[Senate Hearing 106-71]
[From the U.S. Government Publishing Office]
S. Hrg. 106-71
DECEPTIVE MAILINGS AND SWEEPSTAKES PROMOTIONS
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HEARINGS
before the
PERMANENT
SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
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MARCH 8 AND 9, 1999
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Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
57-308CC WASHINGTON : 1999
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Lynn L. Baker, Chief Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware CARL LEVIN, Michigan
TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico MAX CLELAND, Georgia
THAD COCHRAN, Mississippi JOHN EDWARDS, North Carolina
ARLEN SPECTER, Pennsylvania
Timothy J. Shea, Chief Counsel and Staff Director
Linda J. Gustitus, Minority Chief Counsel and Staff Director
Mary D. Robertson, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Collins.............................................. 1, 49
Senator Levin................................................ 4, 51
Senator Stevens.............................................. 6
Senator Edwards.............................................. 6
Senator Akaka................................................ 52
Senator Durbin............................................... 56
Senator Specter.............................................. 86
WITNESSES
Monday, March 8, 1999
Eustace A. Hall, Brandon, Florida, acompanied by Angela Hall,
Tallahassee, Florida........................................... 9
Carol Gelinas, Bangor, Maine..................................... 11
Patti McElligott, Tyler, Texas................................... 12
Stephanie Beukema, Cambridge, Massachusetts...................... 14
Charles Doolittle, Inverness, Florida............................ 16
Karol Carter, DVM, Troy, Michigan................................ 17
J. Joseph Curran, Jr., Attorney General, State of Maryland....... 35
Virginia L. Tierney, Member, Board of Directors, American
Association of Retired Persons................................. 38
Tuesday, March 9, 1999
Naomi Bernstein, Vice President of Marketing Services, American
Family Publishers.............................................. 59
Deborah J. Holland, Senior Vice President, Publishers Clearing
House.......................................................... 62
Peter Davenport, Senior Vice President, Global Marketing, The
Reader's Digest Association, Incorporated...................... 65
Elizabeth Valk Long, Executive Vice President, Time, Inc......... 68
Alphabetical List of Witnesses
Bernstein, Naomi:
Testimony.................................................... 59
Prepared statement........................................... 130
Beukema, Stephanie:
Testimony.................................................... 14
Prepared statement........................................... 112
Carter, DVM, Karol:
Testimony.................................................... 17
Prepared statement........................................... 114
Curran, J. Joseph Jr.:
Testimony.................................................... 35
Prepared statement........................................... 116
Davenport, Peter:
Testimony.................................................... 65
Prepared statement........................................... 144
Doolittle, Charles:
Testimony.................................................... 16
Prepared statement........................................... 113
Gelinas, Carol:
Testimony.................................................... 11
Prepared statement........................................... 110
Hall, Eustace A.:
Testimony.................................................... 9
Prepared statement........................................... 109
Holland, Deborah J.:
Testimony.................................................... 62
Prepared statement........................................... 133
Long, Elizabeth Valk:
Testimony.................................................... 68
Prepared statement........................................... 149
McElligott, Patti:
Testimony.................................................... 12
Prepared statement........................................... 111
Tierney, Virginia L.:
Testimony.................................................... 38
Prepared statement with attachments.......................... 117
Exhibits
* May Be Found In The Files of the Subcommittee
1. Publishers Clearing House Mailing: ``I'm in a bit of hot
water--and only you can help me out.''--Letters from Dorothy
Addeo, Contest Manager, Publishers Clearing House, dated
October 10, 1997............................................... 155
2. Publishers Clearing House Mailing: ``Open Your Door To $31
Million''...................................................... 157
3. Publishers Clearing House Mailing: ``Important Information
About Your Order and Entry: Status Upgraded''--Gold Club
Mailing........................................................ 159
4. Publishers Clearing House Mailing: ``Congratulations from
both of us. . . . You're guaranteed to win a prize . . .''..... 165
5. Publishers Clearing House Mailing: `` `Please Help Me! '--
When your name came up as potential winner of the $3,500,000.00
SuperPrize, we ran a check of your file to see that everything
was in place. . . . Stamped across your file are the words `NO
RECENT ORDER ACTIVITY: DROP FROM REGULAR MAILING LIST.' ''..... 171
6. American Family Publishers Mailing: ``Final Review Pending''
sent to Senator Susan M. Collins............................... 172
7. American Family Publishers Mailing: ``It's Down To A 2
Person Race For $11,000,000--You And One Other Person . . .''.. 178
8. Time Inc. Mailing: ``You Were Declared One of Our Latest
Sweepstakes Winners And You're About To Be Paid $833,337.00 In
Cash! ''....................................................... 179
9. Time Inc. Mailing: ``Senior Citizen Rate'' and ``Preferred
Subscriber''................................................... 180
10. Time Inc. Mailing: Guaranteed and Bonded Sweepstakes III--
``$1,666,675.00 Grand Prize Announcement'' and ``Resident
Sweepstakes Declaration''...................................... 182
11. Reader's Digest Mailing: ``Yes, Reward Entitlement, Granted
and Guaranteed'' and ``No, Reward Entitlement, Denied and
Unwarranted.''................................................. 184
12. Reader's Digest Mailing: ``Declaration--$2,000,000.00
Winners Selection Stage''...................................... 186
13. Reader's Digest Mailing: ``Good luck, and remember the word
that every winner since 1962 has used. `Yes! ' ''--``Yes'' and
``No'' envelopes............................................... 187
14. Reader's Digest Mailing: ``$500,000.00 Certificate of
Recognition'' sent to Mrs. Wm. Roosenberg...................... 200
15. Reader's Digest Mailing: ``$500,000.00 Weekend Bonus
Certificate''.................................................. 201
16. Reader's Digest Mailing: Letter from Hudson Armored Car and
Courier Service of Westchester, Inc. contained in Reader's
Digest solicitation............................................ 203
17. a. List of payments made to Reader's Digest by Mrs. Wm.
Roosenberg in 1998............................................. 205
b. Reminder Notice to Gertrude Roosenberg from Reader's
Digest......................................................... 206
18. Life Mailing: ``JOSEPH P MCELLIGOTT - ESTATE HAS WON
$1,666,675.00 . . .''.......................................... 208
19. Picture of Dr. Karol Carter's father's basement............. 209
20. Videotape prepared by the Office of the Michigan Attorney
General of the home of Gertrude Roosenberg..................... *
21. Chicago Tribune, February 22, 1999, ``Giveaways' Odds Draw
Lawmakers''.................................................... 210
22. Chicago Tribune, January 3, 1999, ``Digest Adjusts With Life
In These United States''....................................... 213
23. Reader's Digest responses to questions posed at March 9,
1999 hearing:
a. May 25, 1999 correspondence to Mary D. Robertson,
Permanent Subcommittee on Investigations....................... 217
b. March 19, 1999 correspondence to Senator Arlen Specter.... 219
c. April 9, 1999 correspondence to Leslie Bell, Permanent
Subcommittee on Investigations................................. 231
d. March 19, 1999 correspondence to Senator John Edwards..... 232
e. March 19, 1999 correspondence to Senator Carl Levin....... 233
24. Publishers Clearing House Mailing: ``$35 Million Acceptance
Notice''....................................................... 235
25. Publishers Clearing House responses to questions posed at
March 9, 1999 hearing:
a. April 2, 1999 correspondence to Senator Arlen Specter..... 237
b. March 24, 1999 correspondence to Senator John Edwards..... 242
26. American Family Enterprises responses to questions posed at
March 9, 1999 hearing:
a. April 7, 1999 correspondence to Senator Arlen Specter..... 243
b. April 9, 1999 correspondence to Senator Susan Collins..... 247
c. March 22, 1999 correspondence to Senator John Edwards..... 248
27. Reader's Digest letter, dated February 19, 1998, to Mr.
Bobby Bagwell of North Carolina................................ 250
28. Time Inc. correspondence dated April 7, 1999 in response to
question posed at March 9, 1999 hearing by Senator John Edwards 251
29. Memoranda prepared by Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, and Emmett Mattes,
U.S. Postal Inspection Service Detailee, dated March 2, 1999,
to Permanent Subcommittee on Investigations' Membership
Liaisons, regarding Background: March 8 and 9, 1999 Hearing--
``Deceptive Mailings: Sweepstakes Companies''.................. 255
30. Samples of correspondence received by the Senator Carl
Levin, Ranking Minority Member, Permanent Subcommittee on
Investigations, in response to the hearings.................... 291
31. Publishers Clearing House pamphlet, ``SweepSmarts--The
Sweepstakes Education, Awareness and Assistance Program''...... *
32. The Direct Marketing Association (DMA) pamphlets, ``Direct
Marketing Association Guidelines for . . . Ethical Business
Practice'' and ``Direct Marketing Association Presents
Sweepstakes Advertising--A Consumer's Guide''.................. *
33. Public Hearing On Sweepstakes Promotions before the National
Association of Attorneys General, February 24, 1999,
Indianapolis, Indiana.......................................... *
34. American Association of Retired Persons response to question
posed at March 8, 1999 hearing................................. 318
35. ``Motor Vehicle Awards'' mailing received by Allan Carter... 319
36. ``Settlement'' between State of New York, Bureau of Consumer
Frauds and Protection and American Family Publishers regarding
promotional practices of American Family Publishers, dated
August 21, 1998................................................ *
37. ``Multi-State Settlement'' between the States of Alabama,
Arkansas, Arizona, California, Hawaii, Idaho, Illinois, Kansas,
Kentucky, Massachusetts, Michigan, Minnesota, Mississippi,
Montana, Nebraska, New Hampshire, New Jersey, New Mexico,
Nevada, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Dakota, Tennessee, Texas, Virginia,
Washington, and the District of Columbia and American Family
Publishers regarding promotional practices of American Family
Publishers, dated March, 1998.................................. *
38. State of California statute concerning sweepstakes/contest
advertising, effective January 1, 1999......................... *
39. Letter of Senator Susan M. Collins, Chairman, Permanent
Subcommittee on Investigations, dated January 25, 1999,
requesting information and material from American Family
Enterprises, Publishers Clearing House, The Reader's Digest
Association, Inc., and Time Inc................................ *
40. Letter of Senator Carl Levin, Ranking Minority Member,
Permanent Subcommittee on Investigations, dated January 28,
1999, requesting additional information and material from
American Family Enterprises, Publishers Clearing House, The
Reader's Digest Association, Inc., and Time Inc................ *
41. SEALED EXHIBITS (Contains Proprietary Business Information):
a. Letter from American Family Enterprises (via Akin, Gump,
Strauss, Hauer and Feld, L.L.P.), dated February 17, 1999,
in response to Senator Susan M. Collins' and Senator Carl
Levin's requests for information and material.............. *
b. Supplemental letter from American Family Enterprises (via
Akin, Gump, Strauss, Hauer and Feld, L.L.P.), dated
February 19, 1999, in response to Senator Susan M. Collins'
requests for information and material, enclosing AFE Rules
Manual, AFP Sortkey, and AFP Mail/Telephone Customer
Service Adjusting.......................................... *
c. Supplemental letter from American Family Enterprises (via
Akin, Gump, Strauss, Hauer and Feld, L.L.P.), dated
February 25, 1999, in response to Senator Susan M. Collins'
requests for information and material...................... *
d. Supplemental letter from American Family Enterprises (via
Loeb and Loeb, L.L.P.), dated January 14, 1999, to Kirk E.
Walder, Investigator, Permanent Subcommittee on
Investigations, in response to Senator Susan M. Collins'
requests for information and material...................... *
e. Supplemental letter from American Family Enterprises (via
Akin, Gump, Strauss, Hauer and Feld, L.L.P.), dated March
2, 1999, in response to Senator Susan M. Collins' requests
for information and material............................... *
f. Supplemental letter from American Family Enterprises
(via Akin, Gump, Strauss, Hauer and Feld, L.L.P.), dated
March 3, 1999, in response to Senator Susan M. Collins'
requests for information and material...................... *
g. Supplemental letter from American Family Enterprises (via
Akin, Gump, Strauss, Hauer and Feld, L.L.P.), dated March
4, 1999, in response to Senator Susan M. Collins' requests
for information and material............................... *
h. Four (4) supplemental letters from American Family
Enterprises (via Akin, Gump, Strauss, Hauer and Feld,
L.L.P.), dated March 5, 1999, in response to Senator Susan
M. Collins' requests for information and material.......... *
42. SEALED EXHIBITS (Contains Proprietary Business Information):
a. Letter from Publishers Clearing House, dated February 10,
1999, in response to Senator Susan M. Collins' requests for
information and material................................... *
b. Letter from Publishers Clearing House, dated February 12,
1999, in response to Senator Susan M. Collins' requests for
information and material................................... *
c. Supplemental letter from Publishers Clearing House, dated
February 19, 1999, in response to Senator Susan M. Collins'
requests for information and material...................... *
d. Supplemental letter from Publishers Clearing House, dated
February 25, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
e. Supplemental letter from Publishers Clearing House, dated
January 13, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
f. Supplemental letter from Publishers Clearing House,
dated February 5, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
g. Supplemental letter from Publishers Clearing House, dated
February 8, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
h. Supplemental letter from Publishers Clearing House, dated
February 25, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
i. Supplemental letter from Publishers Clearing House,
dated February 26, 1999, to Senator Susan M. Collins,
Chairman, Permanent Subcommittee on Investigations......... *
j. Supplemental letter from Publishers Clearing House,
dated March 3, 1999, to Kirk E. Walder, Investigator,
Permanent Subcommittee on Investigations, in response to
Senator Susan M. Collins' requests for information and
material................................................... *
43. SEALED EXHIBITS (Contains Proprietary Business Information):
a. Letter from Reader's Digest Association, Inc., dated
February 10, 1999, in response to Senator Susan M. Collins'
requests for information and material, containing non-
confidential information................................... *
b. Letter from Reader's Digest Association, Inc., dated
February 10, 1999, in response to Senator Susan M. Collins'
requests for information and material, containing ``highly
confidential and proprietary information''................. *
c. Letter from Reader's Digest Association, Inc., dated
February 12, 1999, in response to Senator Carl Levin's
requests for information and material, containing ``highly
confidential and proprietary information''................. *
d. Supplemental letter from Reader's Digest Association,
Inc., dated February 17, 1999, in response to Senator Susan
M. Collins' requests for information and material.......... *
e. Supplemental letter from Reader's Digest Association,
Inc., dated February 19, 1999, in response to Senator Susan
M. Collins' requests for information and material.......... *
f. Supplemental letter from Reader's Digest Association,
Inc., dated February 3, 1999, in response to Senator Susan
M. Collins' requests for information and material.......... *
g. Supplemental letter from Reader's Digest Association,
Inc., dated February 26, 1999, in response to Senator Susan
M. Collins' requests for information and material.......... *
h. Supplemental letter from Reader's Digest Association,
Inc., dated March 3, 1999, in response to Senator Susan M.
Collins' requests for information and material............. *
44. SEALED EXHIBITS (Contains Proprietary Business Information):
a. Letter from Time Inc., dated February 10, 1999, in
response to Senator Susan M. Collins' requests for
information and material................................... *
b. Letter from Time Inc., dated February 12, 1999, in
response to Senator Carl Levin's request for information
and material............................................... *
45. Correspondence from Gary L. Betz, Special Counsel to Florida
Attorney General Robert A. Butterworth, dated March 12, 1999,
to The Honorable Susan M. Collins regarding the State of
Florida's investigation into sweepstakes fraud and suggested
requirements for sweepstakes solicitation materials............ 322
DECEPTIVE MAILINGS AND SWEEPSTAKES PROMOTIONS
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MONDAY, MARCH 8, 1999
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 9:33 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Subcommittee, presiding.
Present: Senators Collins, Stevens, Levin, and Edwards.
Staff Present: Timothy J. Shea, Chief Counsel/Staff
Director; Mary D. Robertson, Chief Clerk; Kirk E. Walder,
Investigator; Kathy Cutler, Congressional Fellow; Emmett
Mattes, Detailee, U.S. Postal Inspection Service; Brian
Benczkowski (Senator Domenici); Michael Loesch (Senator
Cochran); Frank Brown (Senator Specter); Felicia Knight
(Senator Collins); Chris Ford and Dan Blair (Governmental
Affairs); James Dean (Senator Campbell); Linda Gustitus,
Minority Chief Counsel and Staff Director; Bob Roach, Counsel
to the Minority; Leslie Bell, Congressional Fellow; Nanci
Langley (Senator Akaka); Marianne Upton (Senator Durbin);
Maureen Mahon and Karen Robb (Senator Edwards); and Diedre
Foley (Senator Lieberman).
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. The Subcommittee will please come to
order. Good morning.
Last year, prompted by complaints that I received from my
constituents in Maine, as well as by an initial hearing on this
issue held by Senator Cochran, the Permanent Subcommittee on
Investigations began an investigation into deceptive mailings.
The hearings today and tomorrow are the first in a series
examining promotional mailings, particularly sweepstakes, that
flood the mailboxes of Americans with more than a billion
pieces of mail a year.
These first two hearings will examine the nature and the
impact of sweepstakes run by several major companies, including
American Family Enterprises, Publishers Clearing House, Time
Inc., and the Reader's Digest Association, Incorporated. Let me
emphasize that, to date, our investigation has uncovered no
evidence that the sweepstakes offered by these particular
companies are fraudulent. These companies run legitimate
sweepstakes in the sense that all the prizes are awarded, none
requires a purchase to enter the sweepstakes, and all entries
are treated in an equal fashion. Subsequently hearings will
focus on promotional mailings that are outright fraudulent,
such as the sweepstakes in which no prize is ever awarded. That
is not the issue before us today.
Instead, this hearing will examine the increasingly
deceptive and aggressive marketing techniques used by the
legitimate sweepstakes companies. We will explore whether
repeated mailings, misleading language, the use of trusted
spokesmen, ``Government look-alike'' mailings, and the
combination of large headlines and small disclaimers are unfair
practices that deceive consumers into making excessive,
unneeded purchases. In addition, we will examine how laws can
be changed to make sweepstakes less deceptive and how the
companies themselves could take steps to be more honest with
the consumers receiving their mailings.
