, and that's one of the things we've got to change. There
are a number of proposals that would do exactly that.
One of our witnesses, an expert in gerontology and
communications, will have more to say on that later.
In Michigan we have one company, Michigan Bulb Company,
that relies heavily on sweepstakes to attract and keep
customers of its gardening supplies. It uses offers such as a
guarantee of winning $250 in cash. Well, when you read the
small print on the back of those kinds of offers, you will see
where the hooks are and where the qualifications are.\1\
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\1\ Letter to Richard A. Barton from Senator Levin, dated September
4, 1998, with attachments appear in the Appendix on page 112.
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Look at the small print. That's what now, under current
law, lets these folks get away with the kind of scams that
they're doing. It's those kinds of rules that nobody can read
because they're so tiny, and no one would--after they've been
told that they've won these huge prizes.
Recently, 32 Attorneys General and the District of Columbia
got American Family Publishers--50 percent owned by a
subsidiary of Time-Warner, by the way--to agree to stop certain
deceptive sweepstakes practices. American Family Publishers
also agreed to pay the States $1.25 million as a result of a
promotion that had induced a number of people to actually fly
to Florida to claim a $11 million prize. You've got people
flying to Florida with money they don't have to claim a prize
they haven't won because of these deceptions.
But at the same time that action was being taken against
American Family Publishers, another deceptive mailing was being
sent out by Guaranteed and Bonded Sweepstakes, that's a
subsidiary of Time-Warner, guaranteeing that the recipient was
a confirmed winner of $1.6 million. That's the one we referred
to. So often, when an action is taken against one company,
another company springs up under a different name and continues
the same practice.
The Chairman has referred to Project Mailbox, which AARP
has run, to go after some of these phony prize awards, and what
it showed was just the extensive nature of this scam.
Now, we have some laws on the books that prohibit the
fraudulent or deceptive use of the mails. They just simply do
not go far enough. Several of our witnesses will have
suggestions for ways to strengthen current law and, hopefully,
stop these abusive practices.
Here are a few suggestions that I think are serious and we
ought to adopt:
One, give the Postal Service subpoena authority.
Two, make specific deceptive sweepstakes marketing
techniques illegal.
Three, increase the fines. A $10,000 fine for violation of
an order doesn't do much. That's petty change for these scam
artists.
We've got to have civil and administrative fines without
first going through the order process. We ought to be able to
have a fine, as we do in other laws, for violation of the law
without first having to get an order of the FTC or the Postal
Service, that in turn is violated. That's one step too many.
It's unnecessary. We don't do it in other laws and we shouldn't
require it here.
So we've just simply got to take the profit out of the
sweepstakes scams so that we can shut down these deceptive
operations. Congress has made efforts in the past to stop the
scams, but they continue unabated. And in this cat and mouse
game it is time for the government to stop acting like a
pussycat, and instead become a tiger against the scammers who
so shamelessly prey on the vulnerable with such deception and
deceit.
Again, my thanks to you, Mr. Chairman, for scheduling this
hearing.
Senator Cochran. Thank you, Senator Levin.
We're glad to have with us our distinguished colleague from
Maine, Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thanks very much, Mr. Chairman.
I want to start by thanking you for holding this hearing to
explore deceptive mail and sweepstakes fraud, including the
legislation that has been introduced by the distinguished
Senator from Colorado, Ben Nighthorse Campbell, who has been a
real leader in this area.
Deceptive mailings and sweepstakes fraud are a nationwide
problem, and certainly my State of Maine is not immune from
this problem. A constituent from Portland, Maine recently sent
me one mailing that proclaimed in bold print, ``You were
declared one of our latest sweepstakes winners, and you are
about to be paid $833,337 in cash.'' Of course, this individual
was not really a winner, as the fine print stipulated that the
money was his only if he had the winning number and returned
the grand prize winning number in time. But at least on this
sweepstakes entry there was some fine print. Some mailings are
even more deceptive.
Another constituent of mine from Machiasport recently
received a notice marked ``Urgent Delivery: A special
notification of cash currently being held by the U.S.
Government is ready for shipment to you.'' This looks very
official and refers to the U.S. Government holding cash
benefits. On the back of this, which says ``Official Notice,
Special Notification,'' it says that the consumer has only to
send in $9.97 in order to collect the money held by the Federal
Government.
I wonder, Mr. Chairman, how many innocent consumers in
Maine and throughout the Nation received this notice, thought
that the Federal Government did indeed hold some cash that was
due them, and sent in the $9.97.
Now, I realize that there are some companies that promote
legitimate sweepstakes and do so in a responsible manner, but
too many are engaging in deceptive and fraudulent practices to
increase profits or make a quick buck at the expense of the
American consumer. And as Senator Levin has pointed out,
frequently they are targeting the most vulnerable citizens, our
elderly, who may be living on very limited incomes.
As Chairman of the Permanent Subcommittee on
Investigations, the agenda of the Subcommittee has focused on a
lot of consumer fraud areas. We heard testimony in July during
a hearing on telephone fraud from the National Consumers League
that sweepstakes fraud consistently ranks as one of their top
consumer complaints.
Mr. Chairman, we all want to make sure that we don't impose
unnecessary regulation or legislation on private industry, but
time and time again we hear from people who are engaged in
deceptive practices that the consumer just has to be more
careful, sort of the ``consumer beware'' approach. The problem
with that is no matter how careful a consumer is, if the
consumer is dealing with mailings that are deceptive and
fraudulent, it is very difficult for even the most cautious and
educated consumer to make informed and responsible choices.
So again, Mr. Chairman, I commend you for your leadership
in this area and I look forward to hearing the testimony of our
witnesses today.
Senator Cochran. Thank you very much, Senator.
We are pleased that Senator Ben Nighthorse Campbell is here
today to appear as the first witness on this subject.
Senator, we welcome you and compliment you on the work you
have done in this area, and would like you to proceed.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL,\1\ A U.S. SENATOR
FROM THE STATE OF COLORADO
Senator Campbell. Thank you, Mr. Chairman, and thank you
for scheduling this hearing on S. 2141, the Honesty in
Sweepstakes Act of 1998.
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\1\ The prepared statement of Senator Campbell appears in the
Appendix on page 43.
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Very frankly, after hearing the comments of the Ranking
Minority Member, Senator Levin, I am beginning to think my bill
doesn't go far enough. But clearly it is a vehicle on which I
look forward to working with you and Senator Levin and all
those, including Senator Collins, who have shown a great deal
of interest in this issue.
But I believe the Honesty in Sweepstakes Act would be a big
step in protecting consumers from deceptive mass mailing and
marketing tactics. All three of you have alluded to the many
stories you have heard from your own constituents. The letter
that Senator Collins referred to as a constituent's letter is
this letter, by the way; this was received by one of my staff
members here in the Senate. It must have went out to millions
of people, hundreds of millions of people, perhaps.
I believe that we are long overdue in trying to protect
people from the ploys that are done by sweepstakes companies.
They basically prey on the hopes and dreams of people, and the
situation is clearly getting worse. I think this bill will go a
long way toward helping to protect our country's most
vulnerable citizens, the susceptible people like seniors,
perhaps those who are less educated, and certainly the poor. I
have an education; I think I can read reasonably well; I think
I understand generally what I am reading. But when I get these
things in the mail, very frankly, they are so realistic, and
there are ones that look like they are actually stock options.
They have very flowery edges. When you first look at them, you
think that they're negotiable, that you might be able to take
them to the bank or somewhere and get money for them. Clearly,
that's not true.
The New York Times, Mr. Chairman--you alluded to the
Tuesday, July 28 article in The New York Times. It was a front-
page article. Let me read just a couple of sentences from that
article. This is part of it, about a lady by the name Edwards,
an 88-year-old widow who played magazine sweepstakes and
similar promotions passionately for years. In a 54-day period
in 1995 she wrote 148 checks to 56 contests, and her family
estimates that in 5 years she has spent more than $60,000 on
magazines that she never read, and worthless prizes, without
ever winning a dime. That's a good example.
One part of the article talks about a man that was
literally driven to suicide because he became destitute playing
these sweepstakes games.
It talks about the American Family Publishing Company that
is involved in 26 class action civil suits and 11 suits brought
by individuals, seeking millions of dollars in restitution.
It goes further to talk about the kinds of things you
mentioned, the bold print that says things like, ``It's down to
a two-person race with $11 million. You and one other person
were selected as the winning number. Whoever returns this first
wins it all.'' I mean, they're really encouraging you to
respond. Of course, the tiny print that you can't even see with
a magnifying glass--remember, if you shrunk this thing down to
the size you normally see in a letter, you can imagine how tiny
that print gets that tells you you have to buy a bunch of
magazines or do something else, jump through a bunch of hoops,
but spend money in order to qualify as the one person that wins
the $11 million.
The article goes on to cover a number of other things that
I think are just totally misleading. I won't read them all but,
with your permission, Mr. Chairman, I would like to include
this July 28 newspaper article for the record.\1\
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\1\ The article from The New York Times, dated July 28, appears in
the Appendix on page 102.
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Senator Cochran. Without objection, so ordered.
Senator Campbell. It could be anybody. Certainly, Mr.
Chairman, you're an educated person, but if you got a letter
saying, ``Thad Cochran, you have already won $24 million,'' it
would probably get your interest. It does me, too. I have seen
so many of them now that I just throw them away, but the first
two or three of those that you get are really deceptive, and
only careful reading of the fine print tells you that we are
really skirting the edge on what I call the ``truth in
advertising'' laws. We already have these in cigarettes and
liquor and a number of other things that we think are dangerous
for consumers, or where they might be deluded into thinking
that they're going to get something for nothing, and we try to
inform them. I think it's time we do that in our sweepstakes
area, too.
I know that some people say that this may go too far and
may infringe on First Amendment rights. It would seem to me
that if there is a danger of doing that, then clearly it would
have been thrown out by the courts a long time ago in
advertising on other products that I've already mentioned.
But I think we do have a problem that's growing. We don't
know the exact extent of it. The GAO is conducting a study now
to try to find out the extent of it, but each State seems to be
left to its own devices. In some States, the Attorneys General
take them up if they get complaints, but their basic mission is
not to protect everybody from every kind of abuse by different
companies, and very often you are left to your own devices to
go to court, and you are obviously up against a pretty big,
well-oiled machine with a lot of lawyers, and an individual--
particularly people of limited means--simply can't fight it
through the courts and they are left pretty much at risk.
While drafting this bill I consulted with the offices of
both Colorado Attorney General Gale Norton and Florida Attorney
General Robert Butterworth. One key result of these
consultations was the inclusion of a clause stating that
nothing in this bill would preempt State law. This clause
reserves the right of each State to enact its own additional
guidelines or to take other legal action as it sees fit. I
certainly appreciate their input and I am pleased to see that
Attorney General Butterworth is here today and will be
testifying a little bit later.
With that, Mr. Chairman, in the interest of time, I will
just go ahead and submit the rest of my testimony for the
record because I, too, look forward to hearing some of the
testimony. But I know, as you do, that we are far down this
road. We need to do something about it.
I would also like to include several other things that we
have for the record. One of them is this letter from the
Consumer Federation of America that endorses this bill. Senator
Metzenbaum is very active with this group, our former
colleague, and he also sent a letter with it, and I would ask
that that be included in the record.\1\
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\1\ The letter from Howard M. Metzenbaum, U.S. Senator (Ret.), to
Senator Campbell, dated August 24, 1998, appears in the Appendix on
page 109.
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Senator Cochran. Without objection, it will be included in
the record.
Senator Campbell. We also have some testimony and a letter
from the National Consumers League, also in support of this
bill. They state, ``This legislation would be very effective in
preventing misleading and deceptive sweepstakes
solicitations.'' And with your permission, I would like to also
include that in the record, too.\2\
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\2\ The letter from the National Consumers League, to Senator
Campbell, dated July 17, 1998, appears in the Appendix on page 110.
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Senator Cochran. It will also be included in the record,
Senator.
Senator Campbell. With that, Mr. Chairman, I thank you for
your consideration and look forward to hearing the witnesses.
Senator Cochran. Thank you very much for being here.
I don't have any questions. I compliment you on your
initiative in trying to get the Senate's attention by
introducing this legislation. We do need to respond in an
effective way to this crisis, and I think this will be very
helpful to us as we consider the options for doing just that.
Senator Campbell. Thank you, Mr. Chairman.
Senator Cochran. Senator Levin, do you have any questions?
Senator Levin. I just have one question, because I think
this bill is on the right track.
How does the Postal Service in matters like this know what
is inside the envelope in order to implement--for instance,
section 2 of your bill, which says that ``matters otherwise
legally acceptable in the mail that constitute a solicitation
or offer in connection with the sale or promotion of a product
that uses any matter resembling a negotiable instrument shall
not be carried or delivered by mail.'' How does the Postal
Service check to see what is inside of that envelope?
Senator Campbell. I'm afraid I don't have an answer for
that.
Senator Cochran. If you'll let me, Senator, I may be able
to help.
I received one that looked just like a check the other day.
It said, ``Pay to the Order of Thad Cochran,'' with my address
here. That's inside the letter, but through the window you can
see that it says that. That's what every check usually says.
Senator Levin. And how do they know it's not a check?
Senator Cochran. Well, then the Postal Inspection Service
can confiscate it, I think. That's what the Campbell bill would
do. It gives the Postal Inspection Service authority, when
something actually clearly shows that it is a check--I think
that's what the language says--that this falls within the
prohibition of S. 2141. But this, apparently, is not prohibited
by law at this time.
This looks like an official check. Look, an eagle up here
in the corner of the envelope; ``Buy and hold U.S. Savings
Bonds;'' ``United States Mail;'' ``Special Notice to the
Postmaster: Intended for delivery only to addressee. Please
handle in accordance with postal regs.'' It sounds like this is
a check, right? I opened it thinking that it might be a check.
Do you know what it was? It was an offer to loan me money. ``No
equity required. Interest may be tax-deductible. Borrow $50,000
from us on your home as equity.''
This ought to be prohibited.
Senator Levin. I would love to be able to prohibit that,
too. My question, though, is how does the Post Office know that
it's not a check when they look at the outside? Do we want them
to open the letter--everything that looks like a check?
Senator Campbell. I think the probable answer would be that
people who get these letters are the ones who open them, and if
they are concerned about it, they then turn them in to the
Postal Inspectors.
Senator Levin. Some responsibility has to lie with the
people who are getting these checks, who are being deceived. I
don't think the Postal Service should have the authority to
just arbitrarily open letters because they assume there might
be some sweepstakes offer in it.
Thank you, Mr. Chairman.
Senator Cochran. Senator Collins.
Senator Collins. I have no questions, thank you.
Senator Cochran. Thank you very much, Senator Campbell.
Senator Campbell. Thank you, Mr. Chairman.
Senator Cochran. If our second panel of witnesses will
please come forward, we will proceed to receive your
statements.
The second panel includes Robert Butterworth, Attorney
General of the State of Florida; Stanley Pruss, Assistant
Attorney General of the State of Michigan; and Ken Hunter, who
is the Chief Inspector of the Postal Inspection Service.
Mr. Hunter, I think I will call on you first and ask you to
proceed.
STATEMENT OF KEN HUNTER,\1\ CHIEF INSPECTOR, U.S. POSTAL
INSPECTION SERVICE
Mr. Hunter. Thank you, Mr. Chairman. I first want to thank
you and your fellow Senators for your interest in this issue of
sweepstakes and government look-alike mailings. Your efforts
here provide one more means to educate the American public to
protect themselves. With your permission, I would like to
submit my written testimony for the record and only briefly
summarize it here.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hunter with attachments appears
in the Appendix on page 47.
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Senator Cochran. That's certainly welcomed, and we
appreciate that. It will be included in the record in full.
Mr. Hunter. Thank you.
For over 200 years the Postal Inspection Service has been
the investigative arm of the U.S. Postal Service. Our
responsibilities include protecting postal employees, the
mails, and the Postal Service from attack; auditing some postal
operations; and protecting consumers from being victimized
through the mails.
Congress originally created the Nation's mail service to
maintain a reliable, efficient, effective, and secure means of
communication. A recent Harris Poll affirms that the American
public feels significantly more confident about the security of
the mail than the telephone, Internet, or other means of
electronic communication.
Postal Inspection Service employees are dedicated to
preventing unscrupulous promoters from damaging that confidence
in the mails.
This hearing calls attention to sweepstakes promotions that
may deceive the public into believing they are prize winners.
However, there are many sweepstakes promotions which are
forthright in their approach to the consumer and do not violate
any postal statute. The hearing also examines other marketing
programs that falsely imply that they are affiliated with the
government.
A detailed description of the existing civil and criminal
laws and their application to sweepstakes, lotteries, and
government look-alike mailings is included in my prepared
testimony, but I would like to emphasize that if those statutes
were adequate, we would not be here today. Senator Campbell has
introduced legislation to deal with a gray area, the guaranteed
winner claim that appears in many sweepstakes. We support the
concept underlying the legislation and commend Senator
Campbell. In my written testimony I have suggested some
possible means of making the legislation even more effective;
perhaps we could call them the ``Levin amendments.''
Turning to the second type of promotion, the so-called
government look-alike mailings, I am pleased to report that as
a result of the enactment of the Deceptive Mailings Prevention
Act of 1990, which you referred to, we have seen a decrease in
the number of complaints regarding these kinds of mailings.
Nevertheless, we continue to receive too many complaints.
At this time I would like to present to you examples of a
sweepstakes scheme, a government look-alike scheme, and an
awards scheme in which the Subcommittee staff expressed an
interest.
The first example, the ``Union Gram,'' is a sweepstakes
solicitation. It's a notice alleging that funds were being held
that the recipient was entitled to, and offering an additional
redeemable documentation package in return for a $19 processing
fee. Those who sent in the fee received a booklet of almost
worthless discount coupons. The promoter has signed a consent
agreement to make refunds to all customers who complained about
the promotion, and to permanently discontinue mailing the
solicitation.
The second example, ``Cash Claims Service,'' using
addresses at commercial mail receiving agencies in New York,
Washington, and Arizona, mailed a series of postcards
soliciting $9.97--Senator Collins, this is the one that you
held up--for ``immediate delivery of up to $775 cash,''
allegedly being held by the government. Ultimately, the
promoter agreed to a cease and desist order to permanently
discontinue the scheme, return the mailed-in responses, and to
make refunds.
Blair Down, a Canadian using a New York address, operated a
series of promotions using different business names, and 70
different return mail addresses in the United States. He mailed
millions of solicitations, many of which were sent to elderly
recipients, representing that they had won valuable prizes.
Those who sent in the requested fees received nothing in most
cases. This exhibit is just one of the many solicitations that
he used. I would like to direct your attention to the fine
print on the bottom of the regular-sized copy you see on the
chart, and I hope that copies were also provided to you for
your review. As you can see, it is difficult to ascertain the
rules of the contest, probably even with a magnifying glass.
While Mr. Down was conducting these promotions, he was in
fact under indictment in Seattle, Washington, as a result of
his involvement in telemarketing and direct mail ventures.
In February, a civil complaint was filed against Mr. Down
alleging that he was engaged in mail fraud. The District Court
issued an injunction allowing us to detain his mail, and an
order freezing his bank accounts. Ultimately, a settlement was
reached in which he agreed to forfeit $12 million in the
Seattle case, which will be used to make partial restitution to
the victims in both cases.
While I am proud of our success in conventional law
enforcement efforts, I am convinced that arrests, convictions,
and civil judgments are only part of the way to effectively
deal with consumer fraud. The results, unfortunately, of these
efforts only come after the victims have lost their money and
the con artists have spent it.
For this reason we have been working closely with consumer
groups and industry to develop fraud and loss prevention
strategies and share best practices. These efforts have
produced dramatic results in the areas we have targeted.
Currently we are working with the Federal Trade Commission, the
Direct Marketing Association, U.S. Attorneys' Offices, the
State Attorneys General, the Better Business Bureaus, State
consumer protection groups, AARP, and others to help educate
consumers regarding prevailing money order scams. Arming the
public with information regarding scams is a good way to reduce
the harm these promotions can cause, because all potential
victims must make that initial choice to participate.
I am particularly pleased to announce here today that we
have joined with the National Council of Better Business
Bureaus to make possible a vision we share. We are meeting with
other consumer and government agencies to solicit their support
in launching what will be the most ambitious fraud prevention
initiative ever attempted. By early spring, we plan to mail to
every home in America--over 120 million addresses--a card
containing valuable telemarketing fraud prevention tips and
providing an 800 phone number to obtain additional assistance.
The card is being designed for display by the telephone as a
reference and prevention tool.
My written testimony includes several possible improvements
in the statutes used to deal with deceptive mail order
promotions. Briefly, these include the following, as was
suggested in part by Senator Levin.
First, amending the false representation statute to require
that promoters disclose their actual name and address;
Second, at present, multiple District Court actions are
needed to obtain injunctions where the promoters use addresses
in more than one judicial district. We recommend allowing any
District Court with jurisdiction to issue one order that would
cover all addresses;
Third, we are often frustrated by seeing con artists we
have driven out of the mails simply continue the same scam,
using telephones and private delivery services. We would like
you to consider amending the law to permit the courts to issue
civil penalties against those who follow this course;
Fourth, we recommend that authority be established to
impose financial penalties upon persons who mail nonmailable
matter; and
Fifth, as Senator Levin suggested, we suggest you consider
providing the Postal Service with administrative subpoena
authority, similar to that granted to other agencies, to
improve our ability to take the prompt, effective action
against mail order scams and lotteries. This drives at the
issue on which you were engaged in the discussion with the
Senator from Colorado.
In conclusion, I assure you that the Postal Inspection
Service will continue to combine aggressive investigations and
widespread public awareness campaigns to rid the mails of
fraudulent schemes. The American public's confidence in the
mail is not only important to the Postal Service, but also to
the many thousands of businesses that rely on the mail as an
important marketing tool.
Again, thank you very much for this hearing and allowing me
this opportunity to discuss these important matters. We would
be pleased to work with you regarding the legislative
proposals.
Thank you.
Senator Cochran. Thank you, Mr. Hunter, for your helpful
testimony and your suggestions for changes in the law that
might very well be more effective in preventing this kind of
consumer fraud from being practiced.
Our next member of the panel is Robert Butterworth, who is
Attorney General of the State of Florida.
We welcome you, Attorney General Butterworth, and invite
you to proceed with your testimony.
STATEMENT OF HON. ROBERT A. BUTTERWORTH,\1\ ATTORNEY GENERAL,
STATE OF FLORIDA
Mr. Butterworth. Mr. Chairman, Senators, thank you very
much for this opportunity to appear before you today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Butterworth with attachments
appears in the Appendix on page 5900.
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Florida welcomes millions of visitors each year, and we are
delighted to have them. They are very essential to our State.
However, there is one type of visitor we'd rather not have,
namely, those who are lured to Florida not by its climate and
tourist attractions, but--as Senator Levin stated--by empty
promises of instant wealth. These are the unfortunate souls who
fall victim to the kind of cynical deception that has become
all to common in the world of sweepstakes marketing.
By now, most Americans are probably familiar with the
people I am talking about. Their sad stories have appeared on
national TV news broadcasts and in newspapers throughout the
country. Their destination is Tampa, Florida, where entries for
one of this Nation's largest sweepstakes operators, American
Family Publishers, are processed. They come to claim the
millions of dollars they are certain they have won, or are
about to win, because a celebrity spokesman assured them as
much in a letter. In many instances they come at a cost that
they cannot afford.
One young single mother of two borrowed $1,500 from her
sister so she could fly to FLorida to claim her ticket out of
poverty and a rough neighborhood in Baltimore. Convinced she
was one of only two people in the running for a $10 million
prize, she appeared at the processing center with her two
little daughters in tow. Instead of confirmation of her good
fortune, she received ridicule from a young office manager, who
in essence spat on her dreams and sent her away.
We have a working relationship with the taxicab drivers at
the airport, as well as the Greyhound Bus Station. They will
take the people to American Family Publishers and wait for
them. They will then take them to our office.
While the national spotlight has fallen on people such as
this unfortunate young woman, they merely embody the most
extreme symptom of an underlying problem that affects millions.