Since I initiated this investigation several months ago, I
have heard from individuals all across this country who have
told me their personal experiences with these sweepstakes. Time
and time again, family members, such as the ones that we are
going to hear from today, have described sweepstakes companies
bombarding elderly relatives with repeated mailings, each one
giving the false impression that purchases will bring the
consumer closer to winning the grand prize. Such deceptive
mailings hurt individuals in two ways.
First, there is the obvious financial harm of a senior
citizen wasting thousands, perhaps tens of thousands, on
purchases that the senior citizen neither needs nor wants. The
Subcommittee has received and reviewed cases of seniors who,
enticed by the bold promises of deceptive sweepstakes, spent
their Social Security checks, squandered their life savings,
and even borrowed money in order to continue to make purchases,
thinking that buying unwanted magazines, trinkets, and other
products would somehow make them win the grand prize.
For an example, a 74-year-old woman from New York wrote to
me about how she thought the purchases she was making enhanced
her chances of winning. She went deeply in debt in playing
sweepstakes. In her letter she said, ``My only source of income
is a monthly Social Security check totaling $893. I estimate
that I have spent somewhere between $10,000 and $20,000 in the
last 19 years. What money I did not have, I borrowed from my
daughter who is now responsible for my total financial support.
I am deeply in financial debt. Their mailings were worded in
such a way that I was certain I was going to win anywhere from
$1 million to $10 million. I am finished with all of the
contests. I truly wish I could recoup the monies that I
squandered foolishly in the hope that a real pay-off would come
my way.''
Another individual interviewed by the Subcommittee's
investigators said that he spent in excess of $30,000 over 3
years on sweepstakes mailings. He sold stocks, he borrowed on
his credit cards and from a loan shark to pay his bills, and he
was just about to lose his home. In a 2-month period, he
received 24 mailings from just one of the major sweepstakes
companies. In response to each and every mailing that he
received, he bought products, convinced that that would make
him a winner. This elderly American showed our investigators a
recent bill that went on for 10 pages, listing over 350
purchases totaling over $10,000. Now, in this case, the company
involved--Publishers Clearing House--has done the right thing
by refunding this individual $9,000, but such restitution
appears to be the exception and not the rule.
Yet another gentleman told us that he put a $6,000 down
payment on his dream home. He packed up his belongings and
waited for his $11 million from American Family Publishers. It
never arrived, and he was hospitalized with stress-related
pains. He lost his dream house, he lost his down payment, and
he lost $7,000 that he spent buying books, magazines, and
cassettes that he did not want.
The losses suffered by consumers cannot be measured in
dollars alone. As one elderly gentleman put it in a letter to
me, ``My wife has finally come to realize that she has been
duped by the sweepstakes solicitations for all these years.
Although the financial drain is now halted, the loss of her
dignity is incalculable.''
Deceptive mailings promising consumers that they are
``guaranteed winners'' or ``finalists'' create the expectation
of a huge cash prize, unfairly raising the hopes of many
sweepstakes players. One woman was so certain that she had won
that she canceled a doctor's appointment in order to be home to
meet the Prize Patrol. Similarly, another postponed needed
surgery because she did not want to miss Ed McMahon's arrival
with her winnings.
The stories that we will hear today and the evidence that
the Subcommittee has compiled demonstrate that these are not
isolated examples. Moreover, far too often, the victims of
deceptive sweepstakes mailings are senior citizens--people who
come from a generation that is trusting. They tend to believe
what they read, particularly if it is endorsed by a trusted
authority, comes from a well-known company, or includes
language that makes it seem to be official. Too many times, the
disclosures are few and hard to locate, they are cleverly
worded, and in tiny print.
One of the goals of these hearings is to inform consumers
that they don't have to buy to win and that buying does not
improve their chances of winning. But this should not require a
Senate hearing. These disclosures, as well as the odds of
winning, should be much clearer in these mailings. You should
not have to use a magnifying glass to read the fine print or
have to search to figure out how to enter a contest without
making a purchase.
The witnesses we will hear from today will each describe
the deception that caused them or their loved ones to be taken
in by sweepstakes mailings. I want to praise them for their
courage in coming forward to share their experience. I know
that it is not easy. But by coming forward, you will help
others avoid the mistakes that have affected your families.
The Subcommittee's second panel will include a
representative of the American Association of Retired Persons
as well as the Attorney General of the State of Maryland. He
will describe State efforts to combat deceptive and unfair
practices used in sweepstakes promotions.
All of the witnesses today will help us better understand
the nature of the problem, the impact of deceptive mailings,
and what the Senate should do to curtail this unfair practice.
I would now like to turn to my colleagues for any opening
statements that they may have. I would first like to yield to
Senator Levin, who is the Subcommittee's Ranking Minority
Member. Senator Levin has been a leader in trying to curtail
deceptive mailings. He has a longstanding interest in this
issue and is the author of legislation that was introduced last
Congress and this Congress as well. Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Thank you, Madam Chairman.
Everybody wants to be a winner, and when you are told that
you are one, absolutely, definitely, that is pretty powerful
medicine, powerful enough to make a lot of people overlook the
fine print that tells you that your winning is dependent upon
having the right number and returning it within the prescribed
time period.
Most of us also want to provide for our families. As we get
older, with little ability to earn income, often, some worry
that they will end up being financially dependent on their
children. Others hope that they could leave a little nest egg
for their family. And when we are lonely, it feels good to have
someone pay attention to us. And when we are bored, it feels
good to have something to do.
These natural human instincts power the sweepstakes
industry, a multi-billion dollar industry that is used to sell
everything from magazines to videotapes to simple hope.
Last year, as the Ranking Democrat on the Subcommittee with
jurisdiction over the Postal Service, I asked the Chairman of
that Subcommittee, Senator Cochran, to hold the hearing that
Senator Collins has referred to on the mass marketing of
sweepstakes in America and the use of the mails for deceptive
and fraudulent sweepstakes offers.
We learned at that hearing that the financial cost to
consumers of deceptive and fraudulent sweepstakes is a serious
problem and one that particularly plagues our senior citizens.
We also learned that the Postal Service has inadequate law
enforcement tools to combat it.
Joined by Senators Collins and Durbin, I sponsored
legislation to close some of the loopholes that allow some
egregiously deceptive practices to be considered legal. Some of
the deceptive practices that we are going to be hearing about
are currently considered legal because of those loopholes, and
the purpose of that legislation was also to give the Postal
Service the enforcement tools that it needs.
We weren't able to get action on that legislation before
the last Congress adjourned, but this year I am optimistic that
we are going to toughen our laws and end some of these abuses.
And the hearings that you have called, Madam Chairman, should
help a great deal in that effort.
The figures with respect to sweepstakes that are run by the
big four sweepstakes companies from whom we are going to hear
tomorrow--American Family Publishers, Publishers Clearing
House, Reader's Digest, and Time Inc.--are huge. These four
companies alone, combined, mail out 1.5 billion pieces of mail
a year promoting sweepstakes. They spend hundreds of millions
of dollars running their sweepstakes programs. Some of these
companies will run one sweepstake for 2 years, sending out 800
million pieces of mail in over 200 separate mailings. These
mailings look different even though they are for the same
sweepstake, and many of these mailings go to the same
individuals.
These sweepstakes might have odds of winning of only 1 in
150 million. Reader's Digest has told us that it is possible
that a single individual could get up to 122 mailings in any 1
year for their various sweepstakes promotions. And though the
average respondent who buys something spends on the order of
$40 to $90 on products promoted with sweepstakes, in one
company over a half a million individuals are spending $100 to
$500 a year to buy sweepstakes-related products, and thousands
of Americans are spending thousands of dollars a year buying
those products. So make no mistake about it. This is not just
junk mail we are talking about. This is big business.
In the process of pushing products by using sweepstakes,
companies are taking advantage of the average person's desire
to win and to get a little something extra. And the promotions
used to seduce a customer over the edge, to take the step to
respond to the solicitation and to purchase a product are very
cleverly designed.
Now, for the most part, the companies that we are talking
about today and tomorrow are companies that know the law. They
go right up to the edge to promote their products, but still
stay within the law, often just barely. The problem is that the
current law is feeble, full of loopholes, and needs to be
significantly strengthened.
We have got to require that sweepstakes solicitations state
affirmatively in large and clear type that the recipient is not
obligated to purchase a product in order to win, and I think
maybe most importantly we have got to change the law to require
that the sweepstakes solicitations state affirmatively and in
large and clear type that purchases of products do not increase
the recipient's chances of winning. That to me is a critical
issue because so many of the people who receive these
sweepstakes believe that their chances of winning are increased
if they buy a product. In fact, many believe that the only
chance that they will have of winning, despite the fine print,
is if they buy a product.
There are also too many other companies that cross over the
line of legality and actually perpetrate fraud and deception.
And for those companies, we have to increase the penalties and
strengthen our enforcement capability. We have got to give the
Postal Service subpoena authority. We have got to provide
immediate and tougher civil penalties for violations. My bill,
for instance, would provide a penalty of $10,000 per illegal
item; and that means each envelope.
Exposing deceptive and fraudulent practices is a critically
important function of this Subcommittee, and I want to commend
Senator Collins for scheduling these hearings. I am proud to be
a cosponsor of her legislation. I am proud to have her as a
cosponsor of my bill, and I know we both look forward to the
Senate passing legislation this year. We have been joined by
many other Members of this Subcommittee and other members of
the Senate. I think with their help and with the help of the
kind of hearings which are now scheduled by Senator Collins for
which we and the Nation are in her debt, we have a good chance
of passing legislation this year.
Today we have with us individuals who know firsthand how
sweepstakes promotions can lead to heavy financial costs and
often psychological heartbreak. I want to commend each one of
you for being willing to come to Washington, to be with us here
publicly today, and to tell some very personal stories. We are
very appreciative of the candor, of your willingness to share
with us sometimes some very painful personal matters, by your
doing so, we believe, will make it possible that others will
avoid the kind of grief that you are going to describe. And we
are very grateful to you.
Senator Collins. Thank you very much, Senator Levin.
Senator Stevens, I am very pleased to yield to you if you
have any opening comments, and I want to thank you for
cosponsoring the legislation that I have introduced to crack
down on deceptive mailings.
OPENING STATEMENT OF SENATOR STEVENS
Senator Stevens. I am pleased you are holding the hearings,
and I am particularly concerned about the impact of some of the
ways these sweepstakes are presented to the elderly. So I am
happy to be here. Thank you.
Senator Collins. Thank you.
Senator Edwards, it is a great pleasure to welcome you to
the Subcommittee. I am sure we will benefit greatly from having
you as a Member, and I just want to welcome you and also
express my appreciation for your cosponsorship of the
legislation. Do you have any opening comments you would like to
make.
OPENING STATEMENT OF SENATOR EDWARDS
Senator Edwards. Yes, Madam Chairman. Thank you very much.
It is an honor for me to cosponsor that legislation.
First, let me extend my thanks to Senators Levin and
Collins for holding these hearings. Sweepstakes fraud is a
major problem in my home State of North Carolina.
In fact, investigators in the Consumer Protection Division
of the Attorney General's Office in North Carolina have told me
that since January 1997, they have received more than 400
complaints about sweepstakes promotions. More than 300 of those
complaints involved the four major companies: American Family
Publishers, Publishers Clearing House, Reader's Digest, and
Time Inc.
Many of the complaints were made by senior citizens, and
many of these complaints were made by the children of seniors,
who are so concerned about the impact of these sweepstakes on
their parents' quality of life that they feel compelled to take
action.
I recently heard a story from one of my constituents whose
name is Pamela Bagwell. One day, Pamela went to visit her
elderly father-in-law, Bobby. When she arrived at his home, she
found stacks and stacks of solicitations from sweepstakes
companies. She asked Bobby about them and found out that he had
made numerous purchases thinking that buying products would
increase his chances of winning prizes. He was so convinced
that he would win a prize that he even invited his neighbors to
his house on the day that the Publishers Clearing House Prize
Patrol was supposed to deliver the grand prize check. Pamela
estimates that Bobby spent more than $20,000 in 10 months on
products he thought would help his chance of winning.
Now, I mentioned the fact that Bobby is an elderly man, but
that is not the worst part of this story. Bobby also has
Alzheimer's. Pamela, who has power of attorney for Bobby,
contacted Publishers Clearing House at least six times in
October last year to demand that the company stop sending Bobby
solicitations. She even went so far as to send the company a
doctor's certification that Bobby has Alzheimer's. And yet the
sweepstakes mailings continue to flood Bobby's mailbox. Pamela
says that sometimes Bobby receives up to 20 per day from many
different companies.
Bobby is not alone in being inundated by these mailings.
This January the North Carolina State Attorney General's Office
sent one sweepstakes company a letter asking them to
immediately remove a woman's name from their mailing list,
stating that ``the constant barrage of mail from [the company]
is significantly diminishing the quality of her life.''
Now, I think it is a pretty sad day when people need to
call their State Attorney General to stop harassing mailings.
And stories like this are becoming more and more frequent.
The examples from my State demonstrate another area we need
to explore. People like Pamela Bagwell should be able to stop
these mailings in the first instance. I am a cosponsor of
Senator Collins' legislation that will curb deceptive mailings.
This bill requires that if a person makes a written request
to a sweepstakes company to stop sending mailings to that
person, the company must do so for a period of 5 years. I
commend Senator Collins for this measure. I believe we need to
go further. Next week I intend to work with my colleagues to
require that sweepstakes companies jointly establish a single
1-800 number so that people can call to have their names
removed from all mailing lists. This would spare consumers from
having to call and write each individual company. We already
have a similar system in place for credit card solicitations.
I believe establishing a system that not only allows
consumers to write to individual sweepstakes companies but also
allows them to call one number to stop all sweepstakes
solicitations is the least we can do so that people like Pamela
Bagwell do not have to sit up late at night worried that her
father-in-law is going to go bankrupt himself because she can't
be there to monitor the situation every single minute.
Currently, 27 States have laws to help protect consumers
from deceptive sweepstakes mailings. However, we need to do
more. State Attorneys General, including those in my own State,
are to be commended for the actions they have taken to help
combat this problem.
However, Federal laws must be strengthened, as Senators
Collins and Levin have recognized already, to prevent companies
from sending deceptive mailings and to alert consumers that
purchases do not increase the likelihood that they will win a
major prize. Again, I applaud Senator Collins for her efforts
in this area.
I am not advocating ending any legitimate marketing
practice, but something must be done to put a stop to deceptive
and misleading mailings and to prevent consumers from being
scammed and harassed.
It is my hope and expectation that Senator Collins'
legislation and my proposed 1-800 number will go some distance
toward correcting these situations.
I want to thank these witnesses for their bravery in being
here and being willing to testify before this Subcommittee. I
look forward to these hearings. I am sure they will be very
educational for all of us.
Thank you, Senator Collins.
Senator Collins. Thank you, Senator.
Before swearing in the first panel, I want to also
recognize the work of Senator Cochran, who is the Chairman of
the Subcommittee with jurisdiction over these types of
mailings. I mentioned that he held a hearing during the last
Congress, but I also want to let you know that he has worked
very closely with this Subcommittee in conducting this
investigation. Since he is unable to be here right at the
beginning, I did want people to be aware of his efforts.
I also want, assuming there is no objection, to have all of
the exhibits that have been marked and previously made
available to Members, included in the hearing record. There are
also some sealed exhibits which will remain under seal because
they contain some proprietary information.
With that I would now like to welcome our first panel of
witnesses. As I mentioned, our first panel includes individuals
who will be able to describe for us their firsthand experiences
or those of loved ones who were taken in by sweepstakes
mailings. They include:
Eustace Hall of Brandon Florida. He is accompanied this
morning by his daughter, Angela Hall.
Carol Gelinas of Bangor, Maine. I am very happy to welcome
one of my constituents to this hearing.
Patti McElligott of Tyler, Texas.
Dr. Stephanie Beukema of Cambridge, Massachusetts.
Charles Doolittle, also from Florida.
And we also have a constituent of Senator Levin's, Dr.
Karol Carter. I don't know whether Senator Levin wants to add
any words of welcome.
Senator Levin. I would just put in a plug for Troy,
Michigan, where you are from, and Dr. Carter is a veterinarian
in Troy.
Dr. Carter. No. In Detroit.
Senator Levin. In Detroit. We had a chance to chat a little
earlier, and I just want to personally again thank you for
coming here.
Dr. Carter. You are welcome. Thank you.
Senator Collins. Now, pursuant to Rule VI of the
Subcommittee, all of our witnesses are required to be sworn in.
That doesn't mean that we wouldn't believe you if you weren't
sworn in, but it is part of our rules and procedures. So I
would like to ask that you all stand so I can now have you take
the oath.
Would you please raise your right hands? Do you swear that
the testimony you are about to give the Subcommittee will be
the truth, the whole truth, and nothing but the truth, so help
you, God?
Mr. Hall. I do.
Ms. Hall. I do.
Ms. Gelinas. I do.
Ms. McElligott. I do.
Dr. Beukema. I do.
Mr. Doolittle. I do.
Dr. Carter. I do.
Senator Collins. Again, I want to thank you very much for
your willingness to come forward and assist the Subcommittee
with its investigation. We will include your written testimony
as part of the hearing record. We are going to ask that your
oral testimony be limited to no more than 10 minutes each. We
have a series of lights that you can see on the table in front
of you that will help you know when your time is about to
expire. When you have only 2 minutes left, the yellow light
will go on, and when the red light comes on, we would ask that
you wrap up your comments.
Mr. Hall, we would like to begin with you, and, again,
thank you for being here today.
TESTIMONY OF EUSTACE A. HALL,\1\ BRANDON, FLORIDA, ACCOMPANIED
BY ANGELA HALL
Mr. Hall. Thank you. Good morning. My name is Eustace Hall,
and I am here today to tell of my unfortunate experience with
Sweepstakes. I am a 65-year-old retired medical technologist. I
currently work for AT&T selling mobile phones. I had to take
this job with AT&T due to debts I incurred while playing
sweepstakes.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hall appears in the Appendix on
page 109.
---------------------------------------------------------------------------
I asked my daughter Angela to accompany me today as this is
a difficult topic for me to discuss. I first began entering
sweepstakes at the end of 1992. I began entering sweepstakes
because I wanted to provide my daughter Angela, who was in law
school at the time, with more financial assistance. I am proud
to say Angela is now an attorney, but the money I thought----
Senator Collins. Mr. Hall, would you like to have someone
else go first and then we can come back to you?
Senator Levin. His daughter.
Senator Collins. OK. Ms. Hall, do you want to help your
father out? I know this is really difficult, and you have been
through a lot. I just want to tell you that it means an awful
lot to us to have you here today. So we will have your
daughter--can we bring you anything? Are you OK?
Mr. Hall. Yes, I am all right.
Senator Collins. OK. Ms. Hall, do you want to read your
father's testimony? I know this has been an ordeal for both of
you.
Ms. Hall. I will pick up where he left off.
I am proud to say that Angela is now an attorney, but the
money I thought I was due from the sweepstakes never came.
I now realize that the letters I received from sweepstakes
misled me into making unnecessary and excessive purchases. I
estimate that I have spent $15,000 to $20,000 from 1992 to the
present on sweepstakes purchases. I have had dealings with all
of the major sweepstakes companies, including Reader's Digest,
Publishers Clearing House, United States Purchasing Exchange,
Michigan Bulb Company, American Family Publishers, and others.
Every time I made a purchase, I always looked for the
cheapest products. I always made purchases because I believed
that through purchases I increased my chances of winning. The
mailings always looked official, and they used a lot of tricky
phrases. The letters were confusing. They always led me to
believe that I had to purchase products to win. I thought that
my past purchases made me more likely to win.
I was not aware of the ``no purchase'' option. The
instructions which were written on the back of these
sweepstakes entries were so small and hard to read that I could
not read them without a magnifying glass. Moreover, I believed
from the letters I received that my purchases gave me a better
chance of winning. After all the time and money I have spent, I
have nothing to show for it. I have never won anything.
The sweepstakes used phrases that made me think I was a
winner and that the prize was guaranteed and bonded. Over the
years, I received many personalized letters from the
sweepstakes companies thanking me for being such a good
customer and telling me that my chances of winning were good or
that it would be my time soon.
I have a copy of a letter from Dorothy Addeo, Publishers
Clearing House contest manager. I would like to read a short
portion of the letter. ``My boss dropped into my office the
other day, sat down and sighed.'' and ``What's the story with
Eustace Hall? I see that name on our Best Customer List, on our
Contenders List, on our President's Club Member List. But I
don't see him on our Winner's List. There must be something we
can do to change that. It's not right when someone as nice as
Eustace Hall doesn't win.''
This is just one example of how I was led to believe that
my prior purchases made me special. I purchased things I did
not need, magazines I did not read. Some of the stuff I
purchased I never even opened. I stored the things in my garage
and attic and tried to sell some at garage sales, but I got
very little money for the stuff since most of it is just junk.
Another thing that cost me a lot of time and money was
entering the sweepstakes. I was informed by Publishers Clearing
House that, if I returned my sweepstakes entries within 24 or
48 or 72 hours, I would win a specific prize. I often drove 20
miles to the main post office to make sure my entry would get
there in time. I often spent money to send the entry in an
express or priority envelope just to make sure I would meet
their deadlines. Nothing happened.
Super Bowl Sunday was always a very depressing day for me.
Super Bowl Sunday is when the Prize Patrol delivers the big
prize. I always thought it was going to be my lucky day, but
the Prize Patrol never came to my door. I always became very
depressed after I did not receive a visit from the Prize
Patrol.
I now realize that I was not special. I was never close to
being a winner. They just sent me mailing after mailing with
each one making it seem like I was closer to the prize. Well,
they are the ones who won the prize--all of my money. Playing
the sweepstakes cost me a lot. I had to return to work. I
refinanced my house several times. And I had to borrow money
from my pension fund four or five times to pay my sweepstakes
debts.
I thank you for the attention you are paying to this
matter. If new laws help to stop someone from going through
what I had to endure, you have done a good job. It just is not
right the way these companies are allowed to mislead and feed
upon good people's trust. Thank you.
Senator Collins. Thank you very much, Ms. Hall. Thank you,
Mr. Hall. I know it is a very difficult situation, but hearing
your experience is going to help others, and it will help us
also get tough new legislation through so that this can't
happen to other people. So thank you for sharing your
experience with us.
Ms. Gelinas.
TESTIMONY OF CAROL GELINAS,\1\ BANGOR, MAINE
Ms. Gelinas. My name is Carol Gelinas, and I would like to
tell you about how my late father, Clyde Schott, was victimized
by sweepstakes promotions. My father had been a middle-
management sales executive for the Crane Company in
Chattanooga, Tennessee. After his retirement in 1977, he worked
part-time for several years for the TVA just to have something
to do. He didn't like being home alone.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Gelinas appears in the Appendix
on page 110.
---------------------------------------------------------------------------
Following the death of my mother in 1982, he lived alone in
Chattanooga until 1991, when health problems forced him to move
to Bangor, Maine, where my husband and I live. He then moved
into an assisted living facility. At the time of his move, he
had granted me power of attorney in anticipation of possibly
needing help in the future. Up until this time, he had handled
all of his own affairs, including managing his investments,
which he continued to do for some time after his move.
My dad successfully invested his money, monitored his
stocks and mutual fund investments, while at the same time his
sweepstakes-related purchases became excessive. Due to health
problems, approximately 15 months after his move to Maine, I
became involved with his personal affairs. It was at this time
that I became aware of the amount of money he was spending in
connection with sweepstakes promotions.
In trying to balance his checkbook, I discovered he was
writing 30 to 40 checks each month, when his only bills were
his rent, telephone, and cable TV. Most of the checks ranged
from $5 to $20, and frequently he had written many checks to
the same organization for the same amount of money. Looking
back over his checkbooks, I realized that over the 14-year
period or so, I estimate that he had spent approximately
$60,000 on sweepstakes-related mailings between 1982 and 1996.
When I visited my father, he often had small items of
costume jewelry, watches, synthetic unset gems, and other
trinkets that he wanted to give me. He said these were ``free
gifts'' to him and that he had no idea why he had received
them. In actuality, he had returned purchase agreements that
had promised a ``free gift,'' not realizing that he had also
ordered books, which his poor vision prevented him from
reading, audio and video tapes, music boxes, vitamins, etc.
Even though I possessed power of attorney, I found it very
difficult to stop him. My father had always been a very
independent person, and it was important to his self-worth to
remain at least partially in control of his affairs. I had
explained to him many times that these ``free gifts'' were not
free, but he truly did not understand. I finally managed to set
up a separate checking account for his use, into which I
deposited $300 a month, knowing full well that all of it was
spent in the vain attempt that he was about to win a fortune in
a sweepstakes promotion. He ordered tapes, books, videos, and
gift subscriptions for other people, believing that he was so
close to winning that these purchases would virtually guarantee
it.
Particularly insidious were the ``personal'' letters
addressed to him in a way that led him to believe that he was
one of two or three finalists in sweepstakes promotions. He did
not understand that these were generated by a computer. If the
internal address was to him personally, at his residence, and
it began ``Dear Clyde,'' he was certain that he had been
selected for special consideration. He always referred to these
as ``letters'' and greatly enjoyed receiving them, even if he
received 30 or more identical ones from the same organization
on the same day. They made him feel important, and he would
often tell me with great satisfaction how many of these
``letters'' he had received that day.
In tiny print, often in a shade of gray on a gray
background, these ``letters'' accurately gave the odds of
winning as 1 in 100 million or more. But this was literally
invisible to him. Others informed him that he was a
``guaranteed winner'' and that all he needed to do to receive
his prize was submit a processing fee, amounting to $5 to $20.
The prizes included such things as checks for 25 cents and
maybe one of the trinket items that, as far as he was
concerned, were of great value and just came to him ``out of
the blue.''
Two of the biggest problems I had were with Reader's Digest
and Time-Life audio tapes. He had accepted ``free gifts,''
again, that enrolled him in automatic purchase plans. When the
purchase item arrived, he would give it to me, not knowing why
he had gotten it. When I contacted Time-Life, I learned that in
1 year in particular he had made purchases of over $1,500 in
merchandise, all of which he thought was free. The company was
helpful in disenrolling him once the outstanding bills were
paid and discontinued mailing to him.
Reader's Digest, however, was extremely difficult to deal
with. I called them a number of times on different occasions,
directing them to remove his name from their mailing list. I
paid the outstanding bills, often amounting to hundreds of
dollars at a time, and sent them a copy of my power of
attorney. However, as soon as he was disenrolled, they sent him
another promotion and started the whole series all over again.
What finally stopped this was nothing that I was able to do
personally, but my father's failing eyesight. This led him to
give me all of his mail, and I was able to intercept the
continuous bombardment of Reader's Digest promotions.
Unfortunately, one outcome of these encounters was my
father's suspicion that he really had won millions and that
somehow I had taken it. When my husband and I went on a
vacation or on one occasion when we bought a new car, my father
was very suspicious about how we could afford these things and
thought it was his money.
Senator Collins. Thank you very much. Ms. McElligott.
TESTIMONY OF PATTI McELLIGOTT,\1\ TYLER TEXAS
Ms. McElligott. Good morning. Thank you for inviting me.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. McElligott appears in the
Appendix on page 111.
---------------------------------------------------------------------------
My name is Patti McElligott, and I live in Tyler, Texas,
where my husband and I own a lawn sprinkler company, and I have
come today to share my family's experience with the mail abuse
by both magazine companies and so-called charities.
My husband's father, Joseph P. McElligott, Sr., was a
retired Army lieutenant colonel. He was active in the community
and church and took care of all of his affairs until he was
moved into a retirement center in May 1998. Mr. McElligott
started playing the sweepstakes in 1992. For quite some time,
my husband had been after him about the amount of mail he
received and emphasized you should not believe everything that
you receive in the mail.
After we moved my father-in-law into a retirement center,
my husband and I went to his home and removed the mail so that
we could go through it and determine what needed to be dealt
with and what could be thrown away. I took out thirteen 33-
gallon trash bags of mail. Ninety-nine percent of what I threw
away was sweepstakes, contests, or various organizations asking
for money. Many were duplicates of the very same mailing.
We immediately had all of his mail forwarded to us at our
office and made sure that his phone number at the retirement
center was unlisted. I began receiving numerous magazines,
sometimes as many as 20 in 1 day. At first, I threw them aside
thinking the subscriptions would end. I had business and things
that I needed to deal with. The magazines continued to pour in,
and I began to notice that we were getting multiple copies of
the same magazine. Five issues of Time in the same day, three
issues of TV Guide in the same day, two issues of Guns and Ammo
in the same day, and on and on.
On August 5, 1998, my father-in-law died, and at that point
I was actively able to do something about this mail. I happened
to look at an expiration date on a magazine label 1 day and
noticed the subscription went past the year 2000. At that time,
I started to look at all the labels and noticed that the
majority of them went past the year 2000. One subscription to
U.S. News and World report ran to the year 2018. I began to
call the magazines and requested refunds.
When I called the magazine companies, more times than not I
was told that the subscription was through American Family
Publishers or Publishers Clearing House. And after making
several calls to American Family Publishers and Publishers
Clearing House to request refunds, my father-in-law's records
mysteriously disappeared. After insisting that the records must
be there and that the IRS requires all information to be
available for 7 years, we were told we had to speak to a
supervisor, none of whom were ever available.
To date, I have deposited or am expecting nearly $3,000 in
magazine refunds. We still have some we have not had time to
contact. And we found it interesting that some organizations,
like NRA, consider the ``fee'' to be a contribution and the
magazine was a gift. Therefore, there is no refund, nor would
they tell us how long he was paid up to.
After going through most of the records, we found canceled
checks in the amount of $8,704.09 for United States Purchasing
Exchange, $1,075.71 for Time Warner-Sony Sound Exchange,
$1,931.09 to Time-Life Books, $10,098.68 to Reader's Digest,
$2,088.85 for American Family Publishers, $3,090.08 to Easton
Press, $6,797.52 to Publishers Clearing House, $123.64 for
Magazine Express, and $1,776.53 for Astronomy Book Club. In
total, we have found canceled checks which totaled more than
$34,000 to the above companies. Additional checks made out to
individual magazines along with the above companies totaled
$53,335.13. And I might add that is all the checks I have had
time to go through.
My father-in-law has subscribed to over 158 different
magazine titles. Many of the checks were made out to the
magazine itself, but we have noticed that the checks were
deposited into accounts of American Family Publishers. We also
had multiple subscriptions to the same magazine. The most
blatant abuse was 32 subscriptions to U.S. News and World
Report with 17 of them going through Publishers Clearing House,
4 through American Family Publishers, and 11 through the
magazine itself. There were numerous subscriptions to Time and
TV Guide.
I firmly believe that my father-in-law's name had been
passed onto a ``sucker list'' for questionable charities as
well. We have not sorted and calculated all of the checks, but
it will surpass the amount of the magazines. The common thread
seems to be, again, sweepstakes, contests, and the promise of
winning money.
We have worked with the post office since the end of
October to save all ``junk'' mail, and we pick it up from them.
Since the end of October, we have amassed three large archival
storage boxes of junk mail, including contests, sweeps, and
charities, most of which are bogus. We have noticed quite a few
from Topeka, Kansas. The post office boxes are similar with
merely a few box numbers difference. We have contacted the
Better Business Bureau in Topeka and requested information on
these various organizations. We were told that every year a
form was sent out and information was requested. Legitimate
charities and organizations return them. None of the ones we
had were listed, with the exception of one returned the
information.
These are the highlights of what we discovered in reviewing
my father-in-law's check registers and mailings. We have boxes
of mail proclaiming Mr. McElligott as the winner of millions of
dollars. This mail abuse on our elderly must stop. My father-
in-law came from a generation that was trusting. He could not
believe people would actually try to swindle him. Many elderly
people are just as trusting, and I assure you there are many
more Joseph McElligott's out there.
I hope these proceedings will heighten the awareness of
this issue to prevent other families from having to endure this
abuse.
Thank you.
Senator Collins. Thank you very much. Dr. Beukema.
TESTIMONY OF STEPHANIE BEUKEMA,\1\ CAMBRIDGE, MASSACHUSETTS
Dr. Beukema. My name is Stephanie Beukema. I am a licensed
psychologist from Cambridge, Massachusetts.
---------------------------------------------------------------------------
\1\ The prepared statement of Dr. Beukema appears in the Appendix
on page 112.
---------------------------------------------------------------------------
I am here today to tell you about my mother's involvement
with the purveyors of junk mail.
My mother always invested her money wisely and lived
frugally until she became involved through the promise of prize
money from companies like Reader's Digest and Publishers
Clearing House in order to replenish her savings after
treatment for breast cancer. The lure of luck and personalized
letters that seemed to single her out led her to respond to
several mailings from several companies. She spoke about her
``ship coming in'' and asked why she shouldn't be as lucky as
the next person. She would receive letters that ``promised'' a
reward for an immediate response. She would dutifully respond,
immediately sure that she was within the time parameter. Her
excitement built.
She had been told to have several family and friends
available for that lucky moment when she would receive her
prize money and benefits. This moment kept getting put off. It
did not diminish her belief. But 6 months became a year and a
year went to a year and a half. She believed what she read in
the letters. My mother was very trusting of traditional
organizations like the post office and Reader's Digest.
As she became more involved, her mail-driven activity took
up more and more of her life. She couldn't leave her home to
visit family and friends overnight because she might miss a
mailing or a surprise visit from a company representative. She
had to be there to get the mail every day. There was more and
more mail with boxes of it arriving on a daily basis. Who could
find the gas bill and the tax bill in all those letters?
She began to irregularly pay her ongoing bills as she
started juggling money so she would have enough to send to
Publishers Clearing House, The Lottery Doctor, and American
Purchasing Company. She couldn't even pay large expenses, like
homeowner's insurance and property taxes, because she didn't
have enough money in her account. She then stopped paying for
the magazine subscriptions she had ordered, and the debts began
to mount and they went into collection.
She became very defensive with her family and friends and
insisted that she was as likely to win as anyone: ``Someone has
to win and why shouldn't it be me?'' she would ask. She was in
danger of having her house and property repossessed for non-
payment of taxes when I, along with my siblings, stepped in and
suggested that she needed some help. In her house, there were
literally narrow paths between boxes of unopened mail, stacks
of magazines, books, and videos, and boxes of merchandise she
had ordered.
After participating in sweepstakes for 18 to 24 months, she
had spent somewhere between $60,000 and $80,000. She had sold
stocks, had thousands of dollars in credit card debt, and, most
humiliating for her, she had lost her good name in town. She
was frightened she would be seen as losing her faculties, so
she hid more. She voluntarily gave financial power of attorney
to my brother, who was responsible for my mother's finances
until her death in December 1998.
In October 1994, I stopped all junk mail in my name from
coming to my house. I was unable to do so for my mother at her
house. In some cases, it was nearly impossible to contact some
of the sweepstakes companies because they did not include
addresses on their packages. Many people are vulnerable to
fraudulent mail practices because they are more trusting of the
signs of legitimacy, like the name ``Reader's Digest.'' They
are vulnerable to letters that appear original and personalized
when, in fact, they go out to hundreds of thousands of people.
They respond to what seems friendly, exciting, and promising.
It is shameful what passes as legitimate and accepted business
practice when it decimates a person's sense of themselves as
well as their livelihood.
I am reasonably intelligent and not yet elderly. I could
easily spend several hours a day trying to understand the fine
print that is included in much of the mail that still comes to
my house. I spend several hours a week protecting myself from
unwanted solicitation. While the laws that exist may be
sufficient to protect me as a citizen, I really don't think
they are adequate to protect unusually vulnerable populations
like the elderly, who are not as capable of protecting
themselves from deceptive sweepstakes practices. I also am very
troubled when I begin to consider that the government itself
can be seen as legitimizing these practices by implicitly
condoning fraudulent and unethical scamming as legitimate. The
mail is delivered to your house by government employees. It all
looks legitimate, but what comes to pass is shameful and
secret.
I would like to thank you for allowing me to share my
mother's story with you. I hope that through these proceedings
other senior citizens will be spared the public embarrassment
and humiliation that my mother experienced.
Senator Collins. Thank you very much, Doctor. Mr.
Doolittle.