Direct mail marketers have learned that tying the purchase of a
product to a sweepstakes will enhance the chances of a sale.
They have also learned that the more they can blur the
distinction between entering a sweepstakes and purchasing a
product, the more successful they will be in selling magazines.
I may question the integrity of many sweepstakes marketers,
but I do not question their intelligence. They are masters at
devising complex and convoluted solicitations intended to
confuse the average consumer and generate a sale.
While American Family Publishers is by no means the only
company to employ deceptive tactics, our experience with that
firm illustrates what we are up against in combatting
sweepstakes swindlers. Last February, Florida filed a civil
complaint against American Family Publishers and its celebrity
spokesmen, Ed McMahon and Dick Clark. We did so after months of
discussions with the company failed to resolve our concerns
about deceptive marketing practices. It was during those
discussions, which included Florida and many other States, that
American Family Publishers launched a particularly deceptive
solicitation--while they were negotiating with us, 30-some-odd
States, they then launched another deceptive solicitation.
Because of that action and its harmful impact on consumers, we
did not feel we could continue participating in such multi-
State talks.
Among tactics used in the solicitation were the false
suggestions that recipients were one of only two winning ticket
holders competing for an $11 million prize. We've all seen
those. The company also placed a tight deadline on claiming the
prize, then required those who did not buy magazines to follow
a more cumbersome and time-consuming process to enter the
contest than those who did buy magazines. If you bought a
magazine, you put the stamp on, you mailed it to Tampa. If you
didn't buy a magazine, you clipped out--it says, ``very
carefully clip out'' this little coupon, Scotch tape it--don't
staple it, don't paper-clip it--Scotch tape it or glue it to an
envelope, and it then goes to a non-order center in Waycross,
Georgia. Remember, the one that gets to Tampa first wins, so if
you put a stamp on it and order a magazine, it goes right to
Tampa; if you decide, as you are allowed, to not buy a product,
it goes to Waycross, Georgia. Most people think that if you
mail it to Tampa, it might get to Tampa quicker than if you
mailed it to Waycross, Georgia, and they're probably right.
The objective of such tactics is to convince the consumer
that he or she must act quickly to claim the prize, and that
the best way to do that is to purchase magazines. Our files are
filled with consumer complaints which prove that these and
other deceptive tactics actually worked--not only for American
Family Publishers and the sale of magazines, but for other
sweepstakes operators selling a wide variety of products.
The most disturbing of these cases involve especially
vulnerable individuals such as the elderly, the inform, and
those with very limited means. An elderly gentleman from
Clearwater, Florida, who suffers from dementia spent $30,000
with Publishers Clearinghouse in only 18 months. When we
visited him, it was hard for us and him to get around his
apartment at the same time, he had so many magazines and other
things that he had purchased via sweepstakes.
There is the 80-year-old lady from Seattle who postponed
her scheduled surgery so that she would be home when her $10
million check was to arrive.
A 78-year-old woman from Winter Springs, Florida, lives on
food stamps and Social Security, but she could not resist the
sweepstakes offers that came into her mailbox. She is now being
hounded by collection agencies because the purchases she made
to enter those sweepstakes were made with worthless checks.
Obviously, she wasn't worried about her check being worthless,
because she was going to win $10 million.
It would be simple to write of such cases with the axiom,
``A fool and his money are soon parted,'' but these people, as
we know, are not fools. They are our neighbors, our parents,
our grandparents, all good people who have fallen victim to
companies that have sacrificed decency and ethics on the altar
of the bottom line.
What is more, no one is beyond the reach of such companies.
A couple months ago we filed our complaint against American
Family Publishers, and a letter from the company, signed by Ed
McMahon and Dick Clark, was delivered to my Tallahassee office.
What I thought happened was that they were willing to settle
their case because they thought they were wrong, but when I
opened the letter I got a real big surprise. ``Attorney
General,'' the letter said, ``you will definitely win the cash
or merchandise prize that appears on your prize claim number
label.''
I really thought about taking action against them, but I
didn't. And the reason why I didn't is that this really did
come to my office on April 1, and I believe that that probably
is the only day that that particular type of solicitation
should be in our mailboxes. So I thought that they probably
would have a pretty good defense against that particular suit.
But then I learned later that I was in real good company
because a similar letter was sent to a church in Bushnell,
Florida, informing God that He was a finalist for a multi-
million dollar prize from American Family Publishers.
While the merchandise being sold may differ, the deceptive
methods used by shady sweepstakes operators to sell them are
often quite similar.
One hallmark of the deceptive solicitation is a degree of
complexity for submitting a free entry that would turn an IRS
tax code writer green with envy. All but lost in that
deliberate complexity is the message that no purchase is
necessary to enter the sweepstakes. Not only is that message
obscured or given little or no prominence; it is often
contradicted by the content of the solicitation piece.
As Senator Collins stated, they use such terms as ``special
handling'' and ``rush orders,'' often used to create the
illusion of urgency, even though all orders are obviously
handled in the same fashion.
False deadlines are designed to elicit immediate responses,
even though a sweepstakes might not close for more than a year.
Our investigation of American Family Publishers revealed
that people who purchased magazines through a sweepstakes often
received two invoices, just days apart. This is sometimes a
second part of the scam. Once they get you to buy the magazine,
they will then send you a bill, and then a few days thereafter
you will get another bill. Many people, believing that they
didn't pay the first bill, will pay the second bill. Such
tactics are intended to mislead consumers, especially the
elderly, into paying two, three, or four times. You would
assume that if you pay two or three times for the same year,
what you'll end up doing is getting some money back. That's not
what happens. You end up getting that magazine maybe 2, 3, 4,
or 5 years in the future, and many children and grandchildren
are finding out that their parents or grandparents had paid-up
subscriptions well into the next century. The reason for that
problem, we believe, is that the solicitation company will
receive about 80 or 90 percent of the actual billings the first
year. Subsequent billings, they may not get any percentage on
at all, so the more up-front money they can get, no matter for
how many years, and we believe that a large percentage of the
profit is there.
We have to actually strike at these and other deceptive
practices. There are reforms that we would like to see.
First, there should be a clear separation between the
process for entering a sweepstakes and the process for buying a
product. In that same vein, any inferences that purchasing a
product will enhance a consumer's chance of winning should be
eliminated.
Claims that a consumer is already a winner also should not
be allowed unless that consumer is in fact an unconditional
winner. The same holds in those instances when a sweepstakes
operator declares every solicited consumer a guaranteed winner,
then sends those who respond a worthless trinket. In addition,
phony claims that the consumer has become part of an elite
group still vying for the grand prize, when in fact they are
not, should be prohibited.
The number of solicitations sent to a single consumer for
any particular sweepstakes should be limited to prevent
exploitation of especially vulnerable individuals. You may very
well get the fourth entry on the same sweepstakes; if you keep
sending back cards, you will keep getting the solicitations.
Along the same lines, there need to be restrictions on the
sale of lists containing the names of sweepstakes players.
These are so-called ``mooch lists'' and they are pure gold in
this particular business because these are people who have
already been defrauded. The companies will sell these lists
from one company to another.
The odds of winning a sweepstakes, which in some instances
can be as high as one in hundreds of millions, should be
clearly and prominently disclosed.
Envelopes and letters designed to look like official
documents should not be allowed.
Safeguards to prevent multiple billings, and to prevent
overpayments from being used to extend subscriptions without a
consumer's permission, should be put in place.
Sweepstakes promoters should include in their solicitations
a toll-free phone number for consumers to call for more
information about a particular contest.
And finally, promoters should also provide a toll-free
number that consumers can use to call to have their names taken
off the company's mailing list, and those requests should be
honored.
The task of reforming the sweepstakes marketing industry
cries out for a comprehensive nationwide approach. You have
acknowledged the wisdom of that approach, and we certainly
appreciate what you are doing here today.
I would like to put into the record a resolution from the
National Association of Attorneys General which we adopted at
our summer meeting just a couple months ago, which established
a Sweepstakes Subcommittee. It is chaired by Attorney General
Jeff Modisett out of Indiana, and we would be glad to work with
you, Senators, in this particular legislation.\1\
---------------------------------------------------------------------------
\1\ The referenced resolution appears in the Appendix on page 178.
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Senator Cochran. Thank you very much, Assistant Attorney
General Butterworth. We appreciate your testimony and your
involvement in this effort to try to put a stop to this kind of
fraud that is going on in our country. The resolution that you
identified will be made a part of the record.
Mr. Butterworth. Thank you, sir.
Senator Cochran. Let us now turn to Stanley Pruss, who is
Assistant Attorney General in the State of Michigan.
We appreciate your being here, Mr. Assistant Attorney
General. You may proceed.
STATEMENT OF STANLEY F. PRUSS,\2\ ASSISTANT ATTORNEY GENERAL IN
CHARGE, CONSUMER PROTECTION DIVISION, MICHIGAN DEPARTMENT OF
ATTORNEY GENERAL, STATE OF MICHIGAN
Mr. Pruss. Thank you, Mr. Chairman, Members of the
Committee.
---------------------------------------------------------------------------
\2\ The prepared statement of Mr. Pruss appears in the Appendix on
page 77.
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I am the Chief of the Consumer Protection Division of the
Michigan Department of Attorney General, and I am presenting
this testimony on behalf of Attorney General Frank Kelley, who
regrets that his schedule doesn't allow him to be here today.
This hearing provides a much-needed opportunity for greatly
enhanced public scrutiny of marketing practices that are
becoming increasingly unfair, deceptive, and unconscionable. It
is our sincere hope and expectation that this hearing will not
only heighten public awareness of these practices, but lead to
meaningful State and Federal legislative action directed at
combatting these shameful, predatory practices.
Primary among these marketing practices are the so-called
sweepstakes promotions that are being increasingly used by both
unscrupulous and legitimate members of the business community.
We are all aware of these promotions, as we are all--to varying
degrees--victims. These mailings are almost always unsolicited
and unwanted; they are annoying and frustrating, yet they have
been specifically designed by marketing experts to be
tantalizing and alluring. The envelopes are designed to compel
the recipient to open and examine the contents, and this is the
hook. The most direct and effective allurement is personalized
deception such as, ``Carl Levin, you have just won $50
million,'' in bold 16-point print.
Many people, fortunately, recognize this calculated
deception to sell goods or services and, most notoriously,
magazines. Most of us simply don't have the time to unfold the
numerous papers inside, to choose between the Jaguar or
Mercedes Benz from the colored, adhesive-backed perforated
stamps to affix to the return card. Yet many of our citizens do
have the time, and these are, disproportionally, our senior and
disabled citizens. The deceptive language of the promotions is
so cleverly qualified that it is reasonable for some to think
that they have won a prize that will bring sudden wealth. The
sweepstakes promotions are, of course, designed to suggest that
the recipient's eligibility for the prize is directly related
to the extent of the purchase of the goods and services: Buy
more and you will likely win more; respond quickly and you will
win more; and never affix the ``no'' sticker to the return
envelope.
The effectiveness of sweepstakes promotion as a marketing
technique is in direct proportion to the magnitude of the
deception and the cleverness with which it is purveyed. The
marketing experts behind these unconscionable schemes know that
there is a segment of our population that will, most literally,
buy into the deception. And for that segment of our population,
sweeps promotions can be devastating. The most vulnerable of
our citizens will write check after check in response to these
mailings in the elusive quest to win the grand prize.
Worse, those who fall victim to the marketing predators
once are deliberately and knowingly set up to become victims
again and again, when their names and addresses are sold to
others who simply steal their money. I have with me today
letters and testimonials from relatives of persons, typically
senior citizens, who have come to discover that their loved
ones have been exploited and who have lost tens of thousands of
dollars in response to prize promotions. Some of our
complainants inform us that their relatives have garages and
basements full of magazines and other items from prize
promoters and telemarketers.