TESTIMONY OF CHARLES DOOLITTLE,\1\ INVERNESS, FLORIDA
Mr. Doolittle. Good morning. My name is Charles Doolittle.
I am from Inverness, Florida. I am here today to share the
story of my parents' involvement with the sweepstakes. My
father is 84. He is a retired executive from a Fortune 500
company, and my mom is 83 and has always been a homemaker. They
live close by, and I have power of attorney over their affairs.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Doolittle appears in the Appendix
on page 113.
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My parents initially became involved in sweepstakes in
1992. My parents routinely participated in sweepstakes offered
by United States Purchasing Exchange, Publishers Clearing
House, Reader's Digest, American Family Publishers, and
assorted charities seeking donations. Mom and dad had always
purchased items believing that purchases enhanced their odds of
winning.
Mom and dad bought magazines they never read and products
of little or no use to them. They purchased numerous compact
discs and VCR tapes even though they didn't have a CD player or
a VCR.
I have brought checks here which reflect money they spent
on these mailings in 1997: $704.30 to American Family
Publishers, $3,036.60 to Publishers Clearing House, $1,713.28
to Reader's Digest, $260.90 to Time, $3,993.07 to United States
Purchasing Exchange, and $413.06 to assorted charities. That is
$10,121 in 1 year. And that is not all of them. That is most of
them.
I believe our Nation's seniors are very susceptible to the
deceptive mailing practices of some companies. It always amazed
me when I went to visit mom and dad and saw the pile of
solicitations they received on a daily basis. There always was
a pile on the dining room table of sweepstakes, many of which
stated they were a winner or a finalist. The mailings implies
that they were valued customers and that because of their past
purchases they would soon be big winners.
I asked my mailman if the sweepstakes offerings they
received was an unusual amount since they seemed to receive
more than their share. The mailman told me he had several
people on his route who received numerous sweepstakes offers
every day. The mailman said that most offers seemed to go to
elderly widows.
The last few Super Bowl Sundays have been tough. Mom has
been convinced that her prize would be delivered on Super Bowl
Sunday and insisted on being home to collect her winnings. Mom
believed that the Prize Patrol was going to show up on her
doorstep to deliver the grand prize.
I also have a complaint with the billing procedures. I
believe some of these organizations may double bill and double
ship merchandise to unsuspecting seniors. Customers end up
sending payments, placing more orders, and the cycle continues.
It is like watching somebody take money right out of my
parents' pockets and there is nothing I can do.
I have tried contacting companies to get my parents' names
off mailing lists, but to this day the offers continue to roll
in.
It may be too late for my parents, as they have already
lost thousands of dollars. It is my hope, however, that these
hearings will shed some light on what I believe to be a fraud
perpetrated upon the most vulnerable and trusting seniors.
Thank you.
Senator Collins. Thank you, Mr. Doolittle. Dr. Carter.
TESTIMONY OF KAROL CARTER, DVM,\1\ TROY MICHIGAN
Dr. Carter. Madam Chairman and Members of the Subcommittee,
my name is Karol Carter, and I reside in Troy, Michigan.
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\1\ The prepared statement of Dr. Carter appears in the Appendix on
page 114.
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I would like to say I am here on behalf of my 86-year-old
father, Allan Carter, but he currently is upset that I am
attending these hearings. He is concerned that I am ruining his
chances of winning a Reader's Digest sweepstakes when he, ``is
getting close to winning.'' My father has a doctorate in
organic chemistry and retired from Chrysler Corporation. He
resides with my 84-year-old mother in a condominium in Troy. I
have never questioned his intelligence, but since the
sweepstakes began, all sense of reasoning with him has become
impossible. He has never gambled in his life, nor will he play
our State lottery.
The problem began innocently enough with his first entry to
a Reader's Digest sweepstakes about 15 months ago. He suddenly
was inundated with contests from all over the United States,
Australia, England, and Canada. I began a serious effort to
halt this by contacting the Postal Service and was advised to
write the Mail Preference Service Direct Marketing Association
in Farmingdale, New York. I wrote twice, the last date July 8,
1998. I have mailed 26 certified letters to 26 companies who
have contacted him, requesting the stoppage of all
solicitations and that his name be removed from the mailing
list. I requested a letter of response.
My father is totally convinced that these contests are
legitimate. The marketing concepts of these companies are
cunning. All sweepstakes are associated with making a donation,
paying an entry fee to upgrade your winnings, or making
purchases. Small print notifies ``no purchase necessary to
enter.'' If you decline to purchase or to upgrade, the address
for your ``No'' entry is different from the address for the
``Yes, I would like to buy something.'' My guess would be that
one leads to a trash dumpster and the other to company profits.
An example of this is the Motor Vehicle Awards entry which
states, ``You have been identified as an award recipient in a
national sweepstakes. You, Allan Carter, are guaranteed to
receive a brand new automobile or cash award. There is no
mistake. Your award is waiting to be claimed. Your award has
been confirmed by our auditing department and is formally
identified by the award registration number that has been
preselected and assigned by Motor Vehicle Awards. Legal title
to the brand new Chevy Malibu will be executed and transferred
to you, Allan Carter, pursuant to and in accordance with the
Motor Vehicle Code of the State of Michigan and the regulations
of this presentation as they appear on the reverse side of this
document. In addition, an Optional Commodities Package with a
fully redeemable value of over $2,500 is being held pending
your submission of the standard acquisition fee.'' The fee is
$14.98.
The award registration form asks to verify the correct name
and address, but also requests a telephone number and if you
have a Visa or MasterCard. The back of the form states that the
winning claim number has been preselected and that 3 million
copies have been mailed. My father entered this contest in July
1998. Further reading reveals that all entries must be received
by August 31, 1999. The grand prize will be awarded on or about
October 1, 1999. This allows Motor Vehicle Awards a year to
collect $14.98 from those willing to fall for the Commodities
Option, as he did.
Another sweepstakes gimmick is games of skill. Games such
as Cash 21 require you to try to obtain the highest possible
total score with the last two digits of the solution not
exceeding 21. You continue to receive new entries to the same
contest to break your tie score with other contestants. My
father received eight entries on the same day in the mail. All
were to the same contest but each with a different ID number. A
$1 processing fee is required for each entry. If you do not
continue to the next level, you receive further mailings
stating, ``You are in danger of losing out on a potential grand
prize.'' I was receiving daily calls to help him with this
contest.
Sweepstakes are also supported through ``donations.'' The
contest states that most ``winners and entrants'' include a
small donation to help provide food, shelter, medical supplies,
or whatever for animals, children, or veterans. Boxes are
normally marked $10, $15, $50, etc. My father, generous soul,
enters these ``free'' contests with a $50 or $100 donation,
foolishly thinking the money is all going to the needy, not run
the contest. Once a donation is made, you will receive a
similar request on a monthly basis.
Finally, we have contests associated with magazine
subscriptions, clubs such as the Travel Club or Favorites from
the Classics, and the purchase of catalogue items. At 86 years
of age, my father has all the possessions he and my mother
should need, or so I thought. Now thanks to Reader's Digest,
American Family Publishers, Time, Life, U.S. Purchasing
Exchange, etc., he has enough videos to open a video store--
about 200--and at least 150 compact discs.
Many contests implore you to act quickly. Entries must be
returned by ``next Tuesday.'' They arrive in bulk mail with no
date. Most envelopes are official looking, with words such as
``Very Important Issuance,'' ``Notice Authorized by Executive
Order,'' and ``Special Advisory.'' Some contain promotional
$1,000 bills. The odds of winning vary from 1 in 3,000,000 to
the ridiculous Reader's Digest 1 in 85,000,000. One has a
greater chance of being struck by lightning. Of course, all
winnings go only to the named contestant. Father stands a good
chance of not even being alive by contest end. He thinks the
money will go to his estate and help care for my mother. This
is the beauty of preying on the elderly. They may not even live
to collect the total amount, which is paid out over 30 years,
should any of them become the 1 in 85,000,000.
What is this costing him? I feel like Sherlock Holmes
sneaking his financial information. Checks written for less
than 2 months last year amounted to $1,400. Charge card
expenses for 1 month amounted to $980, with $680 to United
States Purchasing Exchange. My mother suffers from a dementia
which, regarding this mess, is probably a blessing as she has
no idea how much money has been wasted.
I cannot take control of the funds of a man who can still
drive, shop, get to appointments, take medications properly,
and care for my mother. He functions normally in every other
way. Though this would stop the sweepstakes, it is too brutal.
One might say that his behavior is not normal, and certainly at
this point it is an addiction. The contests give him something
to do while caring for my mother. He was once an avid reader,
but this has been replaced by sweepstakes.
I have read through statements from Ms. Collins, Mr. Levin,
and Mr. Durbin regarding the Deceptive Mail Prevention and
Enforcement Improvement Act, S. 336, and the Deceptive Games of
Chance Mailings Elimination Act of 1999, S. 335. I am here
today to lend support to those bills. I am not naive enough to
think that these operations can be completely stopped by these
bills, but the proposals provide exactly the kinds of controls
and protections that I hope can be established. Some say here
goes the government meddling. I am both thankful and grateful
for your efforts.
Senator Collins. Thank you very much, Dr. Carter. Thank you
all for your testimony. It was interesting, as you were each
testifying, all the rest of you were nodding, and it was
obvious that you have all been through very similar
experiences. And I very much appreciate your coming forward and
assisting us.
Mr. Hall, could you give us some idea of how many mailings
you received from sweepstakes companies during an average day?
Can you give us an estimate of that?
Mr. Hall. Any amount between 10 and 15 a day I was getting.
Senator Collins. So you were receiving 10 to 15 mailings a
day.
Mr. Hall. Every day from sweepstakes companies.
Senator Collins. And did you find that as you entered these
sweepstakes that that generated more mailings?
Mr. Hall. Yes, it did.
Senator Collins. I am going to put up a typical mailing,
the Prize Patrol mailing, yes. I think each of you has a copy
of this mailing.\1\
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\1\ See Exhibit No. 2 in the Appendix on page 157.
---------------------------------------------------------------------------
This is from Publishers Clearing House, and, Mr. Hall, I
think you said that you may have received this one or similar
ones.
Mr. Hall. Yes.
Senator Collins. Ms. Gelinas, if you notice this mailing,
it is personalized throughout. The consumer's name is
throughout it. How big a role is the fact that these appear to
be personalized mailings, was this in your father's case?
Ms. Gelinas. It was a really big part of his problem. He
thought that anything that came to him with his name in it
referring to him as an individual, with maybe a little sticky
note that looked like it was handwritten and also had his name
on it, he thought that was real.
I think it comes from not understanding what you can do
with computers, and to him, when he was in business, before he
retired, things that looked like that were personal letters.
And he thought they were. He thought he was special, that he
was getting personal letters from places because he was so
close to winning that he was going to be the winner.
Senator Collins. Mr. Hall, did the fact that these were
personalized and that your name appeared throughout and that it
had language such as ``open your door to $31 million,''
convince you that you were in a special category and likely to
win?
Mr. Hall. Yes, it did.
Senator Collins. And did you think that if you made a
purchase that that increased your chances of winning?
Mr. Hall. Yes, it did.
Senator Collins. So you thought by making a purchase that
would help you win, and that if you didn't make a purchase, did
you think that you would not be likely to win?
Mr. Hall. Yes, I did.
Senator Collins. What is interesting with this mailing is
nowhere on these first two pages with the fancy print, which
says that you can open your door to millions of dollars, does
it explain that no purchase is necessary to win. It is only in
the tiny type on a separate piece of paper that you find out
that in the rules.
Is that typical of the kinds of mailings that you received?
Mr. Hall. Yes.
Senator Collins. And I would ask this of all of you who
have reviewed the mailings received by your parents. Did you
find that there was a lack of understanding that, in fact, no
purchase was necessary to win because of the way these mailings
are set up, because the rules, if you will, are on a separate
piece of paper in very small print? I am just going to go down
and ask you each to comment on this. Ms. Gelinas.
Ms. Gelinas. Oh, absolutely. Many of the things, the print
was way too small for my father to even read with a magnifying
glass, especially towards the end of his life where he had
failing vision.
He didn't even know it was there. But he also knew because
he was a preferred customer he reached this tier, that tier, or
whatever, and was somehow special, that he was very close to
winning and all he had to do was maybe buy one more book or one
more videotape and he was guaranteed to win.
Senator Collins. And he became a preferred customer by
making purchases, correct?
Ms. Gelinas. Oh, absolutely, yes.
Senator Collins. So there, again, reinforcing that link.
Ms. Gelinas. Absolutely.
Senator Collins. Ms. McElligott.
Ms. McElligott. Yes, I would agree with that. I would also
like to add that due to the volume of mail they were receiving
every day, they would not sit there and read through all of
that. Yes, you need a magnifying glass. It is hard for me to
read it. If you have all of this sitting here proclaiming you
are a winner, you are going to glance at it and go for the big
stuff--``I trusted these people; these are not going to lie to
me''--and keep reading.
Senator Collins. Dr. Beukema.
Dr. Beukema. Yes, absolutely. She believed that if she
purchased, then it would increase her chances. And one of my
brothers would take her his junk mail and say, ``look, I send
in the same things with no money, and nothing happens.'' She
wouldn't believe him. She believed that absolutely she was
still getting something different, something more, and, indeed,
she did get a lot more. And there was something in just the
sheer amount of material that came to her house that made her
believe that she really was incredibly close now and she had to
purchase.
Senator Collins. Mr. Doolittle.
Mr. Doolittle. Well, if you have 50 to 60 envelopes a week,
with all this paperwork in there, and you are going to enter a
sweepstakes, 50 or 60 of them a week, you don't have time to
read the small print. You are going to hit the highlights of it
and move your little stamps around and write your checks and
order what you want. Then when you try to point things out, you
are just wasting your time, they are going to win. It says we
are going to win.
Senator Collins. I think that is an important point, in
many cases the language is unambiguous. It isn't qualified.
Mr. Doolittle. Why would they read it when it says they are
going to win?
Senator Collins. That is a very good point. Dr. Carter.
Dr. Carter. The majority of the instructions are always on
the back of the entry form, and in my father's case, he would
probably receive anywhere from 12 to 20 envelopes a day. So
this was a full-time job just filling out these entry forms.
They have so many steps and stages that you have to go through
on these forms, plus make out your check you are going to send
them. He never bothered to flip over the entry form to see when
these contests ended, or to see what the rules were.
They stated in many instances that the address you mail to
was different, and all the instructions for where this envelope
went if you didn't want to purchase was in small print on the
back of the contest. It was always a totally different address,
and it would be a lot of work for someone who is doing 20 of
these a day to sit down and rewrite envelopes. You had to fill
out your own envelope if you didn't want to buy something. So
it was much simpler just to go ahead and order, whether he
needed it or not.
Senator Collins. There is one mailing that we have which we
will be talking about more tomorrow where the print size of the
disclosure that you don't have to make a purchase to win and
the odds is in 6.5 point print. I cannot read it. I had to have
my much younger staff members point out on the back where the
disclosure was. And I, at age 46, cannot read the print, I
imagine that most people older than that cannot either. And I
think that is an example of what we are talking about.
Ms. McElligott, you did a lot of work trying to get refunds
from companies. Could you explain to us any problems you had in
seeking refunds? And I also understand that your efforts in
seeking refunds actually generated more solicitations. Is that
correct?
Ms. McElligott. Yes, ma'am. That is correct. In fact, I
brought the ``McElligott estate is a winner,'' and this is not
the first one we have received. In our effort----
Senator Collins. Let me just clarify that point. This is
after--was it your father or your father-in-law?
Ms. McElligott. Father-in-law.
Senator Collins. Your father-in-law had died. You started
as a result of your complaints then getting solicitations
addressed to his estate?
Ms. McElligott. Yes. The estate would like to have the
money, by the way.
Dealing with the magazine companies to obtain these refunds
has been an education in itself, and it has never been easy.
What started out with, Hello, my name is so-and-so, and I am
the daughter of . . . who has now died, the estate would like
to request a refund, and would you please take us off your
mailing list? And could you tell us, does he subscribe to any
other magazines with you?
They don't want to tell you this information. Some
companies were so brazen as to ask me, Do you have canceled
checks? How many do you have? Well, yes, I do have canceled
checks, but how many subscriptions do you show him having?
Well, we will have to get all of our records.
As I went through the process, I became a little more savvy
in my questioning of, Do you have his name under any other
similar spellings? But whenever you would call in, it was: Give
me your zip code. Well, I am sorry, but in Tyler, Texas, there
are only two McElligott families, my father-in-law and myself.
And this is not difficult, and his zip code is different from
my zip code. So if you pull up that zip code, anything
reasonably close to our name should have come up.
At one point we had contacted either American Family
Publishers or Publishers Clearing House and, after repeated
contacts, his records disappeared. We were told: We don't have
any records; they have been purged. And after much insistence,
we were told a supervisor would get back with us.
Some checks we were told were mailed, and we would go back
and say, no, we have not received them. Yes, you have. Then
send us a copy of the front and the back with the endorsements.
And suddenly, oh, they haven't been mailed. And we would get
the checks.
Senator Collins. Mr. Doolittle, I know you tried to get
some refunds also, and one of the things that is striking in
your example of that stack of checks is it shows that because
each individual purchase is small, people don't realize how
much money they are actually spending in the aggregate.
Could you comment on your experiences in looking through
these checks what the average amount is perhaps?
Mr. Doolittle. I am not sure what the average is. I think
it is somewhere around $28. But the biggest bulk of them are to
Purchasing Exchange and Publishers Clearing House. You know,
once you start down this path, you have to write some days 10,
15 checks because there were different--my mother does all the
writing of all the checks, and sometimes she was sick for a
month, 6 weeks, so no checks got written. The only checks that
got written were the ones I wrote, and that was for the cable
TV and electric. It sure the hell wasn't for this stuff.
So everything these people are saying, I have been there
and seen that, done that, and it is a mess. I don't think this
is what we want for the elderly people. I don't want it for my
parents. I don't want it for their parents.
Senator Collins. I am going to yield to Senator Levin for
his questions. Before I do, I want to pick up on a comment that
Dr. Carter made about your odds of winning.
I have noticed in some cases the odds are stated, although
always in small print. But in other cases, the companies just
say the odds depend on the number of entries, which isn't
exactly very informative.