The complaints include an elderly woman from Livonia,
Michigan, who sent more than $20,000 to prize promoters; a
grandmother from Spruce, Michigan, who spent more than $20,000
on sweepstakes in 1996 alone; and a woman in Michigan who has
spent more than $200,000 on sweepstakes promotions and whose
home and garage are filled with sweepstakes promotional
materials. These complaints beg the question of how one could
ever expend such sums without becoming the focus, chosen target
of predatory sweepstakes marketeers. The answer may line in
this verbatim complaint we recently received from an 89-year-
old resident of Owosso, Michigan:
``In the past I have ordered various items from Publishers
Clearing House, have paid for some and returned others; and
have received several notices stating I am a winner. One time a
person called and stated that I was one of the last five people
to win and ask (sic) if I would be home on a certain date and
to have my family present. The last notice took the cake, they
now have my comments, my family and my neighbors (sic) comments
to my winning. I will soon be 90, and do not feel that I need
this sort of harassment. It is a fraud and unfair to me and
others that they be allowed to continue such false advertising.
I, like any other person, would like to be a winner, but
obviously, this will not happen. Please, help to stop this
fraud, or help to make me a true winner.''
You, Members of this Subcommittee, can help every senior
citizen by putting a stop to these deceptive sweepstakes
promotions.
In Michigan we have a horticultural company, Michigan Bulb,
that has used sweepstakes promotions that we believed were
unfair and deceptive and thus violated the Michigan Consumer
Protection Act. We threatened legal action against Michigan
Bulb and it agreed to modify its Michigan sweepstakes mailings
to address our concerns. The problem, however, is that the
sweepstakes promoters find ever more ingenious ways to deceive
and mislead the public. The compliance and enforcement efforts
of States have not been able to stem the tide of deceptive
solicitations nor anticipate the new marketing techniques that
are increasingly being employed by an ever-widening array of
businesses.
Of course, there are legitimate prize promotions that are
effectively used by the best of our business community, but
those businesses that depend on sweepstakes campaigns have not
been able to conform their promotions to meet reasonable
ethical or legal standards.
The Direct Marketing Association, a trade group that
includes in its membership companies who use sweepstakes
campaigns as their primary marketing practice, represents that
these promotions are not inherently deceptive and even state
that those who spend large sums of money on such promotions are
``unstable.'' The Direct Marketing Association's position is
astonishingly callous and outrageous. To suggest that these
carefully designed and specially crafted sales promotions are
not inherently deceptive is as outrageous and bizarre as having
the CEOs of the tobacco companies come before this Congress and
state that they are unaware of any evidence that tobacco is
addictive or that it causes cancer. To state that those who
respond to these deceptive solicitations are ``unstable'' is
shameful, offensive, and wrong.
There are measures that can be taken that are simple and
may be effective. Some of these measures are already under
consideration by this Congress. Let me suggest a few.
Every mailing that contains a sweepstakes or prize
promotion should have clear and distinct disclosures on the
front of the envelope that inform the recipient that ``This is
a sweepstakes promotion--you have not automatically won and you
need not purchase anything to win or to enhance your chances of
winning.''
There should be clear and distinct disclosures specifying
the odds of winning every prize. The official rules need to be
clearly stated on the first page of the promotion materials in
print that is large and legible, and not like this.
The enforcement authority should be able to seek civil
penalties for every solicitation that fails to comply with
these requirements.
Additional, enhanced civil penalties should be imposed in
cases where the evidence indicates that senior or disabled
citizens were targeted with the solicitation.
Last, this Subcommittee must not underestimate the creative
faculties of predatory marketeers who design and craft these
promotions. They will do their utmost to disguise or shadow any
disclosure requirements that the law may impose. We will all
have to maintain our vigilance and respond accordingly.
Thank you for inviting Attorney General Kelley to appear
before this Subcommittee. Our department appreciates the
opportunity to speak out on these issues and to provide written
testimony for the permanent record.
Senator Cochran. Thank you very much, Assistant Attorney
General Pruss. We appreciate your being here and your
assistance to our Subcommittee.
When I was responding to a question--it was Senator Levin
who asked Senator Campbell--about how we would effectively
prohibit sending materials that appear to be a check, for
example, and turn out not to be. I know that this envelope and
the enclosure, that you can see through the window--and I
mistakenly said that it clearly had printed on it, ``Pay to the
Order of Thad Cochran,'' but now that I look at it again it
just says, ``To the Order of Thad Cochran.''
Is that one of the deceptive practices that you're talking
about, that we ought to be able to put a stop to, Mr. Hunter?
I have a couple of other examples. Here's a staff member of
mine who received a similar letter from someone else, and it
appears to be a government or an official-kind of envelope, and
the symbol over here looks like it could be on a check, and it
says, ``To the Order of,'' and then the name of my staff
member, a very similar kind of thing through the mail.
I would guess that 99 percent of the people who receive
mailings like this will open them and see what they are, and
both of these, incidentally, turn out to be offers to loan
money. This is no sweepstakes scam, but just a deceptive way of
getting attention to the fact that this company is willing to
make you an equity loan on your home.
Is this the kind of thing that we can deal with
legislatively? Or do we just have to continue to live with this
kind of practice and have everybody put on notice to read the
letters carefully and not be misled?
What is our advice to them? Mr. Hunter, do you want to try
an answer to that?
Mr. Hunter. I'd be happy to.
I think first we need, through this process and by working
with the various entities that have an interest in it, to try
to reach some agreement on further prohibitions on what is
permissible, and in combination with that, to have some
enhanced tools to quickly address suspect offers, such as the
subpoena power that was suggested, so that when complaints
begin to be received we can quickly go in to obtain the
necessary information to determine whether or not it is in
violation of the enhanced statues.
What you held up clearly is misleading, the one that had an
eagle on it that makes it appear more government-like in
nature. I think that an honest company should be willing to
clearly represent what they are offering to you, so that when
you ultimately receive whatever it is, that you are not
disappointed, that there is a congruence between your
expectations and reality.
Senator Cochran. One other example that I brought with me
today is from a staff member as well. This appears to be an
official Census survey. It says it is from the ``Federal
Records Service Corporation,'' ``Do not fold,'' and it's a
Washington address, and then you open this up and it's like a
Census form. They want you to tell them the names of your
children, that this is a requirement, that you have to send
this information in--``Federal legislation requires that all
dependents born in this tax year must be listed by Social
Security number on your income tax return.'' Then it points out
that your newborn child may not be registered. They are
enclosing this information.
Of course, it turns out not to be the Social Security at
all, but some scam way of getting information about your
family, sent in to this so-called ``Records Service
Corporation.''
Is this legal? Or should this be prohibited by law?
Mr. Hunter. We would have to look at that particular piece
to ascertain whether it is legal or not, but there are many
businesses that attempt to sell services that are available
free from the government, such as with regards to Social
Security.
Another example of a disturbing, misleading piece was a
complaint that we received that appeared to be a jury notice,
and it was for a young man who was away at college. It was
received at his home, where his mother lived, and she--thinking
it was a jury notice--arranged for him to leave school to come
home. It was simply a misleading piece to entice the recipient
to open it.
Senator Cochran. Would any of the pending bills or proposed
changes in the law prohibit another example here, which I
happened to receive? This looks like a Special Delivery piece
of mail, entitled ``Priority Express.'' The only other
information on it is my name. Again, this one says, ``Pay to
the Order of William T. Cochran.'' I knew they didn't know me
well since they didn't use Thad; they used the initial T. But
that's my name and that's my address, but it turns out again to
be another solicitation for an equity loan. They are willing to
loan me $80,000 instead of the $50,000 offer that I got from
the other company.
Is this violative of any rule? If it isn't, should we make
it violative of Federal law?
Mr. Hunter. That is probably one of the most difficult
types to address. Without looking at it personally, I don't
believe it is in violation. It's flattering because it's
probably a knock-off on Postal Service Priority Mail; we
appreciate the flattery but not the misuse of that well-known
product.
I think there will always be a gray area, even if we better
define what is prohibited in terms of techniques that are used
to entice people to open it.
Senator Cochran. This is another one of these scams on
raising money. On the back of it you have Ed McMahon and Dick
Clark for the American Family Publishers, ``Win now.'' This
came to one of my staff members, but it purports to be some
kind of official United States mail--``Important, Confidential
Documents Enclosed.'' So this is sort of a new twist. I had
never seen one of these before until my staff member showed it
to me.
Is this the kind of thing, Mr. Attorney General, that you
tried to put a stop to?
Mr. Butterworth. Senator, I have not seen that one, but if
it has Ed McMahon and Dick Clark on it, I'm sure we would look
at it.
Senator Cochran. On the back of it it says, ``Win now.
Match all three dollar amounts and you could win $250, $500, up
to $1,000, automatically. Break the bank,'' it says. Very
enticing.
Senator Levin.
Senator Levin. Thank you very much, Mr. Chairman.
First, Mr. Hunter, let me ask you about the Postal
Service's authority and how it is implemented in this area.
If we impose requirements on how these solicitations can be
made and how they can be policed, we should find out in advance
whether they are practical. We have to make sure that whatever
we do really works in the real world out there. I am just
wondering, in terms of the proposal that something that is
inside an envelope, if it contains something that is not
mailable, how do you know whether it's not mailable until after
you get a complaint about it? By then most of the damage will
be done, will it not?
Mr. Hunter. Well, that's the issue that you were debating
with Senator Campbell, and you're right. Of course, the
difficulty is that on the other hand you don't want everything
subject to inspection because then you cross over into another
constitutional concern.
So I think what you have to do in a situation like that is,
you do your best first to pass laws to try to clear up the
ambiguity, and that's a real challenge because you're up
against some very skilled marketing techniques. But then in
terms of the enforcement, that you have a quick way to learn
when something like that is happening.
One of the ideas I have that I'm working on with the Better
Business Bureau and others--and we have to wait for the Y2K
problem to be solved--is, I'd love to see a national capability
to learn when complaints are received, when the individual
Better Business Bureau receives them, the FTC receives them,
the Postal Service receives them, the States receive them. What
if we had an ability to store that information in a common
fashion and tap it, so that when something happens and each of
us receives, at first, one, two, three or four, so we probably
don't do much, because in the scheme of things it has to reach
a critical threshold so that we say, ``My goodness, look, in
the Nation there are a thousand of those out there now,'' and
then move in quickly with the tools that you were advocating
and I was advocating, the ability to go in with that subpoena
and immediately to determine whether or not it's legitimate,
whether or not they have the means to fulfill the offer that
they're purporting to make----
Senator Levin. You don't currently have that power, is that
correct?
Mr. Hunter. Well, we're asking for these subpoena powers.
Other agencies do; we do not, so that you could go in and
require proof that they are able to fulfill the claims that
they are making; and if they are not, then to invoke those
other capabilities like withholding the mail until it can be
resolved, so that you stop the bleeding, if you will, you stop
people from being victimized. And of course, in that regard
we're suggesting that some of those actions--because many
companies use multiple addresses, that the action, when you
take it in one location, would apply everywhere.
Senator Levin. The current mail fraud statute, as I read
it, on the administrative side provides a civil penalty if
there is an effort to evade a postal stop order. Is there a
penalty or civil fine of any kind, directly for violating the
existing law, for instance?
Mr. Hunter. No, there is not.
Senator Levin. Now, is there any reason why we shouldn't
add that--I'm not saying substitute it, but add it--to what we
already have in law? There are a whole lot of areas where we
provide, for instance, civil fines for violation of law; we
don't have to have an in-between step that you have to have an
administrative proceeding, a stop order or some kind of an
order, which in turn is violated, before we can impose a civil
fine if there is a violation of the underlying law or
regulation.
Is there any reason why we should not provide that
authority to you to directly seek a civil fine?
Mr. Hunter. Through the appropriate venues with the proper
review on the behalf of the defendant, no, I don't think there
is.
Probably the thing that we debated the most in preparing
for this testimony was what I feel is an absence of tougher
criminal penalties in some of these areas. We, of course, are
advocating--and you did, too--increased civil penalties, but
you may level those against people that can't pay them because
they've already spent the ill-gotten gain, or for whom it's
just not a sufficient penalty. But if you also have the
alternative of offering someone a limited diet and recreational
opportunities through a criminal prosecution, it may have even
more of a salutary effect.
I don't know. We'd need to work on that one.
Senator Levin. All right. Well, we'll work with you on that
one.
I want to just ask our Attorney General and our Assistant
Attorney General here that question in terms of Florida and
Michigan.
Is there an in-between step when you seek some kind of fine
or administrative fine or civil penalty, that there has to be
an order violated? Or can you go directly--through a process,
obviously; you have to have a process before you can have a
penalty or fine--but through that process, for the violation of
your underlying statute?
Mr. Butterworth. Basically in this case, with American
Family Publishers, we just filed a civil case against them. We
are involved in discovery now and everything else. But in some
cases, where they are very flagrant, we've been able to work
with the postal inspectors, in essence get stop orders, and
they work very well with us insofar as we know that a scam is
occurring. They will take the mail from the boxes, and we go
through the appropriate procedures in order to take down that
operation, and a lot of times we do go criminally against them.
But it would help, as Mr. Hunter was saying, it would help
us as attorneys general in working with the postal authorities.
Senator Levin. All right. So we're talking about a couple
of things. One is being able to go directly for civil
penalties, as well as strengthening your criminal penalties and
whatever civil penalties we provide, directly, or for violation
of a stop order. Is that correct?
Mr. Butterworth. Yes. And again, I think the biggest
challenge is going to be how we word what is prohibited, and of
course, there we need to hear from the third panel, the Direct
Marketing Association, because hopefully you receive some
agreement that legitimate members of the industry participate
in so that we aren't fighting in a gray, ambiguous area with
regards to whatever law there is.
Senator Levin. All right. Thank you.
Mr. Pruss. In Michigan--I should know the answer to this
question--is there a requirement for an in-between step, an
intermediate step, before you can seek either a civil fine or
an administrative penalty or civil relief against someone who
violates Michigan law?
Mr. Pruss. Not really, Senator Levin. Our primary
enforcement vehicle is the Michigan Consumer Protection Act,
and anything that confuses a person with respect to their legal
rights and obligations and duties and so forth is a per se
violation of that act, and we can proceed in court for civil
penalties, which aren't very high unless the violation is
``knowing and persistent,'' in which case it's $25,000. But not
per diem, necessarily, and not per event. That's ambiguous and
unclear.
There is, however, a notice procedure. Before we file in
court we are obligated to file what is called a ``Notice of
Intended Action,'' an attempt to work this out consensually
with the party. Absent that agreement, however, we can proceed
directly to court.
Senator Levin. Thank you. Thank you, Mr. Chairman.
Senator Cochran. Thank you, Senator Levin.
Senator Collins.
Senator Collins. Thank you very much, Mr. Chairman.
Mr. Hunter, I am particularly concerned about the
government look-alike mailings. Senator Cochran held up the
example that he received at home, and when I am looking at it
more closely I notice at the bottom it says, ``Buy and hold
U.S. Savings Bonds.'' It has an eagle. It's the same color
envelope that our expense reimbursement checks come in.
I also look at what Publishers Clearinghouse sends. The
return receipt card is so similar to the legitimate return
receipt card that the Postal Service uses--it's a different
color, but other than that, it's set up in an extremely similar
manner.
Similarly, the postcard which I brought up first, which
fortunately you had a blown-up version of, that was sent to me
by my constituent, ``Urgent Delivery,'' ``Official business,
U.S. Government''--those words, used over and over again. And I
want to read to you what my constituent wrote to me. She said,
``This is the first time that I have known that the U.S.
Government is holding money that belongs to me, and all I have
to do is to send in less than $10 and I can get my money.''
This is outrageous. This really troubles me. And I know that
you quickly and effectively issued a cease and desist order to
stop this individual and to order him to make refunds, but is
that all we're doing? Shouldn't we at least impose a fine?
Shouldn't we have a civil penalty process that the Postal
Service can undertake up front, rather than only if he violates
your order?
We just need to be much tougher on this. The reason people
are answering is they assume that it must be legitimate,
because how could someone do this, otherwise? How could they
get these offers in the mail that look so official, that have
U.S. Government on them? People understandably assume that
we're protecting them.
I'd like to know, did anything else happen to this
individual, other than his being ordered to give back the
money?
Mr. Hunter. Well, I think you're getting to the essence of
what I was talking about and some of the proposals we're
making. I think some of these civil and administrative
procedures are not tough enough. So I agree; you have expressed
it more articulately than I could, and the three of us welcome
you as the most articulate member of this panel. [Laughter.]
Senator Collins. But in this particular case, was there any
fine imposed by anybody that you're aware of, by State
government or by the FTC or----
Mr. Hunter. Not that I'm aware of, no.
Senator Collins. See, that really troubles me, because that
means that the chances of your getting off scot-free, or simply
just being ordered to refund the money and that being the only
penalty, is very troubling. There has to be more of a penalty
for deliberately deceiving people, like this woman from
Machiasport, Maine, into sending money. There has to be more of
a penalty than just telling the deceptive individual or
company, ``Give the money back.''
I would hope that all of us who are concerned about this
issue can join together and work with you and your colleagues
at the State level to figure out how we can toughen the laws so
that there will be some sort of deterrent up front that will
discourage people from engaging in these practices.
Mr. Hunter. We would very much welcome that. Too often
people start new schemes--I mean, recidivism in this area is a
problem. It's just profitable enough; they make enough before
we shut them down that they're enticed to do it again.
Senator Collins. The final comment I will make is that I
suspect you also see that once you shut down one scam, that the
individual pops up somewhere else with a different scam. That
certainly is the pattern in a lot of telephone fraud cases, and
also securities scams, which I've held hearings on. It's so
frustrating to see, for example, a rogue broker who has ripped
off elderly people and essentially stolen their savings be
discharged by his brokerage firm, and then pop up and do
business with another one.
I just think we need to be much tougher and make sure that
this deception doesn't pay.
Thank you, Mr. Chairman.
Senator Cochran. Thank you, Senator, for your excellent
comments. I think you have shown us the way, and that is that
we ought to work together to try to put before the Senate a
plan and a strategy reflected in legislation to toughen up
these laws. We need to put a stop to some of these scams and
these fraudulent practices. There's no telling--and we don't
know--how much money it is costing the American people and how
much heartache and difficulty families are suffering because of
these activities that we need to do something about. Thank you
very much.
Senator Levin. Could I just ask one additional question?
Senator Cochran. Sure.
Senator Levin. I will be proposing specific fines and
penalties, administrative fines and penalties legislation, so
that we don't have to go through this extra step which seems to
me to be unnecessary. To go through a whole step to get an
order, which you then have to prove is violated, before you can
impose a fine or a penalty is just too big a loophole.
So what I'll be proposing will be at least the option of
going directly to the fine or the penalty without having to go
through that step, so that you don't have to have an extra and
unnecessary step--unless you choose to take it, for whatever
purpose you might.
But part of that proposal relates to the questions of, what
is a violation? Right now, $10,000 per violation, to me, is far
too weak. We will be toughening that $10,000 provision
significantly. But what is a violation? If you send out 100,000
deceptive letters, is it one violation or 100,000 violations? I
think it's 100,000 violations.
Mr. Hunter. It would be very good to make that intent very
clear as you draft that legislation, whether it's each piece of
mail or each mailing----
Senator Levin. Well, I intend to do that, because if there
was one deceptive letter sent to somebody that resulted in that
person being defrauded, hopefully you would go after that
person who sent that deceptive letter. One letter is enough to
trigger our law.
Well, if there are 10,000 letters, there ought to be 10,000
violations. The only way we're going to deter these guys, it
seems to me, is if we let them know that they're not going to
profit from their deception. It's the only way to stop them.
They're in it for profit. We have names there that are well-
known and still trusted by people despite all the deceptions
which they've helped to perpetrate. We have to stop it by going
after the profit, taking the profit out of it, and it seems to
me we can't any longer define a violation as sending out 1
million pieces of mail that are deceptive. That's a million
violations to me, and I intend to make it clear that every
letter that is deceptive, that violates our law, constitutes a
violation in and of itself.
Mr. Hunter. I like your thinking, and I also like your
thinking that the losses don't need to build to a certain
point, that there is a certain level of damage before action is
taken. So I appreciate that.
Again, the biggest challenge is what is prohibited, and how
do we best word this? But I am sitting here pinching myself,
wondering if I'm asleep. I'm not used to hearings in which
there is so much agreement, so I appreciate this and look
forward to working with you.
Senator Cochran. Thank you very much for your assistance.
We appreciate it, Mr. Hunter, and the Attorneys General who
have been here with us today, thank you very much.
Our next panel is Richard Barton, who is Senior Vice
President of the Direct Marketing Association, and Dr. William
Arnold from Arizona State University. We thank you for being
here today to help us understand what the problems are and what
some of the possible solutions will be for dealing with this
ever-growing crisis that we have in our country.
Mr. Barton, we have a copy of your statement. We will have
it printed in the record in full. We encourage you to make such
summary comments from that statement that you think are
appropriate. You may proceed.
STATEMENT OF RICHARD A. BARTON,\1\ SENIOR VICE PRESIDENT,
DIRECT MARKETING ASSOCIATION, INC.
Mr. Barton. Senator Cochran, Senator Levin, and Senator
Collins, I was going to say that I am very pleased to be here
to testify before you. I'll have to amend that a little bit and
say, I think I'm very pleased to be here to testify before you
to discuss with you the Direct Marketing Association's members
and the legitimate sweepstakes--and the fraudulent sweepstakes,
which we really want to make a clear, fine line distinction
between the two when we are discussing that today, and what we
as an industry can do to resolve both the problems that we've
been discussing about fraudulent sweepstakes, defrauding
people, and about what we consider--and we can discuss this
later on--inappropriate or bad responses to what we consider
legitimate sweepstakes, and what we can do to reduce those,
also.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Barton appears in the Appendix on
page 82.
---------------------------------------------------------------------------
First, a short description of the Direct Marketing
Association. We are a trade association with 4,100 members
internationally, 3,700 domestic corporations, involved in every
form of direct marketing--not only mail, but also telephone,
growing marketing on the Internet, and any kind of direct
response marketing. We estimate through WEFA studies that total
direct marketing comes to about $1.2 trillion in terms of total
revenues, and about $390 billion of that--these are not
sweepstakes, Senator Levin--about $390 billion of that,
however, is through the mail. So we are dealing with what we
consider a significant segment of the American economy, of
which the sweepstakes are a part; not $390 billion, but an
important part that we would like to discuss with you.
Every fact that we have been able to put together over the
past 30 or 40 years or so of legitimate sweepstakes shows that
people like them, that they respond to them, and that in most
cases they respond to them in a positive way. We estimate that
probably more than a billion sweepstakes promotions--legitimate
sweepstakes promotions--are sent out every year. It may even be
more than that; we don't have precise numbers, but it's a lot.
Roper Surveys indicate that 29 percent of all American
adults respond to one sweepstakes a year, at least one
sweepstakes a year, and some of them respond to even more.
That's 29 percent, or about 55 million Americans. Of those,
about 38 percent of the 29 percent made a purchase by
responding to the sweepstakes, and 62 percent did not make a
purchase.
And finally, just to give you some idea of the significance
of this to the economy, we estimate that approximately one-
third, for example, of all magazine subscriptions in the
country are sold through sweepstakes promotions.
We recognize with you definitely that the series of
problems that you are talking about are of great concern to us.
The first is that fraudulent sweepstakes are a growing problem,
and they are simply a growing problem because of the popularity
of those legitimate sweepstakes, and there are many knock-offs
of the current legitimate sweepstakes. In fact, the Michigan
Attorney General mentioned one which involved the Publishers
Clearinghouse, which in fact was a fraudulent scam knock-off of
Publishers Clearinghouse that was making the telephone calls.
But we are very concerned about these fraudulent outfits
because not only do they defraud people and cause people a lot
of money, but they also cast aspersions upon a legitimate
industry.
I have to emphasize throughout this entire conversation
that we're having with you that the hallmark or the actual
cornerstone of successful direct marketing is the trust of the
American public, because we're dealing at arm's length with the
process. You don't go into a store and talk to an owner or a
clerk whom you know; you're dealing with an arm's length
process, and it is absolutely essential that people trust the
process, trust us, and we have been very supportive of
legislation and activities on the part of many of the people
who are here today to try to eliminate fraud and even
questionable promotions which don't cross the line of fraud.