In fact, I was thinking that perhaps one way to inform
consumers is if we required a very clear statement of odds
using some information that was in the Washington Post, which
is that your odds of dying from bites from venomous snakes,
lizards, and spiders are greater than your odds of winning one
of these major sweepstakes. Perhaps that would have discouraged
Mr. Hall from entering.
Mr. Hall. Yes, it would have.
Senator Collins. It would have.
Mr. Hall. Oh, yes.
Senator Collins. Senator Levin.
Senator Levin. First, I would like to put up a picture of a
basement room in your father's house, Dr. Carter.\1\ I am not
sure this is a basement, actually. It is a room----
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\1\ See Exhibit No. 19 in the Appendix on page 209.
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Dr. Carter. Yes, it is a basement.
Senator Levin. It is a basement room. Can you describe what
those boxes are?
Dr. Carter. Well, I would really have needed to use a
panoramic view to get the whole field of boxes. That is not
entirely all of them. The only thing that is not purchased is a
hanging closet for some clothing and a chest of drawers in the
back. Most of these are all items which remain boxed that he
has purchased that he has not even bothered to open. I think he
is saving a lot of these items, which, of course, he never
wanted or needed in the first place because he feels that at
any point in time he can mail these all back and receive a full
refund.
Well, at this point in time, it is such a mess that I am
not sure how we will ever be able to figure out where any of
these items go to.
There are silly things in there like feather dusters,
plastic fake crystal vases, all kinds of Tupperware-type
products, even a rearview mirror magnification item which you
can hang on your rearview mirror, which I am sure is totally
illegal to drive with. It just goes on and on.
Senator Levin. Is that just one portion of that room?
Dr. Carter. Yes. There is some more, and also the garage
has some.
Senator Levin. And over what period of time?
Dr. Carter. This has been within a year, so this has--thank
heavens, really been a recent happening because had he begun 4
or 5 years ago, he would have probably wiped out his savings.
Senator Levin. Ms. McElligott, you held up an envelope that
looks something like this.\2\
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\2\ See Exhibit No. 18 in the Appendix on page 208.
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Ms. McElligott. Yes, sir.
Senator Levin. Could you hold that up again? I am just
curious if by some chance it is--could you read those big words
there at the top?
Ms. McElligott. It says, ``Joseph P. McElligott Estate has
won $1,666,675 and payment is scheduled to begin.''
Senator Levin. OK. Is there some real fine print above
that?
Ms. McElligott. Below it, it says----
Senator Levin. Is it below it?
Ms. McElligott. Oh, above it or below?
Senator Levin. Either one.
Ms. McElligott. OK. Above it----
Senator Levin. If you can read it.
Ms. McElligott. Let me get it out of the envelope. Let me
take it out of this one. We have opened this one.
Senator Levin. Because this is the fine print, folks, that
they all rely on. You see, the recipients of these letters get
the come-ons in big print, such as Ms. McElligott just read.
Now I think it is similar to stuff I have seen.
Now the fine print that nobody reads.
Ms. McElligott. The fine print, which is in a much paler--
it is in a soft gray: ``If you have and return the grand prize
winning number, we will officially announce that.''
Senator Levin. Right.
Ms. McElligott. And then below it, it says, ``And then the
list of major prize winners in sweepstakes presented by Life
would read as follows.''
Senator Levin. Now, what we will be hearing tomorrow is
that it is that fine print that makes this legal.
Ms. McElligott. It makes it legal, but it is difficult to
read.
Senator Levin. But it is hopefully not going to be legal
after our legislation passes. That is one of the points, many
points of these bills, which is to make illegal putting in big
print you have won all this money and then in very small fine
print the qualifier that nobody reads, because our bills
require that the notice of the qualifications, conditions, be
in large print. This is just one of many changes that are in
our legislation.
I am not saying that that goes anywhere near as far as we
have got to go to stop these disgraceful practices, preying on
elderly people to make money.
Now, this is one of the things that is typical of these
come-ons. This is one we will talk about with one of our
witnesses tomorrow, very similar to what you have. This is what
the person reads in the envelope: ``We can now confirm that
your number is the winning number, and you''--the name here--
``win $1,666,000.'' \1\ Someone reads that. This person reads
that. What they don't read because it is so small and usually
on a background that they can't even make out the writing from,
it says: ``If you have and return the grand prize winning
number.''
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\1\ See Exhibit No. 10 in the Appendix on page 182.
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But what they are depending on is that a human eye will see
what is large and not be able to pull out very fine print. They
are depending on people not having a magnifying glass nearby so
that they can use a magnifying glass to read the fine print.
And then on the back of that envelope are the conditions. Even
with a magnifying glass, I am not sure I can read those. I
can't read that with my own reading glasses on right now. That
is how small it is. And that is how small the words ``No
purchase necessary'' are.
Now, one of the things that I hope we will do, which is in
the bill that I have introduced, is not just to say ``No
purchase necessary.'' That is not nearly good enough. The point
is that buying something will not increase your chances of
winning. That is the critical information. Because you can tell
somebody, even if they read that no purchase is necessary, they
can still think that, well, it may not be necessary, but it is
going to help my chances of winning. And you are all nodding to
that, so I would like to kind of get your reaction to that.
Mr. Hall, is that correct?
Mr. Hall. Yes, very good. That is a very important sentence
there.
Senator Levin. Ms. Gelinas.
Ms. Gelinas. Oh, absolutely. My father absolutely believed
that if you didn't buy, it wasn't--you were off the list. You
were off the top of the list.
Senator Levin. But even if he read the words ``No purchase
necessary,'' would he not still believe that it would help
increase his chances of winning?
Ms. Gelinas. Oh, absolutely. ``Everybody knows that if you
buy, your chances are better.''
Senator Levin. All right. Thank you.
Ms. McElligott.
Ms. McElligott. Yes, I agree and would encourage you to add
that to the phrase.
Senator Levin. All right. Thank you.
Ms. Beukema.
Dr. Beukema. It goes along with the sort of phrase I was
raised with. You know, there is no such thing as a free lunch.
So, of course, you have to buy. These are the values that guide
your life. You have to keep doing what you have always done.
But in this case, it is completely exploited.
Senator Levin. OK. Mr. Doolittle.
Mr. Doolittle. Put it in big letters.
Senator Levin. Put it in big letters, OK.
Dr. Beukema. And all in the same color.
Mr. Doolittle. If I can take off my glasses and read it,
then it is big enough.
Senator Levin. OK. Thank you.
Dr. Carter.
Dr. Carter. My father fully understands that these
purchases are basically essential for increasing his chances of
winning, and I think he really does not need the items he has
bought and never really planned on using them, but these were
items that had to be purchased to allow this contest to be
favorable for him.
Senator Levin. Now, these letters prey on people's
vulnerabilities and loneliness and hope to be independent and
help their children get through college, as in your situation,
Mr. Hall. They prey on all of those human feelings, sometimes
human frailties, and that is what we are going to have to try
to stop, that exploitation, by closing loopholes in existing
laws. But we have also got to toughen laws which already exist
where people do things that are already illegal, but the
penalty is so weak that they can make money even if they ever
had to pay the penalty.
For instance, under the postal regulations, you have to
violate an order before you can be fined. The fine is minimal.
But why should you have to violate an order? Why shouldn't you
be fined a significant amount if you violate the law or the
regulation? Why must the Postal Service have to issue an order
that you violate before you are subject to a fine? So we are
hoping to change that as well.
I just want to have a couple more questions with Dr. Carter
about that letter, if we could put that back up.\1\
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\1\ See Exhibit No. 35 in the Appendix on page 319.
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One of the intriguing parts about this letter to me is that
this come-on guarantees that you have either won a brand new
automobile or a cash award. No ifs, ands, or buts about this
one.
It is very difficult to even know what they are selling, by
the way. It is easy to know what they are getting. They want
that $12--how much is it? $14.98 for this optional package.
Dr. Carter, you have read this. Do you know what that
optional commodities package is that you get for $14.98?
Dr. Carter. I have no idea because you get so bowled over
by all the instructions. If you can see on the poster to the
right, that is the back of the awards. You have to really read
through all of this before you figure out what is going on.
Senator Levin. After you have read it, you know what is
in----
Dr. Carter. No, I did not. And basically the thing my
father saw was ``Award Registration Form.'' He had the idea
that he had to send in $14.98 in order to be entered in this
contest. And I honestly thought, when I started reading this
Motor Vehicle Award, I was three-quarters of the way through
that page, I thought he had actually won. I thought, oh, no, he
has finally won something. I got about three-quarters of the
way down, and I thought, oh, no, this really isn't going to
happen. But I really was convinced.
Senator Levin. Even after reading this fully, studying it,
looking at it, do you know what the optional commodities
package is?
Dr. Carter. No, I have no idea.
Senator Levin. By the way, folks, on this particular one,
they guarantee a cash award. And if you read this cash award--I
don't know which way to put this because you can't read it
either way. But when you read very carefully there, everybody
is guaranteed a cash award, 50 cents, when you read those
things very carefully. And I am sure if they were here, they
would say we guarantee everybody who enters a cash award, just
as we represented, 50 cents. That sweepstakes deadline is not
yet here, and when it is, I hope this Subcommittee will
subpoena these folks, if we can find them, to see how many 50-
cent checks even went out to these people.
So we have got two problems. One is the loopholes that need
to be closed, but also we have got to toughen very dramatically
on existing prohibitions if we are going to stop these
disgraceful practices.
Thank you, Madam Chairman.
Senator Collins. Thank you, Senator Levin.
Senator Edwards.
Senator Edwards. Thank you, Madam Chairman.
Mr. Hall, good morning.
Mr. Hall. Good morning.
Senator Edwards. How are you doing today?
Mr. Hall. Pretty good. Thanks.
Senator Edwards. I just want to ask you a couple of
questions. Do you have one of these exhibit notebooks down
there? I think I see one.
Mr. Hall. Yes.
Senator Edwards. I wonder if you would turn to the first
exhibit, which is a letter from Publishers Clearing House
addressed to you.\1\
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\1\ See Exhibit No. 1 in the Appendix on page 155.
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Mr. Hall. Yes.
Senator Edwards. The first thing I notice in this letter is
the words ``guarantee'' or ``personal guarantee'' in boldface
type. Do you see that as you go through the letter?
Mr. Hall. Yes.
Senator Edwards. And it looks to me as though it appears
one, two, three different times in boldface. Is that correct?
Mr. Hall. Yes.
Senator Edwards. Now, if you would look down with me at--
there is a large paragraph, four up from the bottom. It begins,
``You see.''
Mr. Hall. Yes.
Senator Edwards. Do you see that?
Mr. Hall. Yes.
Senator Edwards. And then it has this sentence: ``Now, I
have made sure that your invitation includes a special
opportunity that guarantees''--``guarantees'' being in
boldface--``guarantees you will win a prize valued up to
five''--that has got so many zeroes, I am not sure what it is.
Is that five million?
Mr. Hall. Five million.
Senator Edwards. Five million dollars. When you read that,
what did that mean to you, Mr. Hall?
Mr. Hall. That I was going to win $5 million. I am still
waiting for it. [Laughter.]
Senator Edwards. I am afraid you are going to be waiting a
while, it looks like.
Mr. Hall. Yes, I am.
Senator Edwards. And this letter contains--I left out a
large part of the letter, but it contains a whole discussion
about some discussion that allegedly took place at Publishers
Clearing House about you personally. Is that right?
Mr. Hall. That is correct.
Senator Edwards. And when you saw this sort of description
of the fact that they were talking about you personally and how
important it was for them at Publishers Clearing House for you
to be a winner and guaranteeing that you were going to be a
winner, what did all that make you think?
Mr. Hall. That I really was going to win. I did.
Senator Edwards. And you were telling us earlier before you
got upset, Mr. Hall, basically what you were trying to do was
help your daughter go to school. Is that right?
Mr. Hall. That is correct.
Senator Edwards. And she was going to law school and you
were proud of her and you wanted to help her.
Mr. Hall. That is correct.
Senator Edwards. Did it matter to you the fact that this
all appeared to be very personal?
Mr. Hall. Yes. I took it very personal, and my daughter
always advised me these guys cannot be trusted. And I just
thought this is a harmless, reputable company. That is the way
I thought about that. And getting a letter like this made me
believe that I really was going to win.
Senator Edwards. Now, let me ask you this, Mr. Hall: What
would have told you, when you got this letter--let's talk about
this letter particularly. What could have been in this letter
that would have said to you, you know, my chances of winning
this sweepstakes are minimal? What could these folks have put
in this letter that would have made that clear to you?
Mr. Hall. If they had put in this letter that my chances of
winning were 1 in 100 million, that would have made me--given
me the indication that I would not--probably would not be a
winner.
Senator Edwards. And that is nowhere in the body of this
letter. Nothing like that is in the body of this letter.
Mr. Hall. It is not there.
Senator Edwards. Now, let me ask you about a different
thing. We have some language--Senator Collins has some
language, Senator Levin has some similar language--about the
nature of what needs to be in these sweepstakes promotions, and
we use ``easy to find, read, and understand'' because of our
concern about this small type and how hard it is.
Mr. Hall. Yes.
Senator Edwards. Tell me how you would feel, instead of
language that is more general like that, if we said that they
had to disclose your chances of winning in type that was at
least as big as any type that appeared anywhere in the letter--
in other words, the largest type. See ``Publishers Clearing
House,'' that big type at the top of that letter?
Mr. Hall. Yes.
Senator Edwards. Would it have been helpful to you if they
were required to disclose in type as big as the largest type
that appears in some of these letters we have seen? Some of the
blow-ups, they have very large type on them.
Mr. Hall. Yes.
Senator Edwards. Would it have been helpful if we required
them to disclose your chances of winning every time you got one
of these things, your chances of winning in type that was at
least as big as the largest type in the letter?
Mr. Hall. Yes.
Senator Edwards. Would that have been helpful to you?
Mr. Hall. Very, very much helpful.
Senator Edwards. OK. Now, let me ask Ms. Gelinas--thank you
very much, Mr. Hall. That was very helpful.
Ms. Gelinas, let me ask you this question. I spoke earlier
about a 1-800 number, which is one of the ideas that I have
that I want to discuss with my colleagues. But the concept is
to have a 1-800 number where folks could call and have your
name taken off all these sweepstakes lists so that they
especially don't mail to you, and not just one of them but all
of them, one central 1-800 number. Tell me whether you think
that would be helpful based on your experience.
Ms. Gelinas. It would have been helpful at the end when I
was taking care of my father's affairs to a large extent, but
for the 10 years that he lived alone, he never would have
called.
Senator Edwards. He wouldn't have called himself.
Ms. Gelinas. Oh, no, because he was going to win.
The other thing that I might mention about your large type
is if you are going to put the odds on it, it also has to be on
the front page, because if it is on the back somewhere, they
are never going to turn it over and look.
Senator Edwards. Basically the largest possible type on the
front page of whatever they receive.
Ms. Gelinas. That is right, because I know my father never
looked on the back of any of those things. First of all, as
some of the other people have said, it is a full-time job to
fill out all these things and write all your checks, and my
father was getting 30 to 50 a day between charities--strange
charities no one has heard of--and Reader's Digest. And that
did--that was his day, filling those things out. And he never
even looked on the backs of those things. Even if the print had
been big on the back, he never would have seen it.
Senator Edwards. So let's play this out. If we had in type
that is as big as the largest type that appears anywhere on the
document, and on the front page, (1) the chances of winning,
and, (2) as Senator Levin pointed out earlier, that purchases
will not help your chances of winning in any way--if we had all
of that in type as large as the largest type that appeared
anywhere on the document, do you think that would go a long way
toward dealing with this problem?
Ms. Gelinas. I think that would have helped for my father,
yes. I really do.
Senator Edwards. And let me ask you one last question. Do
you feel like, particularly in the case of the elderly, that
when they get these personal letters like Mr. Hall got and I
just asked him questions about, that it is important to them,
it makes them feel like somebody cares about them, somebody is
paying attention to them, they feel important?
Ms. Gelinas. Absolutely. I think that is a big part of it.
I used to see my father three or four times a week. He would
have letters like this to show me that he was so proud of
because, look, I mean, they really were--they felt for him,
they were his friends. You know, they were worried why he
hadn't won yet. They wanted to make sure he would win. All of
that real personal touch really went a long way with him. He
trusted them. He believed them. He thought they cared about
him.
They didn't care about him. They cared about his money.
Senator Edwards. And it created not only a financial
response in him but an emotional response.
Ms. Gelinas. Oh, absolutely.
Senator Edwards. Can I get a comment from the rest of you
on all these things that I have just asked about? Ms.
McElligott, if you don't mind?
Ms. McElligott. I agree. I would like to see those
statements put right up there beside ``You have won,'' and not
down in the body of the text, because when they get the volume
that they are getting--and this was 1 day, the day I left. They
don't have time to keep reading. Their eye goes to what they
see first. Put it as big--make them put it in bright red
letters--what your odds are. Put it up there so they can see
it.
Senator Edwards. And, also, that buying something is not
going to help them.
Ms. McElligott. Exactly.
Senator Edwards. Dr. Beukema.
Dr. Beukema. Well, what just occurred to me when you were
talking is that if your--people have lived all their life, and
so when they see something that says, so-and-so and I were
sitting in the office the other day talking about you and
wondering why you haven't won, they imagine themselves doing
that with someone.
Senator Edwards. Sure.
Dr. Beukema. And so they think, oh, it is really happening:
that is what I would do; this must be real.
That it is not real, I think, is like, well then why would
they say it if it isn't so. It is like with the phrasing, it
says I have won. It wouldn't say that if it weren't true. I
mean, it assumes a kind of naivete in some way, but it is also
not so naive. It is like why else would you write someone
something like that.
Senator Edwards. But don't you think it also, as we have
talked about, makes them feel special?
Dr. Beukema. It makes them feel special.
Senator Edwards. Important?
Dr. Beukema. Yes.
Senator Edwards. Makes them want to respond on an emotional
level.
Dr. Beukema. Anyone else who came to them and said you have
won this or this is good for you, the doctor says that, their
kids say that. And here are people saying it all the time, only
there is more of them.