The fraudulent sweepstakes, as you point out, are often
aimed at the elderly. Legitimate sweepstakes generally are not
aimed at anybody except a broad cross-section of the American
public. They often look like legitimate sweepstakes to the
point that they even copy the logos in many cases, but--and
this is a very big but--in all cases, in one way or another,
the fraudulent sweepstakes require some sort of payment before
you can receive a prize or whatever they're offering, and that
is absolutely not the case with legitimate sweepstakes. If
anyone--and we use this in all of our literature--is asked to
pay to receive a prize or a consideration from a sweepstakes
promotion, that promotion is illegal, is a scam, and should not
be responded to in any way other than to turn materials over to
law enforcement officials.
This association, certainly in the 20 years that I've been
associated with it and longer than that, has been involved in
many activities to fight fraud. We deal on an almost daily
basis with the Chief Postal Inspector, Ken Hunter, and his
people in the Postal Inspection Service. We deal very closely
with the Federal Trade Commission, with the State Attorneys
General, and in what is usually a positive relationship with
other law enforcement agencies. In fact, I have a pamphlet
here, ``Sweepstakes Advertising: A Consumer's Guide,'' which is
a piece that the Direct Marketing Association sponsors in
conjunction with the Postal Inspection Service to describe how
to spot fraudulent sweepstakes operations and what legitimate
sweepstakes are all about.
We also work--and I'm going to make an offer today to
increase that work, including with you--with consumers'
organizations, such as the National Consumers League, on a
regular basis; the National Fraud Information Center, which is
a very growingly important method of fighting fraud; and the
Council of Better Business Bureaus.
We also have an Ethics Committee. In fact, we have two
Ethics Committees; I think we're the only trade association in
the world that has two Ethics Committees. They consider cases
against companies or against promotions which people think are
deceptive, are unethical, and/or illegal. We have an extensive
process in which we confidentially hear cases against
companies, and we make a very strong effort within that process
to resolve those differences, to get the companies to stop
their unethical promotions, that we would consider unethical.
In most cases we are quite successful with this.
It used to be a confidential process. The board has now
agreed, overcoming some problems with antitrust laws, that we
are going to begin to publicize that process, and in every case
that we have companies that do not agree to follow the ethical
guidelines of the association, we will publicize their names
and even bring action against them in appropriate cases, before
our own board, to have them dismissed from the Direct Marketing
Association.
Senator Levin and Chief Inspector Hunter were discussing
the possibility of stronger laws against fraud, and we have
generally--the history of the association is to support
stronger fraud laws. We can discuss a little bit later the work
that we did with the Postal Inspection Service and with
Congress in tightening up the laws against government look-
alike envelopes around 10 or 12 years ago, I think it was,
which we thought was important, and the difficulty you might
have in expanding that law. But we are in favor of stronger
laws to get more tools to the Postal Service and other law
enforcement agencies, such as the Federal Trade Commission, to
fight scams and frauds.
But we also think that there are a lot of laws on the books
now, and that we can have even more vigorous enforcement both
by law enforcement agencies and also by consumer organizations
and our own association to more vigorously fight fraud.
Now, let me make a few points here about what I am going to
call ``legitimate sweepstakes.'' The legitimate sweepstakes--
some of the companies which you've been discussing here today--
always, there cannot or there certainly should not be any
deviation from this, certainly as far as our code of ethical
business practice, which I have here and which has been
available to the Subcommittee--never require a purchase to win.
If there is any sweepstakes that requires a purchase to win and
does not say that they don't require a purchase to win, it is
not a legitimate sweepstakes. There is full disclosure in all
sweepstakes that a person has not necessarily won. We can
discuss and argue over sizes of type and placement, which is a
fine thing to do, but it should be very clear to the American
public and the people here that a person who receives a prize
notice has not necessarily won that prize.
Also, and this can be proven by statistics, that the people
who do not have equal chances as people who do order to win
sweepstakes. In fact, as we've shown here today and can show
anywhere, most people who win sweepstakes prizes do not order
from the sweepstakes companies.
Now, that being said, I want to underline here that this
association and the members of the association and the
companies we have been discussing are very concerned about the
comments that were brought up by the two Attorneys General and
by the Members of the Subcommittee about, frankly--it's true,
we do consider most of the highly-publicized cases of people
who have been hurt by their response to these sweepstakes, by
what we would call inappropriate responses to the sweepstakes.
Not all, but a lot of them are. And we're dealing with a
situation which, as a matter of fact, frankly, concerns us very
much and baffles us a little bit, because it should be clear
that in fact people don't have to perform in the way they do--
for example, get on airplanes and fly down to Tampa, or to make
a payment which would be illegal to get a sweepstakes, or to
buy huge amounts of material in order to enhance their chances
to win. We think that some people are actually misled, perhaps,
by some of the promotions that we do, and we need to look at
those carefully to be sure that in fact they do not mislead
people, without affecting the important advertising message of
those sweepstakes promotions and the advertising message in
general.
But we are very concerned about that. We believe, and we
came to a conclusion some months ago, that the industry needs
to make a redoubled effort to work not only with law
enforcement officials, but also with the Congress and with our
own members and with the companies in order to be able to
assure, as much as we can possibly assure, that people are not
misled and people do not inappropriately respond to legitimate
sweepstakes.
But--and this is a big but--we think that the proposed
legislation, and we're talking about Senator Campbell's S.
2141, which we've discussed with him at some length, is not the
answer. I'm not rejecting all the other proposals that have
been discussed here from the Postal Inspection Service and from
Senator Levin. It's quite possible we can support those, or
some of those, although I would have to go back to our people
and see what we can do with that.
But the proposed legislation very simply says that in very
large type you will have on the front of the envelope--and on
the first page, I believe it is, of the material in the
envelope--very large type, which is 16-point type inside, and
I've forgotten what it is on the front of the envelope, saying
something to the effect that ``you haven't necessarily won.''
That is absolutely true. We believe that that should be clear
in any kind of promotion, that you have not necessarily won.
But to do it the way that Senator Campbell's bill does it, we
believe very strongly would reduce the sales response to the
sweepstakes to such a radical point that it would conceivably
put a lot of them out of business.
And it's a very simple thing. This is almost an advertising
truism: If you have on the front of an envelope any negative
kind of thing--we even look at it in view of certain colors,
which are sort of perceived as negative--any kind of major
negative language, they will not open the envelope. And opening
the envelope is what we have to get people to do before they
will even consider the product. It is the same concept as space
advertising in the newspaper, getting people to come into the
store. This is getting the people to come into our store, and
if you have any kind of negative advertising--negative
statements on the front; not even advertising, but negative
statements on the front--the tendency will be that people will
not open the envelope. Even the Federal Trade Commission
recognizes that much can be resolved once you open the
envelope; the issue is clear.
The second thing is that while we completely agree that
disclaimers must be clear, and it should be clear that a person
has not necessarily won, if you put that on the top of an
envelope in 16-point type--and I think you can see in my
testimony how large 16-point type is, and you saw some of it up
there in terms of some of the signs that we had up there--that
at the top of the envelope you will have the same negative
thing. It would be like putting at the top of a political
advertising piece or a political letter that you send out to
get people to go vote, ``These are the views of the candidate
and they may or may not be true,'' 16-point type across there,
and then you're not going to get your envelope opened, either.
And that envelope opening is going into yours and our store,
going to the voting booth.
If this is a matter of advertising, to dictate the kind and
size of type and the precise message--which is a negative
message--on an envelope and inside in this nature, we think it
would very, very substantially reduce our spots.
Now, that being said, there are many other things, we
believe, that Senator Campbell and this Subcommittee are moving
in the right direction on, in expressing concern and trying to
do something about many of the things that are happening. We
are willing to work with you all on language for any kind of
legislation. And more importantly, as I will describe, to close
a strong industry approach to improve this situation.
What can we do? Well, I've already outlined very briefly
our current ethics process. We are making a commitment here at
this hearing, right now, as an industry to do several things
right away, to move on as quickly as possible.
First, strengthening our sweepstakes guidelines, which are
included in our ethical business practice, to provide and
require even clearer explanations of sweepstakes programs and
what they do and do not do.
Second, in developing company programs to identify quickly
high activity respondents, such as we've been discussing here,
so that we can go to them and inform them that they need not
buy and that no purchase is necessary. In fact, some of our
companies already do that, and to very good effect, I think, in
many cases. And, if necessary--which it often would prove
necessary--removing them from the mailing list. Someone here
mentioned requirements that people be removed from the mailing
list. We have a national program to do that, and it's also
going to be a requirement of our members that they remove
people from mailing lists when asked, beginning in 1999, or
they will not be able to be members of DMA. So we think it
would be appropriate to identify some of these high-level
respondents who are responding inappropriately and remove them
from our mailing lists, and discuss the issue with them.
We want to have a better program of training customer
service representatives in companies to identify problem cases;
to work with relatives, which we do sometimes; provide name
suppression, cancellations, and refunds, where necessary. We
are committing ourselves to developing a coordinated national
consumer information program to educate consumers about the
operation of sweepstakes and how consumers can detect
fraudulent sweepstakes. And we are willing to serve as a
clearinghouse for consumer complaints, which we already do to a
certain extent through our mail-order action line about
sweepstakes, and pass the complaints to law enforcement
officials as we do already, and also to pass on the other
complaints, if necessary, to our Ethics Committees or to
resolve them on the spot, which is what we would prefer to do;
and to establish a more effective relationship with the
consumer organizations that we already have a relationship with
to improve the information that they have about legitimate and
fraudulent sweepstakes.
The conclusion here, really, is that we are as concerned as
you are. You are in some ways, frankly, describing an industry
of legitimate sweepstakes that I am not familiar with because
of the characterization of this industry in rather unflattering
terms as people who are out to grab a dollar and do nothing
else. That's not the industry that I work for, and it is also
not an industry which in fact is going to succeed over a long
period of time because people will lose trust and confidence,
and we want to build and maintain that trust and confidence.
So we are very strongly interested in working with you,
Senators Levin, Collins, and Cochran, and Senator Campbell, in
working out solutions to these problems, in which we think a
good bit can be done by increasing our activities as an
industry in ethical guidelines and consumer education.
Thank you, Mr. Chairman.
Senator Cochran. Thank you, Mr. Barton, for your testimony.
Dr. Arnold, Professor of Gerontology, from Arizona State
University. Welcome. You may proceed.
STATEMENT OF WILLIAM E. ARNOLD, Ph.D.,\1\ DIRECTOR OF
GERONTOLOGY, ARIZONA STATE UNIVERSITY
Mr. Arnold. Thank you, Chairman Cochran, Senator Collins,
and Senator Levin. I guess Mr. Barton and I will be disagreeing
a little bit here in a few minutes over some of the things that
have been said, just to spice things up a little bit.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Arnold appears in the Appendix on
page 89.
---------------------------------------------------------------------------
I'm not going to read my remarks. I am going to make three
points. I have a couple of stories to begin with. I want to
talk briefly about the research that I did, and then make some
recommendations.
I got this on Friday: ``Express Document, Rush Priority,
Rush to Addressee, Extremely Important.'' It has the eagle on
there; maybe we ought to put a tiger on it instead. That might
slow things down. And then some more ``Rush'' on the other
side. No mention of the name of the company that sent it; it
turns out to be a mortgage company that wants me to subscribe.
I got that catalog from Michigan, Senator, and I wondered
if I had won, so I'm glad to know that you're working on that.
I got a call about 3 weeks ago on a radio program from a
person in Iowa whose mother lives in your State, and she was
ready to hop on a plane and fly to New York to collect her
prize, but he was fortunately able to talk her out of it.
Those are the stories. We've heard lots of stories far
bigger and stronger than I can make, but I want to skip over to
page 11 of the paper that I have for you and talk about two
pieces of research, and I think you have a document in front of
you that describes what this study was all about.
Essentially, in the first study I asked seniors in three
different senior centers to respond to the statements, and the
statements that you have are there. I gave them the statement,
``Open at once. Prize payment guaranteed to winners inside.''
Senator Cochran. This is the document that you're referring
to, right here?
Mr. Arnold. Right. And it's in black and white in the
copies that have been given to everybody else.
So they got that first statement, and I said, ``OK, how
likely are you to open that document if you just see that
single statement, `Open at once,' in red type?'' And 39 percent
said they would open it up, and another 61 percent said not
likely.