Senator Edwards. Any other ideas besides what we have just
talked about, putting the type in as big a print as there
appears on the letter, putting it on the front, making sure it
discloses the odds of winning in this large type, and also that
purchases are not going to help? Anything else specific that
occurs to you that would be very helpful?
Dr. Beukema. Not specifically. Those seem very important.
Senator Edwards. OK. Thank you.
Mr. Doolittle, could I get your comments on those
questions, please?
Mr. Doolittle. I think you ought to put--oh, there is one
right there, about a quarter inch height, but do it on the
front and the back.
Senator Edwards. I see the letter that you have in your
hand. It says ``letter of intent.'' What does it say at the
top?
Mr. Doolittle. ``Letter of intent to award cash.''
Senator Edwards. If that document said in the same size
print what your odds were of winning and that purchases would
not help, don't you think that would be tremendously helpful?
Mr. Doolittle. Yes, but they would reduce the size of that
print so they can reduce the disclosure.
Senator Edwards. They will make them all small.
Mr. Doolittle. So if you just tell them quarter inch in
black ink, put it on the front and the back--so many of these
envelopes have got six, seven sheets of paper in them.
But I have something to ask you guys. [Laughter.]
Why can't you raise the bulk rate up?
Senator Collins. Well, we will pass that on to the other
Subcommittee.
Mr. Doolittle. It costs me 33 cents to send you a letter.
Right? What does it cost them to send me all this?
Senator Edwards. Sure.
Mr. Doolittle. Not much.
Mr. Hall. A fraction of a cent.
Mr. Doolittle. And the mailmen, they are getting tired of
carrying it.
Senator Edwards. Sure.
Dr. Carter.
Dr. Carter. I would really like to see them also disclose
that when you purchase something or enter that your name is
going to be sold. I think it is ridiculous that permission is
not requested that your name be sent all over the planet. My
father had an unlisted phone number for 15 years. We have
changed this number twice. He still gets phone calls.
Unfortunately, now he is involved with these Canadian
telemarketing scams, and these outfits are impossible to stop.
There is nowhere in any of these entries any mention that
your name is going to be passed on to other companies. It says
if you win the prize, would you be willing to show up and be on
TV or serve as a promotional person, but they say nothing about
the person that doesn't win anything.
The other thing I would be interested in finding out is if
my father does become a 1 in 85 million chance winner and his
payouts are going over 30 years, are they going to pay interest
on this million dollar winning? Certainly if he wins a million
dollars on April 1, then he is entitled to interest on this
million dollars. He is in a sense loaning them this million
dollars for 30 years. Nowhere do I see anything that there is
going to be interest paid to him.
So these are some things that I think need to be addressed.
Senator Edwards. Madam Chairman, I see my time is up, but
let me say one last thing. Thank you all so much for being
here. Your presence here is critically important to the work of
this Subcommittee.
Mr. Hall, I particularly want to thank you for coming here
and having the courage to talk about something that I know is a
very difficult thing for you to talk about, and you did it very
eloquently.
Mr. Hall. Thank you.
Senator Collins. Thank you, Senator.
We just have a couple of final questions that Senator Levin
and I want to ask you. I am going to ask my question to Dr.
Beukema and have Exhibit 6 put up and if you could look in the
exhibit book.\1\
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\1\ See Exhibit No. 6 in the Appendix on page 172.
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You made a very interesting point in your testimony. You
talked about your mother being very trusting of official
institutions like the Postal Service or the U.S. Government.
Another part of our investigation later on is going to get into
what I call government look-alike mailings. These are mailings
that sweepstakes frequently use to make it look like somehow
they have the approval of the Federal Government, or in some
cases they look like they are from the Federal Government.
This isn't as clear an example of a government look-alike
mailing, but I think it is a mailing that looks very official.
It looks like the Postal Service is somehow involved. It says
official business. It looks like it has been hand-canceled,
although, in fact, it hasn't. It is just bulk mail.
Could you comment a little bit more on the issue of the
deceptive nature of the envelopes that lead people like your
mother to believe that somehow this can't possibly be
deceptive?
Dr. Beukema. Well, it looks like--the eagle is sitting up
there. It says ``official business.'' It has ``Do not
discard.'' All of these thing make it seem as if you have to
open it and that it does come--it looks like something that
comes from the government, and I think that because it came
through the government, it came into her house--she didn't have
to go out and wait on some street corner to have someone drop
it. This was something that came to her house. The postman, who
she knows, brings it to her, and it looks official. It says
``official business.''
So, psychologically, it is like this is for real. And why
would she doubt it?
Senator Collins. We have other examples which we will use
in subsequent hearings where the mailing looks like a 1099
form.
Dr. Beukema. Yes.
Senator Collins. It looks like an IRS document. We have
others--this is one I received, by the way, although I have a
feeling that I will be dropped from all the sweepstakes lists.
[Laughter.]
This one, a lot of these look like they are return receipt.
They mimic the official documents that are used by the Postal
Service in ways that I think just add to the deceptive nature.
Dr. Beukema. Yes.
Senator Collins. Finally, it occurred to me as we were
talking about what kinds of disclosure, I am wondering, why do
we allow these companies to say ``You are a winner''? Why isn't
it ``You may be a winner''? That in itself is so deceptive.
Dr. Beukema. Yes. Psychologically, I am a winner, I am
going to keep doing this. I mean, it is stated in the present.
It really seems true. It keeps me in. You might win if you do
this. It just has a completely different feel to it that people
respond to.
Senator Collins. I think you have all done an absolutely
excellent job of helping us understand not only the financial
consequences, the thousands of dollars that seniors are
wasting, and others who are not elderly who are wasting on
these sweepstakes purchases because of the deceptive nature of
these mailings, but also the emotional toll that is taking
place. And that is equally troubling to me. It is equally
troubling to me that we are raising hopes, that we are
exploiting people's dreams through these mailings. And I think
that that is another harm of these highly deceptive and
aggressive mailings.
Senator Levin.
Senator Levin. Madam Chairman, thank you, and just very
briefly, I want to ask our witnesses about an argument which we
are going to hear tomorrow from Reader's Digest. I am going to
quote from a piece of their testimony.
What they will be telling us is that the sweepstakes offer
is there only to get the consumer to open the envelope. In
other words--well, let me read what their testimony is. That is
the purpose of the sweepstakes offer, and that ``Once the
consumer is exposed to the product offer, it is the strength of
the offer, the quality of the product and the value of the
product for the price which will determine whether the consumer
will actually respond with a purchase.'' In other words, it is
not the sweepstakes pitch. It is the product quality.
Would you like to comment?
Ms. Gelinas. Even if there is a quality product, someone
who buys five or six of the same item is not buy quality--
they're trying to better their chances of winning.
Dr. Beukema. There is no quality.
Mr. Hall. Absolutely not true.
Ms. McElligott. Would you like to see an example of
quality?
Senator Levin. Yes.
Ms. McElligott. Could someone take this to the Senators?
$20.29 for a golden horseshoe watch. I wouldn't give you a dime
for it. We had probably 30 of these.
Senator Collins. Do you want it back? [Laughter.]
Ms. McElligott. No. I have offered to give it to everybody,
and nobody will take it. But you may have it.
Dr. Carter. I think too many of the tapes and CDs are sold
at outrageous prices; $30 usually is what it takes to purchase
an item. And Reader's Digest cleverly has you into some of
these travel clubs or these clubs that package things so you
get two or three discs at a time. So I found on charge card
statements $60, $90, and the quality of these items is not
good. The CDs, some of them he has had me listen to. He likes
classical music, and I will start listening to it, and all of a
sudden it stops because there is a scratch in it or there is
something in it. So it is pathetic.
Senator Levin. Anybody else want to comment on that
argument? I saw you all kind of shake your heads with
disbelief.
Dr. Beukema. My mother sent me six feather dusters. They
are all plastic. I am sure they have nice feathers.
Senator Levin. If this is all right, we will hang on to
this for tomorrow. We will present this to Reader's Digest.
Ms. McElligott. You may have it.
Senator Levin. Thank you. I don't think this will violate--
I know this won't violate our gift rules, given its value.
[Laughter.]
One other thing, I want to just pick up on a thought that
my colleagues have shared with each of you, and I tried earlier
to express as well, and that is how grateful we are that you
have come forward. It is a lot easier, in a way, to talk about
the embarrassment and the humiliation and the waste of money
when people come together. And an awful lot of folks out there
have been taken advantage of, and the fact that you come
forward and kind of band together in this effort I think will
make it a lot easier for others. Thousands, hundreds of
thousands, perhaps millions, who have been the object of the
kind of come-ons that you have described this morning hopefully
will now come forward with their families and talk about it to
their children or to their brothers, sisters, and so forth, to
see if we can't stop the scams here that are preying
particularly, but not exclusively, on senior citizens.
If I could just say one final word to Mr. Hall as well,
your daughter is now a lawyer.
Mr. Hall. Yes, she is.
Senator Levin. You can be very proud of that.
Mr. Hall. Very proud.
Senator Levin. And that you, I am sure, made a major
contribution to that, even though perhaps the fact that you
were scammed made it more difficult for you to do as much as
you wanted to.
Mr. Hall. I was successful in getting it done.
Senator Levin. You were successful. I am sure she would be
the first one to be aware of that, and also now to have an
opportunity as a lawyer to do what our newest colleague here,
Senator Edwards, did so often for his clients, which is to seek
the injustice and to go after the scam artists for those who
have been victimized. So you have really been a major success,
as others have here, too, and I shouldn't single out one, but I
think you all understand why I am doing this given the emotion
that understandably was shared with us this morning.
So you are a tremendous success even though you were taken
advantage of. I am sure that your daughter will remember
exactly how powerful your presence is here this morning and how
important your efforts were in her professional achievement.
And to each of you, again, all of us are very grateful, as our
Chairman said, for your being willing to come forward. Thank
you.
Senator Collins. Thank you very much.
I want to thank you all again. You have contributed
immeasurably to our understanding of this problem by your
willingness to come forward. You are going to help us solve
this problem, and I thank you very much for your contributions.
Senator Collins. I would now like to call our second and
final panel of witnesses forward.
Our second panel of witnesses this morning includes the
Hon. Joseph Curran, Jr., the Attorney General of the State of
Maryland, and Virginia Tierney, a member of the Board of
Directors of the American Association of Retired Persons.
Again, I want to thank both of you for coming forward.
As I explained, we do swear in all of our witnesses, so
pursuant to Rule VI, I would ask that you stand and raise your
right hands?
Do you swear that the testimony you are about to give to
the Subcommittee will be the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Curran. I do.
Ms. Tierney. I do.
Senator Collins. Your written statements will be made part
of the hearing record. In the interest of time, I am going to
ask that you limit your oral presentations to no longer than 10
minutes, and we will start with you, Mr. Attorney General.
TESTIMONY OF J. JOSEPH CURRAN, JR.,\1\ ATTORNEY GENERAL, STATE
OF MARYLAND
Mr. Curran. Well, thank you very much. I am pleased to be
here, and I want to thank you, Senator, and Senator Levin for
the bills that you have introduced.
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\1\ The prepared statement of Mr. Curran appears in the Appendix on
page 116.
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I can tell you, as the Attorney General for Maryland--and I
have been that now for the past 13 years--that indeed
sweepstakes mailings are a real problem and something that we
have, I believe, been aggressive in combatting in Maryland. But
I applaud your efforts at the national level, and I also
applaud the efforts of my colleagues in the National
Association of Attorneys General who have taken this issue on
as a national project.
To give you some idea of the numbers or the volume that we
deal with, probably our office in the Consumer Protection
Division gets in excess of 300 complaints a year by individual
Marylanders. But in addition to that, as best I can determine,
another 100-plus Marylanders have called the FTC. So it isn't
just a few scattered complaints we are getting. It is a
significant volume.
I might add also, as you have probably seen from the
earlier witnesses, that a lot of folks, particularly seniors,
are reluctant to call or to complain for a variety of reasons:
gee, I don't want my daughter to know how foolish I have been;
or, I feel so embarrassed or, quite frankly, they really are
continuing to be deceived. So the fact that there are several
hundred callers doesn't indicate to me that it is only those
few. That is, quite frankly, I just think scratching the
surface.
What I would like to say, however, to you, Senator, is that
I am really troubled by the idea that mailings are coming from
what I would have thought would be responsible business
persons, businesses that we should look to as leaders,
corporate leaders. The management of these businesses, I dare
say, think of themselves as good persons within their
community, probably church or synagogue members, doing good
things. But yet, quite frankly, their marketeers are doing some
very bad things, and we should tell them that it is affecting
adversely a lot of very decent persons and they should stop it.
Now, what we did about a year ago to try to find out what
was the depth of the problem, because I only had some anecdotal
information based on what I have just told you, we devised a
way of--I guess a reverse sting, if you will, and we did like a
few other States did. We had a Maryland Senior Sting, and I
wanted to find out what kind of mail were seniors getting. So
we got about 500 Maryland seniors from the Washington area and
the Baltimore area and the Eastern Shore area and asked them to
volunteer for 1 month to save their mail, other than their
legitimate mail, their bills or their children or the birthday
card things, save their mail for us because we would like to
sort it out and see what they are getting. And you would be
amazed that we got in 1 month from these 500 seniors,
volunteers, over 10,000 pieces of mail, excluding, of course,
the personal mail, the bulk of which, almost 50 percent of
which was the sweepstakes mail.
So you can see that people really are, in fact, being
deluged by these mailings, and we had a chance to sort it out
to see what was deceptive, what was misleading, what was
illegal, and as a result of the Senior Sting, we were able to
work with other States. We are undergoing now--we had seven,
now we only have six multi-State investigations of major
sweepstakes companies. We were able to turn over to the postal
authorities a number of really outrageous pyramid schemes and
chain letters which are totally illegal and unrelated to this,
of course, but we did find that these were the kinds of letters
and publications that Maryland seniors were receiving, and we
wanted to move to do something against it, and I think the one
settlement we entered into with American Family Publishers
will, of course, be a step in the right direction. But it is
only a step in the right direction.
But I just thought you should know that we found, when we
opened these bundles and bundles of mail, that there would be
some seniors who would get just a few letters, but there were,
in fact, seniors who clearly in my mind must have been targeted
because they were where some senior would get maybe 15 letters
in a given month, some might get 40 or 60 in a given month,
meaning to me--that is what I think by the reloading. They were
targeted because they were those persons who had been duped
once before and they were re-duped and re-duped and re-duped.
I think this is a real problem. I applaud your efforts that
you are doing. I think legislation, education, litigation, if
need be, is the answer. But the message I would like to get to
the people who are sending these things out, you really are
hurting people. You might think, well, it is just--as someone
said, you put ``You are the winner'' on there so they will open
the mail, but seniors don't do that. And when I say seniors, I
am speaking I guess of my own generation. We, I think, were of
a generation that believed what we saw. So if something came in
the mail and said a fact, seniors are, by and large, trusting.
They believe you. They are honest. They are hard-working. And
if you make that approach to them, they usually--they fall for
it. And I think these marketeers must know that.
We have a good law in Maryland, I am happy to say, and we,
quite frankly, go after these birds. And when we do, we put
them out of business. We just recently dealt with an outfit in
California along with some other people. In a 2-year period, we
believe this one outfit ripped off Marylanders to the tune of
about $7 million in a 2-year period.
What they would do, they would send you ``Dear Mr. Curran:
Congratulations, you are a winner. You are a guaranteed winner
of''--and then they would list two or three prizes. ``Call
today'' such and such a number ``to find out which prize you
have won.'' And, in truth, they did guarantee--I think Senator
Levin a few hours ago said someone was getting 50 cents for a
prize. Well, they were actually mailing a check for a dollar to
people who would answer the postcards. But what was happening,
you would call and they would keep you on the phone, a long-
distance phone, for 6 or 7 minutes, so you would have a phone
bill of about $30, and then you would find out you didn't win
the big prize but you did get a dollar.
Well, that was deceptive and clearly intended only to rake
in the $30. It had nothing to do with some real effort to
improve my life-style.
So I just wanted you to know that from our standpoint in
Maryland, although I think we have a good law, we welcome
Federal law. We think that there is a role for the Federal
Government. We think you can set the minimum standards. I would
urge you not to have preemption because it may well be that we
in Maryland want to do more, or it may well be in Florida,
which is the home of millions of seniors, that the electorate
there may wish to do more for their citizens, or the citizens
of Maine may demand more, or Michigan may demand more.
And the idea that the marketers say, well, gee whiz, all
the trouble we are going to have to go through, we are going to
have to have 50 different lawyers looking at the law in 50
different States. Well, I am not impressed. I am not impressed
at all. You are making a lot of money. You know full well you
are deceiving people. Many times you will see promotional
schemes that say, not legal in Maine. That means a lawyer has
looked through it and saw that the Maine law prevented this
type of thing.
They have lawyers look at these State laws. And I think the
easiest way for them to not have to hire a fleet of lawyers is
to just be honest, just be fair. Treat the person who gets the
letter the same way you would like to be if you received it.
So I applaud what you are doing. I am glad that we have a
strong law in Maryland and we continue to ferret out these
guys. But we welcome your support, and I hope that your law
should pass and that we can march together to see to it that
seniors and non-seniors alike are protected from that type of
thing.
You have seen these. I don't want to bring many, but you
have seen the same thing. We have all seen the same issue. You
get that in the mail, and you really do think you have won
something. And I might add, a colleague of ours, Ben Cardin of
Maryland, he and I had an announcement 6 or 8 months ago. And
Ben told me, I really read this thing carefully. Ben is an
esteemed Member of Congress, a bright guy, and he said, I
really thought I was a winner. Well, of course, he wasn't a
winner.
So congratulations, best wishes, you have our support, and
I just urge that you don't preempt the position of Maryland.
Senator Collins. I want to assure you that my legislation
recognizes the good works that the State Attorneys General have
undertaken in this area. You have really been the leaders, and
it doesn't, in any way, preempt State efforts. I agree with you
totally that we need a joint effort.
Mr. Curran. Thank you.
Senator Collins. Ms. Tierney.
TESTIMONY OF VIRGINIA L. TIERNEY,\1\ MEMBER, BOARD OF
DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS
Ms. Tierney. I am very pleased to be here this morning. The
testimony has been very moving, and I am sure very helpful, and
I have appreciated what Attorney General Curran has had to say
about this too.