So I asked then another question with the second statement
that says, ``Notice: Postmaster, the security of this package
is guaranteed,'' and you've got that statement. Fascinating
results; 57 percent now said they would open it. The percentage
increased when the statement was there from the Postmaster, and
I think that Mr. Hunter stated very clearly why our seniors are
responding the way they do. They have trust and confidence in
the Post Office, so they read a statement like that and it
suggests to them, ``This is probably OK to go ahead and open
up.''
I got another piece--and we'll be studying this very
shortly--this is something new I had not seen, tamper-proof, a
piece of tape that says ``If this seal is broken at time of
arrival, please notify your local postal authorities.'' Again,
it's the same kind of thing, appealing to the credibility of
the Post Office. Quite frankly, I have not opened it, so I'm
not even sure who it is from. But that was the kind of thing
that increased the willingness to open the envelope if they saw
it was from the Post Office.
The third was a warning similar to what Senator Campbell
was proposing. I put that on there, and I said, ``By itself, if
you just saw that on the envelope and nothing else, how likely
are you to open it?'' And the response was that 86 percent
would not open the envelope. So if we took Senator Campbell's
proposal and put that on the envelope alone, then I think Mr.
Barton is right, people would probably throw it away.
The next study. I combined all three on an envelope that
looks like this, handed that to them, and then said, ``OK, tell
me what you notice first.'' And 78 percent said they noticed
``Open at once, prize payment inside.'' Only 9 percent even
noticed the statement about the contents.
So I said, ``OK, then, given that data, how likely are you
to go ahead and open the envelope?'' What did they say? We had
78 percent that ignored the contest and would say, ``I'm going
to go ahead and open it; there's something in there for me.''
Senator Cochran. You said, ignored the contest?
Mr. Arnold. They ignored the content of this message, that
this was a contest, their chances--I only put 80 million to 1;
I've heard 120 million to 1 would be more appropriate. ``You do
not have to play''--that was ignored by 78 percent.
So what's the third and final point? It seems to me that
legislation may work, but I think we need to do more in
figuring out where we place this if we allow this to be on
there alone. Do we put it on the back side, like a piece of
tape, and say, ``This is a contest''? We're going to do that
research because we think we need to do more. Maybe we need to
put that in red and the other messages in the black and white.
So that's what we're going to be doing by way of research.
The second suggestion is that maybe we need to define what
it means to have a sweepstakes. What does that mean to
everybody who responds to it?
Third, we're going to be studying--now that we've seen the
UnionGram, and there are others that we know are patently
illegal and should be stopped--we want to study the content of
those versus the ones used by the legitimate marketing firms to
see where there are differences.
Fourth, I think we need to look at--as, again, Mr. Barton
has pointed out--the specific type size and placement, and
we've seen plenty of examples of things that we need to do
there. But we need to test that along with cognitive abilities,
attitudes towards the U.S. Government, because obviously if
tampering is an issue, then we have a great deal of respect so
we watch the messages that we get across.
And finally, I guess I would call for--and what I've heard
a lot of folks calling for--a group getting together to decide
what kind of information we should have, what kind of
enforcement we should have, involve gerontologist around the
country and communications people who can look at that so that
they can help you come up with the most effective pieces of
legislation.
Thank you very much.
Senator Cochran. Thank you, Dr. Arnold.
I showed some copies of correspondence that I had received
and my staff had received to the earlier panel, and I was
curious to know, Mr. Barton, whether your guidelines that you
discussed for the Direct Marketing Association would be
violated by any of these mailings that we received.
First of all, this government--appearing to be a government
check, that came to me, whether there is anything in that, and
one of my staff members had one almost exactly like it. Both of
these turn out to be from loan companies. There's no harm done,
I guess, if we don't take out the loan, but they both appear to
be letters from the government containing a government check,
payable to the addressee. Is there anything in your guidelines
that would be violated?
Mr. Barton. I don't know, because that would have to be a
matter of committee study and interpretation. The closer it
gets to look like an actual government envelope, the closer it
comes to violating our ethical guidelines. Of course, if you
take an actual government envelope, it's illegal. That's one of
the things that we worked on.
So what I've been saying is that it would at least be worth
taking a look at. I can't say here, right now, whether it would
violate the guidelines. However, I would point out, without
defending what that envelope looks like or what's on the front
of the envelope, the instant you opened it you knew what it
was. In any direct marketing context--and I think even the
Federal Trade Commission would say that a lot of hyperbole on
the front of an envelope is resolved the minute you open it if
it is in fact clear that it is not a government check, which it
is not, and that what it is is an offer of credit.
But in terms of that specific envelope, I really would have
to take it and run it through--which is a quasi-legal process,
our guidelines. I'm not sure, frankly, whether or not the
Committee has recently taken up any of those. I will find out
for you and give you a written statement on it.
Senator Cochran. One other question I have about your
guidelines relates to the enforcement. You mentioned that if
someone did violate the guidelines, that they could be
dismissed as members of the association. Do you have any other
sanctions that are imposed for violating the guidelines, other
than just no longer being able to be a member of the Direct
Marketing Association?
Mr. Barton. Well, from this point on we will publicize it,
even if it doesn't come to the point of dismissal from the
association. We will make public the names of the companies
which we have determined have violated the ethical guidelines,
and distribute that information to the consumer organizations
that we deal with, and it will become public knowledge.
We think, certainly, for legitimate companies, that that's
a substantial problem for them. But dismissal, frankly, is
probably going to be used more and more as a sanction, and it
turns out that that's a pretty good sanction because most of
the people in this business do not want to be looked on as
pariahs. But that's really the best I can say about that.
In terms of--this is not exactly in terms of the ethics and
the law--also we are starting a national program to require
companies to remove names from mailing lists when they are
requested to, and that would include the kinds of things we're
talking about here, with people's inappropriate behavior to
sweepstakes, which we would determine that their names should
be removed from mailing lists, and to use all the programs that
we use for people who ask to get off of mailing lists. That
would be a requirement for membership, and they would be
dismissed, too, if they didn't do that.
Senator Cochran. Dr. Arnold, in your judgment are those who
are vulnerable to deceptive and fraudulent practices--can they
be educated with tips and other advice in a way that would
permit them to be more likely to resist falling for some of
these scams and being duped or ripped off by them?
Mr. Arnold. Let me make two points on that. First, I hope
so, because I'm in the wrong business if I'm in education and
we can't educate folks.
But second, let me give you a specific. One of the things
we discovered in doing the second piece of research was that
our seniors didn't fully comprehend what bulk mail meant. I
said, ``How was it mailed to you?'' And they said, ``Well, it
says U.S. postage.'' I said, ``Well, what does that mean?''
``Well, it's bulky, and it came from someone,'' so they did not
distinguish between what would be bulk rate, what would be
first class, what might even be Priority Mail. So I think
that's an issue we could look at, and I think that's part of
the education.
The other point that I did not make, that perhaps we ought
to take off notices that are on letters and envelopes like this
where the Postmaster secures from tampering--maybe that's doing
more harm than good by having that.
Senator Cochran. It legitimizes the mailing?
Mr. Arnold. And they see that the Postmaster approves of
this because it's protected from tampering. Take that off, and
the percentage that we got would be reduced to the ``Open at
once.''
Senator Cochran. Senator Levin.
Senator Levin. How many members are there of your
association?
Mr. Barton. There are 4,100 companies.
Senator Levin. There's a bankruptcy petition here which was
filed by some company called Direct American Marketers, Inc.
Are you familiar with them?
Mr. Barton. I know of them, yes. They are not members of
ours.
Senator Levin. They operated under--it looks to me--about
700 different names, one company.
Mr. Barton. I know that they operated under a lot of
different names. I don't know which ones----
Senator Levin. I made a quick count. It looks like about
100 per page, and there are seven pages. I doubt that any one
of them were members of your association.
Mr. Barton. No.
Senator Levin. If so, what sanctions would you have taken
against this kind of an operation?
Mr. Barton. They were members of ours, Senator, and they're
no longer members. We did have an ethics case against them.
There were recommendations about dismissal, and they left
membership in the association.
Senator Levin. Before you dismissed them?
Mr. Barton. I believe so. That's a while ago. I believe so,
yes.
Senator Levin. That will give you an idea, folks, of the
way these companies operate. These names, using the word
``award'' to begin with --``Award Administrator for
Disbursements Division,'' ``Award Auditing Division,'' ``Award
Claims Center,'' ``Award Claims Centre'' spelled differently,
``Award Disbursement Unit,'' ``Award Notification Director,''
``Award Notification Services,'' ``Award Payment Determination
Center,'' ``Award Payment''--I mean, it just goes on and on and
on, page after page after page, one company using about 750
different names.
I would like to make that part of the record.\1\
---------------------------------------------------------------------------
\1\ The list of other names used by the debtor submitted by Senator
Levin appears in the Appendix on page 165.
---------------------------------------------------------------------------
Senator Cochran. Without objection, so ordered.
Senator Levin. Mr. Barton, I'd like to show you a chart
here, if you would. Could you put the chart up there for me?
I want to ask you whether or not, in your judgment, this
chart complies with your ethics requirements. I know that you
have a committee there that looks at these, but I'd like you
just to give us your own personal opinion, not binding on your
committee.\1\
---------------------------------------------------------------------------
\1\ The Chart referred to by Senator Levin appears in the Appendix
on page 171.
---------------------------------------------------------------------------
Mr. Barton. I can't even read the type. [Laughter.]
Senator Levin. That's my point. I appreciate it. Next
exhibit. [Laughter.]
Take a look at the words, ``The judging is now final. Mr.
Bruce''--whatever his last name is--``is one of our $1,666,000
winners.'' \3\
---------------------------------------------------------------------------
\3\ The exhibit referred to appears in the Appendix on page 172.
---------------------------------------------------------------------------
Now, Mr. Bruce, with his last name, is going to see that
pretty boldly. Here you are, one of our winners. I mean, my
gosh, that will get someone's attention. But above that, it
doesn't look like anything; there are some very small words.
Can you point those words out? Above, on the official
notification--just point to them.
Mr. Barton. On the official notification, above----
Senator Levin. Yes, that little line above there. Keep
going, higher, higher, higher--lower, lower. There. [Laughter.]
There. You got it. Now, I'm going to read that line to you
that nobody can find; even my staff member, who is an expert on
this subject, can't find the line.
``If you have and return the grand prize winning number,
we'll declare''--that little unreadable line makes this legal
under current law. That's not my question--we're going to try
to make it illegal under new law, by the way. I'm saying that
right now. But under current law, because that little
unreadable line is there that says, ``If you have and return
the grand prize winning number, we'll declare''--then they go
on to say, in type this big, ``the judging is now final. Mr.
Bruce so-and-so is one of our $1,666,000 winners.''
Now, if that isn't deceptive, I don't know what in the hell
is.
Mr. Barton. Well, I'm not going to say--I don't know
whether the Ethics Committee would find it deceptive or not
deceptive. It's on the edge. But it does say--so now we're
talking about size of type, because it does say, ``If you have
and return the grand prize winning number, we'll declare,'' and
it does say at the bottom, ``If you have and return the grand
prize winning number, we will officially declare it as
confirmed,'' which is at the top of the piece on the second
page, I believe.
Senator Levin. But you see, your own ethics requirements
talk about size, and that's why I want to get to your own
ethics requirements, because Article 3 says, ``Representations
which by their size are unlikely to be noticed''----
Mr. Barton. Yes, but we don't determine what the size is.
And this would, frankly, probably be one of the things that we
would be working on in order to expand our ethical guidelines.
Senator Levin. Do you think that little thing there is
likely to be noticed? We can't even find it. My intrepid staff
member, who is an expert, can't even find it. She probably
knows more about that form than anybody else in the room.
Mr. Barton. Well, in one way or another, millions of people
do notice it, or at least do know that they haven't won.
Senator Levin. I'm worried about the millions that don't
notice it, by the way. I'm not worried about the few that are
so used to these scams that they look for the ways in which
these hooks are attempted to put into people's hides.
I'm just asking you, as a rational and reasonable human
being, in your judgment, given the location of that and the
size of that, is that likely to be noticed under your own
guidelines? Because if it is, your guidelines aren't worth
anything.
Mr. Barton. I don't know what we would determine in our
Ethics Committee about the guidelines.
Senator Levin. Would you take that up with your Ethics
Committee?
Mr. Barton. Yes, I certainly would.