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\1\ The prepared statement of Ms. Tierney appears in the Appendix
on page 117.
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On behalf of AARP, I want to thank you for inviting us here
to discuss the impact of deceptive mailings, which include, of
course, the sweepstakes, on older Americans.
AARP is not here to condemn sweepstakes. We acknowledge
that they appeal to some of our members, and they are the
foundation of magazine publishers' efforts to obtain
subscriptions. However, sweepstakes and other forms of
deceptive mailings are a major concern to AARP because of the
severe effects they have on our members who are victimized in
large numbers.
AARP's involvement in this issue is not new. In the past 3
years, we have launched campaigns against charity and
telemarketing fraud based on research examining older victims'
behavior and perceptions, partnerships with enforcement and
consumer protection agencies and warnings to consumers.
AARP's research into telemarketing fraud and charitable
solicitations, which are closely tied to direct-mail fraud, has
identified sweepstakes as a prime area of concern. Sweepstakes
were the No. 1 form of telemarketing consumer fraud reported to
the National Consumers League's National Fraud Information
Center, or NFIC, in 1995, 1996, and 1997. In 1997, almost
13,000 reports of suspected telemarketing fraud were made to
NFIC. Out of the close to 10,000 people who gave their age, 40
percent were over the age of 50. Based on these reports, the
number one scam was sweepstakes, with magazine sales ranking
No. 5.
Now, that helps to tell the story statistically, but it
doesn't begin to take into account the personal anguish caused
to individuals and the friends and families associated with
them. That is painfully evident from the testimony of the
people we heard this morning.
AARP has taken extraordinary steps to educate our members
and the public at large as to how to differentiate between
legitimate offers and misleading, deceptive, or fraudulent
ones. Our goal is to reduce fraud and deception in
telemarketing and mail solicitations. As part of this mission,
AARP has worked in tandem with the Attorney General's office in
my home State of Massachusetts, as we have with other State
Attorneys General to gather information and warn consumers
about potential fraud.
Additionally, we were active participants in something
similar to what you have heard about from Attorney General
Curran, and that is Operation Mailbox which was a coordinated
effort undertaken with the Federal Trade Commission, or FTC,
and Federal and State law enforcement agencies to identify
fraudulent mail. The details of this effort are outlined in our
written statement, so let me summarize by saying, based in part
on AARP's contribution of over 5,000 pieces of mail, the FTC
Operation Mail Box strike force announced over 150 Federal and
State enforcement actions against the sponsors of these
mailings in October of last year.
While Operation Mail Box was a tremendous success, we
believed that more needed to be done to identify what drives
people to participate in sweepstakes and to ascertain what
their expectations might be. With that in mind, we embarked in
research in this area. AARP contracted for the services of Dr.
William Arnold, an Arizona State University professor, who may
be known to some of you because he is a recognized expert on
this topic. While his research efforts on our behalf have not
been completed, we would like to share some of the preliminary
results with the Committee this morning.
A part of the research effort looks at the attitude of the
consumers, and preliminary results in this area show that 40
percent of older Americans who receive sweepstakes
solicitations respond to them. What is distressing, however, is
the finding that 23 percent of those who participate in
sweepstakes believe that purchasing something increases their
chances of winning. Combine that figure with the 17 percent who
feel that purchasing might increase their chances, and you have
fully 4 out 10 participants who do not believe the statement
``no purchase necessary to win.'' And you heard so much more
about that in the testimony this morning.
Finally, 87 percent of those interviewed for Dr. Arnold's
study believe that the government should do something about
deceptive mailings. As you can imagine, we look forward to the
final results of Professor Arnold's study and will be happy to
share those findings with the Committee.
The concern over the perception that a purchase might be
necessary to win is one area that can and should be addressed
by the companies that do the mailings, irrespective of what
Congress does. Another more serious issue that AARP believes
requires congressional action, regards the messages contained
in the mailing devices, and we already have heard something
about this. It is the use of ``you have automatically won''
type of language in sweepstakes promotional materials that is
at the core of the fraud and deception.
We have samples of letters from our members highlighting
the ordeals they have gone through and the range of concerns
that they raise. Copies of several of these letters are
attached to the written statement that we submitted.\1\ One
woman asked that the large amount of money just awarded to her
spouse who, by the way, has been dead for 6 years, be placed in
his estate so that the family can enjoy it. She concludes by
pleading ``this kind of nonsense must be stopped.''
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\1\ The letters referred to appears in the Appendix on page 120.
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Two others, both homebound and coping with disabilities,
simply ask, ``Where is my money?'' and ``Please help me get
it.'' Remember, this is a problem that often involves other
family members as well, as you heard from the participants this
morning.
A daughter writes in regard to her independent 87-year-old
father and raises a different set of concerns. She is
uncomfortable intervening in her father's affairs, but she does
so because he recently cancelled a trip to visit his only
sister stating ``it conflicted with the date he was to be in
New York to collect his winnings.'' What is more alarming is
the fact that he has taken $13,000 out of his savings, and he
spent $11,000 between May and August on books and magazines.
One member asks, ``Why would the company allow someone to
purchase five copies of Victor Borge Then and Now or four
copies of Charlotte's Web in a 90-day period?''
Finally, there is the story of a daughter-in-law attempting
to settle the estate of her deceased father-in-law. Much as you
heard from one of our people testifying this morning, she is in
possession of 17 boxes of sweepstakes solicitations sent to her
father-in-law. She can also verify he spent over $10,000 on
magazine subscriptions. In light of what you have already
heard, neither of these facts may be particularly surprising.
What is astounding, however, is that the sweepstakes sponsor
repeatedly renewed his subscription to Sports Illustrated and
Newsweek through the Year 2086--an 87-year subscription. While
the sponsor assured her that her father-in-law's account
balance was zero dollars, no one offered to refund the monies
already received to extend the subscription, nor had they
agreed to do so upon her request. And these examples are just a
few examples of the letters received by AARP.
Obviously, something needs to be done. That is why we are
pleased that this Subcommittee is taking action to aid
consumers. We are especially glad that Senator Collins is
addressing consumer concerns with sweepstakes by introducing S.
335, the Deceptive Mail Prevention and Enforcement Act. AARP
agrees with the 87 percent of respondents in Dr. Arnold's study
who believe that the government needs to do something to deal
with deceptive mail. We would like to acknowledge Senator
Levin's introduction of S. 336 and comment briefly on some of
the provisions of S. 335 and offer suggestions on other areas
of concern raised by both of your bills.
One of the most attractive provisions in S. 335 is a civil
penalty provision. AARP has contended that the most direct
means of eliminating fraud is to take the profit out of it. The
stiff penalties, capping out at $2 million, truly would be a
deterrent. We also applaud Senator Collins for proposing to
provide the Postal Inspection Service with the authority to
stop deceptive mail.
Finally, we support the definitions of nonmailable matter
included in the bill. We believe clarifying what message may be
contained in a mailing and how it may be presented is of
critical importance, and we hope that the Committee will, among
other things, look at provisions that would couple claims and
promises with disclaimers and clearly define games of skill
with their risks and rewards.
And, additionally, we urge the Congress, the Committee, to
address the concerns we have raised regarding consumers
oversubscribing, and the difficulty they encounter in
recovering money paid for multiple-year subscriptions.
In closing, thank you again for the opportunity to provide
the Subcommittee with background and recommendations on this
critical issue that impacts so many Americans, particularly
older Americans, so severely. AARP stands ready to work with
the Chair and Members of the Subcommittee to enact legislation
that will significantly curtail the fraud and deception
surrounding sweepstakes mailing. And I apologize that I brought
a cold from New England today and hope it has not been too hard
for you to listen to me.
Senator Collins. Thank you very much, Ms. Tierney. I share
that New England cold, so I know it is a bad one.
Ms. Tierney. A lot of people are doing it now.
Mr. Curran. I caught it in Baltimore. [Laughter.]
Senator Collins. Let me ask you a little more about the
very interesting survey that you did. If I understand it
correctly, you found that 40 percent of those surveyed drew a
connection between making a purchase and the chances of
winning; is that correct?
Ms. Tierney. We think that is even higher because, in
addition--well, yes, it is 40 percent, but we feel that it is
probably even higher than that, too. Definitely, and I think it
has been brought out time and again here, people know that
sweepstakes exist, and they know that generally people buy
something, and they enter the sweepstakes that way. And so they
will continue on with this. It doesn't seem unusual to them
that they buy things. And when they see that their returns, if
they don't purchase something, goes to one mailbox number or
address; if they do, it goes to another, and there may be a
number that is higher than the number that they are going to
send if they buy something, so they are sure they are going to
get extra attention, that there is a better chance. They are
going to be moved up to the top.
Senator Collins. Have you also found that the members of
AARP have complained to you about the fact that it is much
harder to enter the sweepstakes if you do not make a purchase?
Has that issue come up?
Ms. Tierney. I do not know whether that has in this survey.
I would suspect that it would.
Senator Collins. One of the findings of the Subcommittee is
that that is, indeed, the case; that a lot of times, if you are
not going to enter, you have to come up with a specifically
sized piece of paper, for example, or you have to use your own
envelope. It is just made more difficult, again, reinforcing
the connection between the purchase and the chances of winning.
Ms. Tierney. That is very true.
Senator Collins. I would like to ask you about the use of
trusted spokesmen in some of these sweepstakes and whether you
think that plays a role in encouraging senior citizens to
participate. For example, there is a sweepstakes that uses Ed
McMahon and Dick Clark as its primary spokesmen. Do you think
the use of well-known, trusted pitchmen influences seniors in
answering these solicitations?
Ms. Tierney. I think there is no question about that. And
then when you add to that, that along comes Super Bowl Sunday,
and they see Ed McMahon on the television, and they see Dick
Clark with him, and so here is a trusted person, and he has
that big check, and he goes to the house with a bunch of
flowers, and so they are sure that this is legitimate because
he is doing this and because it becomes so public. They are
used to seeing him on television giving out this prize money,
and they are sure it could happen to them.
Senator Collins. Mr. Attorney General, that it is my
understanding that the State of Maryland reached a settlement
last year with American Family Publishers concerning the use of
the so-called prompt pay sweepstakes. And it is my
understanding that requires that an entry be accompanied by
payment for an item already ordered.
Could you explain what is involved and also your action
against this kind of sweepstakes.
Mr. Curran. Well, we were able to conclude a settlement
last year with American Family Publishing. One of the aspects
of our law in Maryland is that one may not have to make a
payment of anything in order to receive a prize or to be
eligible to receive a prize. In this situation, if you promptly
paid the subscriptions that you applied for, you would be
eligible to receive a prize, and that violated Maryland law,
and we were able to convince them that they would be better off
keeping us out of court by settling with us, and they did.
Because, see, the Maryland law says you may not offer a prize
or be eligible for a prize contingent upon the payment of some
monies, and that is what they did in this case.
And so, at least in Maryland, when the next mailings come
in from that particular company, they will not have this
particular other incentive to promptly pay your subscription.
You may well choose to not pay it or you may have a legitimate
reason to cancel or a legitimate reason to stop payment. So
they did stop that.
I might add, on the issue of trust, Senator, again, it
troubles me that there are--I mean, these marketeers, first of
all, they are good, and I dare say they are paid well. But they
just know how to push the right buttons. They just know how to
use the right personalities who are thought to be trusted, and
seniors have seen them for a long time, and they use those
persons, and they use the idea that you are a guaranteed winner
to their advantage.
And so, yes, I do think that it is unquestionably part of
their strategy by using well-known, trusted persons to ply this
what I think is just a very evil and wrong thing that they are
doing. Quite frankly, I am troubled by the fact that some very
big thought-to-be-legitimate businesses are doing things that
are bad, and wrong and they should be stopped, and I hope we
can stop them.
Senator Collins. Thank you both for your testimony.
Senator Levin.
Senator Levin. Have either of you either talked to these
large companies that engage in this? We are going to have four
of them here tomorrow. These are major companies in this
country. Have either of you, the Attorneys General either in
Maryland or in the United States or AARP, ever written to these
companies and said, ``Do you really want to engage in the kind
of deceptive practices which are sucking in so many of our
seniors?'' Has that taken place?
Mr. Curran. Yes, we have talked to the lawyers who come and
try to convince us not to pursue a claim against them, and they
are doing their companies' work. But have I ever been able to
get to the top people?
Senator Levin. Yes.
Mr. Curran. No, sir.
Senator Levin. Has AARP ever written?
Ms. Tierney. I do not know. I can find out about that and
let you know.
Senator Levin. Would you find out if that has been done?
Ms. Tierney. Yes.
Senator Levin. I wonder if you could put on one of the
exhibits here, this is Time magazine.\1\ It is a $1,666,000
grand prize announcement. The big print that you read through
the label when it comes in is, ``We can now confirm . . . ''
and then that is the number that the recipient has, `` . . . is
the winning number and DG . . . '' the initials of that person
`` . . . wins $1,666,000.'' And then ``Winning number
awaited,'' and then you are supposed to return the winning
number.
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\1\ See Exhibit No. 10 in the Appendix on page 182.
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But if you look at the real fine print right above ``We can
now confirm that your number is the winning number,'' if you
really read carefully, and it may be hard from where you are
sitting, it says, ``If you have and return the grand prize
winning number we will announce.'' That is the escape clause
they use. That is the loophole that they use under existing
law.
Our bills would correct that by requiring bigger print for
that kind of statement which means you haven't won a darn
thing--the exact opposite of what hits the eye. Instead of
confirming that you have won, the print you can't read or don't
read says you haven't won anything unless you have a winning
number, which you may or may not have.
I am wondering, first of all, what your reaction is to
that, Mr. Curran, to that practice there. Does that trouble
you? That is legal under current law. Our bills would close
that loophole, but does that trouble you as an Attorney
General?
Mr. Curran. Yes, it does, sir, and I heard your earlier
testimony. First of all, what hits you is the fact that you are
a winner. That hits you. You are not hit by the small print
because, and in many cases you can't read the small print, and
I have seen them, out of the 10,000 letters that we have
received, you can see it really is hidden, the way these things
are hidden, and it is almost--I defy anyone to really sift
through and say, ``Where is the loophole? I know there's one
here,'' and then you search, and you search and you search, and
you end up saying, ``Well, I guess it's legit.''
Sure, it bothers me. And, clearly, if you are going to have
something that brings the attention of the senior to your
letter, then there also should be something that gives a
disclaimer. Because, as I said earlier, and you have heard
again, and again and again, people really believe--it comes in
the mail, it looks official, a postman delivered it, it's got a
seal on it, Ed McMahon's picture is on it--hey, this must be
real. Well, it is not real, and it is deceiving, and it ought
to be stopped.
Senator Levin. We asked the Direct Marketing Association,
which is the industry association to which these major
sweepstakes promoters belong, whether that solicitation
violates their ethical guidelines, and the answer we got back
is that the Committee reviewed the submitted promotion, and by
majority vote agreed that proper disclosures were prevalent and
positioned properly throughout the promotion, and they closed
the case.
Now, we have the Attorney General of Maryland who is
telling us what I think most reasonable people would agree with
which is there is no way that, to the ordinary reader, that
that gives anything other than a totally false impression. And
yet we have got the marketing association for the folks who
engage in these practices saying that that complies with the
rules of that association.
Now, what that indicates to me is we simply cannot rely on
this industry to police itself, that we must act. And your
testimony, both your testimonies, are going to be very helpful
I think in supporting--I hope--in supporting the action for
these bills.
But I think it would also be very useful, if I can look
again to you, Ms. Tierney, representing AARP, if you considered
directly talking to or addressing mail or a request to these
companies, if you have not already done so. You may have
already done so. Because some----
Ms. Tierney. As I said, we would be glad to get back to
you.\1\
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\1\ See Exhibit No. 34 in the Appendix on page 318.
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Senator Levin. Some of these companies are really highly
legitimate companies that have very positive, good names in
this country. Time Inc., is a very positive name in this
country, and I, for the life of me, I don't know why they want
to be connected with something like this, which relies on
people not seeing print. These folks rely on print. Time
magazine believes in the printed word. That is the source of
their income. That is what they are about. They put a lot of
trust in the printed word, and they try, for their magazine, I
am sure, they spend a lot of time to make sure Time magazine
does not provide anyone with a false impression in the
magazine. They spend a lot of time making sure their articles
are as true and accurate as they possibly can be. I believe
that about Time, and Newsweek and these other magazines. And
yet they use this kind of a come-on, which relies on the reader
missing critical information.
Ms. Tierney. But also, as Mr. Curran has pointed out, they
are very skillful at knowing what buttons to push. Now, anyone
who goes into these sweepstakes wants to win, and so, as they
get more solicitations, and they say, ``We can now confirm,''
so they read into it what they want to hear, too, and that's
why I think it is important for us to look at why people enter
the sweepstakes and then also look at what needs to be done to
correct some of these obvious flaws.
Senator Levin. Let me read one other example of something
which another reputable company, Reader's Digest, has used. And
this was an example which came from Dr. Carter, who was with us
earlier this morning.
It is a letter from the Hudson Armored Car and Courier
Company, and it was included in a sweepstakes solicitation from
Reader's Digest.\2\
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\2\ See Exhibit No. 16 in the Appendix on page 203.
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``Dear Mr.,'' and we crossed off the name of the person.
``Reader's Digest has informed me that you are among a selected
group and are probably as close as ever to winning a major cash
prize in the $5,600,000 sweepstakes. That is why I have been
authorized to ask you how would you take delivery of your prize
money if you are a winner.''
It goes on to say that ``personalized prize delivery
instructions are enclosed and should be returned.'' It says,
``Reader's Digest customarily mails prize checks to major cash
winners. However, they feel . . . '' underlined `` . . .
winners might prefer to have their prize money delivered to
their homes, in person, as soon as possible.'' And the letter
concludes by saying, ``At this point, it is vital that you
return your prize delivery instructions to Reader's Digest as
soon as possible. If you are a winner, this will enable their
Prize Distribution Center to contact my company and have
adequate time to make all necessary arrangements for delivery
of your money.''
Now, I would find this laughable if it weren't so cruel.
This mailing goes out probably to tens of millions of people.
There's one winner, and yet Reader's Digest wants to make sure
the millions of entrants identify months in advance, maybe even
a year in advance, how they would want their money delivered.