Senator Levin. How long would it take you to let us know?
Mr. Barton. A month or two. They meet once a month, so give
me a little bit longer than that.
Senator Levin. All right, if you could do that.
Now, that's Article 3 of your ethics rules,
``Representations which by their size and placement are
unlikely to be noticed.'' That's one.
Mr. Barton. Right.
Senator Levin. Now if you could put up the official rules.
This is on the envelope that that thing came in. Would you
say that by the size of that, that they are unlikely to be
understood or read?
Mr. Barton. I think they would be unlikely to be read,
frankly, and one of the reasons you put official rules like
this--I mean, there are a lot of legal requirements, not in
connection with this, that you put official statements on
pieces of paper, and they're all in very small type, because
you don't want to take up a lot of space from the message.
I don't know whether we would talk about putting that in
bigger type. I think that the important thing is not to have
all the official rules in large type. The important thing would
be to make it clear that in fact you have not necessarily won.
Senator Levin. Yes.
Mr. Barton. And I think that that kind of language, which
you see on thousands of documents and legal documents of all
kinds--not language, but size of type--I don't really think
that's what we're talking about here. I think we're talking
about, is it going to be clear to somebody that you have not
necessarily won?
Senator Levin. Well, it says in your Article 25 that ``the
terms and conditions should be easy to read.'' Those are the
terms and conditions, one of which says ``no purchase
necessary.'' By the way, that's only because I have strong
glasses on and read it 23 times; that's the only way I can even
find it. And there's another one hidden in there that talks
about your odds on this thing, which I can't even read now with
my glasses on, but it's--well, the prize bonus here, it says
that the first prize is $25,000. That's the first prize,
$25,000.
This is what came in that envelope, ``Judging is now final,
and Mr. Bruce so-and-so is one of our $1,666,000 winners.''
Mr. Barton. I would have to look at that very carefully
because that doesn't make sense. I agree with you, it doesn't
make sense.
Senator Levin. OK, it would be very helpful if your
committee could get back to us with that, plus some other
exhibits which we will give to you--if the Chairman is willing
to do this--to give to Mr. Barton a number of these documents
that we have used, and ask them to get back to the Subcommittee
with whether or not--the decision of their committee on whether
or not these exhibits that we are using here comply with their
rules.
Finally--is that agreeable to the Chair?
Senator Cochran. It's certainly agreeable, and we hope you
will be able to help us with that.
Mr. Barton. We will treat you as an official complainant.
Senator Cochran. Good. Thank you. I think you got more than
one.
Senator Levin. One final comment. Is there any reason why
we should not make your ethical guidelines law?
Mr. Barton. Well, you will have to admit that they are
awfully vague to be put into law. [Laughter.]
And I'm saying that in a positive way. Laws have to be very
precise.
Senator Levin. Well, criminal laws surely do, but I'm
talking about civil fines and administrative fines. And when
you say here that ``Offers should be clear, honest and complete
so that the consumer may know the exact nature of what is being
offered,'' ``Representations which by their size or placement
are unlikely to be noticed,'' I think that may be clear enough
for administrative and civil fines.
But in any event, would you give us----
Mr. Barton. Let us look at it. You know, the changes in law
that you were discussing with Ken Hunter were things that I
think that we can look at and, probably, positively respond to,
a lot of them, and let us look at that, too.
Senator Levin. Good. Thank you.
I just have one question for Dr. Arnold and then I'll be
done.
Your testimony was also very fascinating, I must tell you,
because what it really is warning us of is that we can think
we're really accomplishing something by writing a law, but we
may not accomplish it at all. For instance, that warning about
the Postmaster here may have absolutely no effect if at the
same time, or in the same envelope, people read more
prominently a red bold-faced something which tells them
something else. So we have to really think through what we do
and take into consideration how clever some of these folks are
in evasion. I mean, we thought we passed a law in 1990, I
believe, relative to government look-alikes. That was our
effort, yet the Chairman has brought out a whole bunch of
government look-alikes here, and others have, too. Senator
Collins has. They are government look-alikes. We didn't succeed
in 1990.
So we do have to take into consideration your expertise and
that of folks like you who have expertise in this area, and we
would look forward to your working with us as we attempt to
tighten these laws.
Senator Cochran. Thank you, Senator Levin. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Barton, I was really disturbed by part of your
testimony. You said that a lot of the cases that we're
concerned about that have been publicized were the result--and
I wrote it down--of ``inappropriate responses to sweepstakes.''
That statement really troubles me because it indicates to me a
``blame the consumer'' mentality.
I don't think it's unreasonable for someone who receives a
sweepstake that says ``Mr. So-and-so, it's down to a two-person
race for $11 million, you and one other person in Florida were
issued the winning number,'' etc., ``and whoever returns it
first wins it all'' to think that they've won. I don't think
that's an inappropriate response. I think it's a very logical
response to a very deceptive, misleading statement.
Mr. Barton. We agree with you in general about that
particular promotion piece. That was part of our ethics process
and it was withdrawn, also with the Attorneys General and so
forth, so I would agree with you about that.
But while we're talking about response, we definitely not
only don't want to blame the consumer because in fact the
consumer is a very important part of us, and we think they're
wonderful people. But I really think you'd have to say that
when you spend $20,000 or $30,000 of money you don't have on a
promotion, whatever it is, whether it's buying magazines or
whatever, there is a problem there, more than the fact that the
person might have been deceived by what we would consider a
legitimate sweepstakes. We want to reach people who are like
that, to say that ``You don't have to do this, and there might
be some other problems that we want to help you with.''
I don't want to sound condescending at all, but I think
it's pretty clear from some of these examples that we have seen
that they are not average, normal responses on the part of
people who do sweepstakes.
Senator Collins. But the fact is, this was set up to
deceive people because if you buy a magazine, your response
goes to Tampa, where the number is going to be drawn. If you
don't buy a magazine, the response goes to Georgia.
Mr. Barton. Again I say, that promotion has been withdrawn.
Senator Collins. But this is so typical. The one I used in
my opening statement from my constituent in Portland says,
``You were declared one of our latest sweepstakes winners and
you are about to be paid more than $830,000 in cash.'' It
shouldn't be a detective game for people to figure out whether
or not they really have won.
Mr. Barton. No, it should not be a detective game, whether
or not they really have won.
Senator Collins. What I'm really trying to ask is, what
kind of response are we talking about? If somebody just thinks
they have won and have done nothing, as bad as we think the
promotion might be, there's no harm done there; they just throw
it away, or say, ``Gee, I might have won.'' If they buy a
magazine or two, then that is not an inappropriate response, as
I was talking about, and in fact that's the kind of thing we
don't want to happen because we think it ought to be made
clear.
Mr. Barton. You're right, it ought to be made clear--that
in fact they have not necessarily won.
Senator Collins. The problem is that it isn't just a small
number of unsophisticated consumers. I know Dr. Arnold's
research shows that. There's one report in Iowa in response to
just the Publishers Clearinghouse Sweepstakes that showed 126
Iowans, nearly three-quarters of them over age 70, spent $2,500
or more on magazines in response to one solicitation.
Almost 2,000 Iowans paid the company more than $1,000 in
1996 and 1997. I agree with you that you can't save everyone
from making a mistake, but that assumes that they've received a
clear and legitimate offer. That's not what's happening.
Mr. Barton. It assumes that they believed that they had to
buy something--you're assuming that they believed they had to
buy something to win the sweepstakes.
Senator Collins. Do you think they didn't believe that?
Mr. Barton. No. I'm not saying that I didn't think they
didn't. I'm saying that to the extent that that happens, it
shouldn't happen, and that's not what I was talking about. I
was talking about people who have garages full of stuff, that
we talked about, that are truly inappropriate responses. These
people need to be helped by us and by other people not to
respond to sweepstakes like that. In that kind of sweepstakes,
there should be no reason whatsoever that anybody would go in
and spend $2,500--or even $15--for a magazine that they didn't
want to buy, if they believe that it's going to help them win
the sweepstakes. And we're committed to working with you to be
sure that that happens, and that to the best of our extent,
that the industry presents promotions that are not in fact
deceptive in that way.
What I am saying in a sense here is that there is a gray
area in all of advertising of what you and I would define as
deceptive, and what is just strong hyperbole, and we need to
find somewhere where that line is, I guess, because there is a
lot of strong advertising that goes on in newspapers and
magazines and so forth which some people might consider
deceptive and other people might consider just strong selling
tactics.
So what we want to do is provide an ability for the
consumer to make a wise choice, and we think most of them do.
More than 60 percent of the people who respond to sweepstakes
don't buy, and those who win don't buy. So we're willing to do
that.
Our problem with Senator Campbell's bill is that the
requirement for the type and placement is so negative that we
think that it would just substantially reduce response all
across the board, not just from the elderly.
Senator Collins. Well, in some of these cases I would be
happy if the consumer threw it away because of what you call
``negative information'' on the envelope, and what I would call
``truthful information'' on the envelope. I think we would
perhaps be saving some consumers a lot of grief and financial
loss.
I realize that you are committed to working with us on
this, and I hope that you will concede that the industry has a
long way to go to make sure that deceptive practices like these
do not continue.
Mr. Barton. Yes.
Senator Collins. I have just a couple quick questions for
Dr. Arnold.
Dr. Arnold, I want to follow up with you on the issue of
who is deceived. It's my understanding--I don't know whether
you're familiar with it--that the AARP, the American
Association of Retired People, has found that seniors are more
likely to be victims, and that it's not necessary the isolated
and ill-informed senior, but rather that a sophisticated and
well-educated senior citizen can also be snared by this kind of
deceptive sweepstakes or pseudo-government mailing. Are you
familiar with that study? Is that accurate?
Mr. Arnold. Yes. I'm familiar with that, and the data that
we have supports the same thing.
Senator Collins. My final question that I want to ask you
follows up on the excellent point that you made, that seniors
are perhaps more vulnerable because they trust government more;
and when they see something referring to the ``Postmaster'' on
the envelope, or ``Buy U.S. Savings Bonds,'' or it's the color
of a government envelope, or it has an eagle on it, they're
more likely to think that the government somehow has approved
this or that it's a legitimate offer.
Is there also a similar factor at work with the use of
respected, well-known celebrity spokesmen to promote
sweepstakes?
Mr. Arnold. The one thing that is standard in communication
is the notion of credibility. That's something that we've known
for 2,300 years. If you have someone who is highly credible as
your spokesperson and that's someone that they believe, then
they're going to be more persuaded by it. Just as an aside I
asked, ``Well, who should we get to speak against telemarketing
and mail fraud?'' And everybody among the seniors responded,
``Why, Hugh Downs.'' So they are turning to another senior who
is respected by that community to speak out against what some
other folks are doing on the other side.
Senator Collins. Thank you.
Thank you, Mr. Chairman, for an excellent hearing.
Senator Cochran. Thank you, Senator Collins.
Senator Levin, do you have any further questions?
Senator Levin. I just want to thank our witnesses.
Senator Cochran. Thank you especially to the Senators who
worked hard to prepare for this hearing. We appreciate the
support and assistance that they have provided, and the members
of our staff who have helped arrange and prepare for the
hearing as well. And to all of our witnesses, we thank you, the
Attorneys General and the Postal Service Inspector, and the
other witnesses. We are very grateful for your assistance in
helping us better understand the extent of this problem and
what the options are for dealing more effectively with it. We
think it is time for reform, for tightening up these laws and
rules, and we are serious about doing something about it.
Senator Campbell has laid out a proposed change in the law, the
Honesty in Sweepstakes Act, which we have considered at this
hearing. There are other suggestions that the Postal Service
has made and that others have made, that Senators on the
Subcommittee have made. We are going to consider these
options.\1\
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\1\ GAO testimony, ``Issues Related to Honesty in Sweepstakes Act
of 1998, S. 2141,'' submitted for the record, appears in the Appendix
on page 180.
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We appreciate the fact that there is an upgrading of the
ethical guidelines for the association that has already been
undertaken, maybe as a result of the initiatives that we've
seen here in this Subcommittee.
But we look forward to working with all of you to help make
reform a reality and not just a promise.
The hearing is adjourned.
[Whereupon, at 4:47 p.m., the Subcommittee was adjourned,
to reconvene at the call of the Chair.]
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