And this is just simply a device, and I think it is a cruel
device, and I think it is a deceptive device, and I think it is
a disgraceful device, to make people think they are in some
special category and that they are very likely to win something
if they return the card telling Reader's Digest how to deliver
the money.
And that is not a concern of Reader's Digest. They are not
really concerned about whether people want their money by check
or delivered by an armored vehicle. It is a trick to get people
to respond. And they don't want people to respond in order to
enter the sweepstakes. They want people to respond because they
may purchase a product, and that is what this is all about.
Now, when we asked the Reader's Digest what the purpose of
this letter was, they said it was a joint promotion. Hudson
Armored Car Company was being promoted through Reader's Digest.
They likened it to joint efforts of McDonald's and Disney. The
problem with that is that McDonald's and Disney, in those
cases, there is a real likelihood that the same customer will
actually see the products of both companies and want the
products of both companies. How many average Americans have a
need for or will ever use an armored car company? [Laughter.]
Now, that is Reader's Digest. That is not some fly-by-night
outfit that does not care about the law, that if it gets caught
will pay a fine and move on to the next victim. This is a
legitimate company, Reader's Digest, that uses that device,
that kind of a come-on, that kind of a deceptive letter with
people. And I think it is wrong, and we will tell them tomorrow
I think it is wrong.
Mr. Curran. Senator, in our Criminal Division, we do, with
regularity, deal with the con artists, and the scam arts and
the fly-by-nighters, and we put them in jail and everybody
applauds that.
But these aren't the con artists, or scam artists, these
aren't the ones that you would think of that ought to be put in
jail. But yet these guys are affecting far more people than the
con artists that we are putting in jail in Maryland, and that
is what is bothering because it is the people we trust. And the
people we trust should do better, and they are not.
And I really do applaud what you are doing. It is
educational. It is informative. Pass the legislation. Let us
join with you, and maybe a decade from now it will not be
necessary for the senior citizens to say do something about
these deceptions that are being practiced on us because maybe
if a guy wants to sell a product, he will simply say, ``Dear
Mr. and Mrs. Consumer: Would you like to buy X? If so, send us
the money.''
Senator Levin. And just say why it is a great product and
why they would like it.
Mr. Curran. And that is it.
Senator Levin. But not with the come-on of winning millions
of dollars.
Mr. Curran. We want Americans to be honest. We also want
these people who are sending these letters to be honest. We are
not asking that they do a whole lot more than tell us the
truth, period.
Senator Levin. Thank you.
Ms. Tierney, I am done with my questions. Would you like to
comment on this Hudson Armored Car and Courier Company?
Ms. Tierney. Other than amazement that anything like that
would go out.
But I think of another thing, too. Now, a senior sitting at
home and receiving this mail, and if they do go through it, it
would be pretty impressive that Reader's Digest was supporting
it, and I think it makes it more believable to them, the
victim, but it is certainly--I agree. I cannot understand
legitimate business doing this kind of thing.
But we have been involved in telemarketing fraud for a few
years at AARP and, as you know, we just started this program
for Medicare Fraud, Abuse and Waste, and that will be ongoing
for the next year. There are these instances of fraud out
there, and something has to be done to stop them, and I hope
that your bills can do this.
Senator Levin. I want to thank you and AARP for your effort
in this area and so many other areas, and the Attorneys General
of the United States for their support of trying to stop the
scams which victimize particularly our seniors. It will not be
10 years if we have our way. It will be this Congress, which is
1 year and 10 months.
Ms. Tierney. AARP intends to continue to be very active in
this effort.
Senator Levin. Thank you. Thank you, Madam Chair.
Senator Collins. Thank you, Senator Levin.
I think Senator Levin has ended this hearing on a very
important point, and that is it is not only the deceptive
language in the mailing, it is not only the fact that respected
spokesmen like Ed McMahon are used, it is the fact that these
mailings are coming from reputable, legitimate companies. And
when you get something from Reader's Digest or Time Inc., or
Publishers Clearing House, the consumer thinks that the
language must be legitimate, and it leads to further deception.
So I think the prestige that those names lend to these mailings
contributes to the problem.
I want to thank you both very much for your testimony and
your ongoing work in this area. We look forward to continuing
to work with you as we refine our legislation and enlist your
help in convincing others in Congress that it is necessary to
move this year.
Ms. Tierney. AARP would be pleased.
Mr. Curran. Thank you very much.
Senator Collins. Thank you very much.
Our hearing will now stand adjourned until 9:30 a.m.
tomorrow morning, where we will hear from the major sweepstakes
companies, including American Family Publishers, Publishers
Clearing House, Time Inc., and Reader's Digest, who will be our
witnesses tomorrow.
[Whereupon, at 12:13 p.m., the Subcommittee was adjourned
to reconvene at 9:30 a.m., the next day.]
DECEPTIVE MAILINGS AND SWEEPSTAKES PROMOTIONS
----------
TUESDAY, MARCH 9, 1999
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:35 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Subcommittee, presiding.
Present: Senators Collins, Specter, Levin, Akaka, Durbin,
and Edwards
Staff Present: Timothy J. Shea, Chief Counsel and Staff
Director; Mary D. Robertson, Chief Clerk; Kirk D. Walder,
Investigator; Kathy Cutler, Congressional Fellow; Emmett
Mattes, Detailee, U.S. Postal Inspection Service; Linda
Gustitus, Minority Chief Counsel and Staff Director; Bob Roach,
Counsel to the Minority; Leslie Bell, Congressional Fellow;
Michael Loesch (Senator Cochran); Mark Carmel and Frank Brown
(Senator Specter); Felicia Knight and Steve Abbott (Senator
Collins); Dan Blair (Government Affairs/Senator Thompson);
Nanci Langley (Senator Akaka); Marianne Upton (Senator Durbin);
Maureen Mahon and Karen Robb (Senator Edwards); Diedre Foley
and Mark Cleveland (Senator Lieberman); Patrick McGarey
(Senator Akaka); and Valerie Breslin (Senator Durbin).
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. The Subcommittee will please come to
order. Good morning.
Today, the Permanent Subcommittee on Investigations
continues its series of hearings examining the nature and
impact of promotional mailings, particularly sweepstakes, that
flood the mailboxes of Americans with more than a billion
pieces of mail a year.
Yesterday, the Subcommittee heard from a panel of
consumers, a State Attorney General, and a representative of
the AARP. All described the financial and emotional toll that
deceptive mailings have exacted, particularly on vulnerable
senior citizens. We heard heartbreaking stories of financial
ruin, family friction and emotional turmoil.
The witnesses testified that clever sweepstakes mailings
have convinced people to purchase products that they do not
really need or want because they believe it will give them an
advantage in winning the contest. We learned that individuals
who make such purchases are targeted with repeated mailings
causing many of them to purchase still more unwanted
merchandise setting up a vicious cycle.
And we saw that sweepstakes companies use aggressive, and
in some cases, deceptive marketing techniques to convince
consumers that they are winners or will be winners if they make
a purchase.
The experiences of our witnesses are not unusual. According
to the AARP, 23 percent of the senior citizens surveyed
believed that making a purchase increased their chances of
winning. Another 17 percent felt that purchasing something
might increase their chances of winning. This means that 40
percent of the seniors surveyed by AARP's researcher believe
that there is a connection between purchases and the chance of
winning. These findings are similar to other polls on this
issue.
The major sweepstakes companies, American Family
Enterprises, Publishers Clearing House, Time Inc., and Reader's
Digest, run legitimate sweepstakes. However, there is a
difference between conducting a fair contest and treating
consumers fairly without resorting to misleading or deceptive
practices.
The central issue is whether consumers are being informed
clearly that no purchase is necessary to enter the sweepstakes
and that buying something does not increase their chances of
winning. People should not need a law degree or a magnifying
glass to read the rules or to decipher how to enter the
sweepstakes without placing an order.
The testimony that the Subcommittee heard yesterday
indicates that the disclaimers on sweepstakes mailings are of
little value because they are too often hidden in tiny print or
contradicted by the promotional copy.
I am also very concerned about the testimony that we heard
concerning the treatment of consumers with respect to billing
and refunds, as well as requests to be removed from mailing
lists.
During the course of our investigation, the Subcommittee
asked the four companies here today to provide us with samples
of their major mailings and to answer questions about their
practices. For the most part, they have cooperated with our
investigation, and I want to acknowledge that cooperation.
Today's hearing will look at a number of these mailings,
and we will examine the techniques used by the major
sweepstakes companies. We will also review the methods used to
solicit repeat customers and the companies' response to
consumers who make excessive purchases.
Finally, we will discuss ways of improving the sweepstakes
mailings, including legislation that I and other Members of the
Subcommittee are advocating to crack down on deceptive
mailings. Future hearings will explore the issue of sweepstakes
that are outright fraudulent in contrast to the sweepstakes
that we are reviewing today.
I look forward to hearing from all of our witnesses this
morning. It is now my pleasure to recognize Senator Levin, the
Ranking Minority Member, who has been a leader in the effort to
crack down on deceptive mailings. It is my understanding that
Senator Levin may have an unusual approach to an opening
statement today.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Thank you, Madam Chairman. We will have a
very brief video in a moment, but first let me thank you for
convening these hearings and for your leadership in trying to
correct the abuses that exist in the sweepstakes mailings that
fly through our mailboxes at record rates.
Yesterday, we heard from a panel of citizens whose loved
ones were duped by sweepstakes promotion come-ons; people who
wasted thousands of dollars and whose loved ones wasted
thousands of dollars on products that they did not want in
order to obtain big prizes that they thought that they had won.
The big print told these people that they won something big;
the little print told them, if they could read it, no, you did
not.
The whole design of the sweepstakes promotions that their
loved ones responded to told them that if they would buy
something it would increase their chances of winning the big
prize; the small print, that they were unable to read or did
not read because of the design of the material, told them you
do not have to buy anything. But the reality is, as the AARP
survey shows, that a significant number of people believe, and
it is understandable why they do when you look at the design of
these materials, that buying something will help improve their
chances of winning that big prize that is dangled in front of
them. One of our witnesses yesterday, Ms. Beukema, put it very
succinctly when she said it is shameful what passes as
legitimate.
Yesterday, we saw a picture of one of the rooms in the home
of one of our witnesses. This is Mrs. Carter's father's
home.\1\ This is just one corner of one room. That room is
filled with boxes like that of stuff that he had bought, much
of which has never even been opened, and the rest of the room
looks just like that.
---------------------------------------------------------------------------
\1\ See Exhibit No. 19 in the Appendix on page 209.
---------------------------------------------------------------------------
And then I would like to briefly, Madam Chairman, as you
indicated, play a videotape which should take about a minute,
which was prepared by the Attorney General of Michigan just a
few days ago, and it was filmed in the home of a Michigan
constituent, Gertrude Roosenberg, who was hooked on
sweepstakes.\2\
---------------------------------------------------------------------------
\2\ Exhibit No. 20 is retained in the files of the PSI
Subcommittee.
---------------------------------------------------------------------------
These are some of the tapes, and books and other things
that she bought, most of which have never been seen or opened.
She wrote 400 checks in 1998, 400 checks--that is more than one
a day--to various sweepstakes companies purchasing products in
the hopes of winning a prize. The sum total of those checks was
$24,000, over half to one company alone.
As a result of this, her home became inundated with books,
magazines, products, and tapes for which she had no use, but
were acquired in the hope that that prize, which was promised
to her, or she thought was promised to her by the big type and
by the design of the come-on, would be forthcoming.
In some instances, this woman received more than 12 copies
of the same publication, trinkets, coffee makers, jewelry on
the dining room table, stacks of CDs and videotapes. And then
when there was no room, and you just saw this, where there was
no room in the dining room and the bedroom, she stacked these
purchases in the shower stall of her bathroom almost to the
ceiling.
Finally, her daughter called the Michigan Attorney General
when she found out what she had been doing with regard to
sweepstakes, and the Attorney General came in and filmed this
house full of purchases that were made because of the come-ons
which exist in these sweepstakes offers. Two of the companies
that are with us today are the companies from which most of
that material was bought and, again, I emphasize this is a
woman of very little means, 400 checks issued in 1 year for
$24,000.
We are going to have to correct this, either with or
without the cooperation and support of the companies that are
with us here today. They have come here, today, to testify, and
we are glad that they did, and they have cooperated with
materials, and we are glad that they did that as well. But I
think we have to realize here that there are some very
fundamental conflicts which exist between the perception that
people have when they receive this mail and what the technical
words are in that mail. We are going to try to eliminate the
deception that results from that perception which people have.
A number of us have bills; I want to commend, again, our
Chair for her bill, which I have cosponsored. She also has
cosponsored my bill and we both have other cosponsors. We will
be asking our witnesses today what their reaction is to these
recommendations and, again, I appreciate your leadership, and I
appreciate our witnesses coming and cooperating with us.
Senator Collins. Thank you very much.
Senator Akaka, we are pleased to have you here with us
today.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Madam Chairman. I want
to commend you for holding these hearings on deceptive and
fraudulent mailings.
Any human being, of course, becomes very excited when they
see sweepstakes, especially if they feel that they have a
chance of winning. Apparently, some of these deceptive and
fraudulent mailings have led many people to feel that they are
going to win. And as the Ranking Democrat of the Subcommittee
on postal services with legislative jurisdiction over this
issue, I am proud to cosponsor our Chair's bill, S. 335, and S.
336 introduced by this Subcommittee's Ranking Democrat, Senator
Levin.
In Hawaii, Madam Chairman, one direct-mail scam netted $1
million by offering a gift that could only be received through
calling a 900 telephone number. Each call cost $30. Assuming a
person called only once, there were nearly 35,000 people from
Hawaii who spent $30 apiece to receive a free gift valued by
the State Office of Consumer Protection at $1.
I also want to point, Madam Chairman, to a constituent from
Hawaii who, believing he won an American Family Publishers
sweepstakes, flew to Florida to collect his prize. In the
aftermath of his 5,000-mile journey, he was interviewed
extensively by Gary Betz, special counsel to the Florida
Attorney General, one of the Nation's leading investigators in
to deceptive sweepstakes. Florida officials estimate that about
20 people travel to the State each year thinking they are
winners.
We heard yesterday from witnesses whose personal stories
detailed the financial and emotional toll of subscribing to
magazines and ordering various consumer products through
sweepstake offerings. Each witness had the mistaken belief that
in order to win or increase the chances of winning, a purchase
would help. We learned that there are equally strong feelings
that a customer's purchasing history, including prior
purchases, prior frequency of purchases and dollar amounts,
aided winning.
The companies represented here today are the leaders in
direct marketing of magazine subscriptions, and I know that,
from their printed statements, that they believe they act in a
responsible manner. While I do not dispute the legitimacy of
their business, I am concerned that there are far too many
Americans who would not agree with them.
Nearly one-third of all 156 million new magazine
subscriptions sold annually in the United States are, through
sweepstakes mailings, representing one-third of a $7 billion
business. In most instances, consumers feel the sweepstakes are
a convenient way to subscribe to magazines, and buy consumer
products and possibly win prizes.
What troubles me deeply is the assertion that a reasonable
person knows that these sweepstakes promotions do not require a
purchase nor do repeated purchases increase the chances of
winning the grand prize.
I know from speaking with constituents that there is a
strong and unwavering belief among too many Americans that a
purchase is necessary to win and that multiple and/or repeated
orders enhance the potential of winning. A study conducted on
behalf of AARP found that 23 percent of individuals
participating in sweepstakes felt that buying a solicited
product would increase their chances of winning. Another 17
percent in the survey felt that a purchase might increase their
chances of winning, therefore, 4 out of 10 respondents on the
AARP study believed that a purchase would increase the
opportunity to win.
We must note that those surveyed are senior citizens who,
as the Subcommittee learned through hearings yesterday and last
year, are the most vulnerable targets of deceptive or for
fraudulent direct mailings. It is a population that, in many
instances, is separated from families. The desire to interact
with others is thrilling and the receipt of personalized
sweepstakes letters are enticing, as they are meant to be.
A staff member's relative has boxes of solicitations from
the companies represented here today. Although he has never
entered any of the sweepstakes nor has subscribed to any
magazine, he keeps the letters because they are addressed to
him. Individuals who believe that their chances of winning are
increased by ordering products are impressed that a company
knows their names. They do not always understand how easy it is
to manipulate computerized correspondence.
What is missing from these mailings are clear, easily read
advisories that ordering a product does not ensure winning and
that multiple and/or repeated orders do not ensure winning. For
those who do not wish to order, there are generally no easy
instructions on how to enter. Every State has unique problems
with deceptive mailings. Deceptive mailings take many forms,
and I am pleased that Chairman Collins' bill is broadly drafted
to correct many of these abuses.
As we move toward markup on this bill, I will explore with
my colleagues a problem unrelated to today's hearing, but
equally important and unique to Hawaii. Exotic plants, animals
and insects that are illegally brought into the State many
times arrive by U.S. mail. Although a Federal law prohibits
such mailings, many of which are deceptively marked, the law is
not working well. I intend to offer amendments relating to this
problem at mark-up.
Again, I look forward to hearing from today's witnesses.
What we heard yesterday proves that there are many folks who
believe they have to enter these sweepstakes to win. Their
stories were not isolated examples. American consumers deserve
more than this, and we must be better informed when playing
these games of chance.
Madam Chairman, I have a longer statement I would like to
have it included in the record.
Senator Collins. Without objection, it will be included.
Thank you, Senator.
Senator Akaka. Thank you.
[The prepared statement of Senator Akaka follows:]
PREPARED STATEMENT OF SENATOR AKAKA
I commend Senator Collins for holding these hearings on deceptive
and fraudulent mailings. As the ranking Democrat on the Subcommittee
with legislative jurisdiction over postal issues, I am proud to
associate myself with this Subcommittee's active investigation of
sweepstakes and other promotions that have defrauded and deceived
Americans out of millions of dollars every year. I am also pleased to
be a cosponsor of our Chair's bill, S. 335, and S. 336, introduced by
this Subcommittee's Ranking Democrat, Senator Levin.
In my own State of Hawaii, one direct mail scam netted $1 million
by offering a gift that could only be received through calling a 900-
telephone number. Each call cost $30. Assuming a person called only
once, there were nearly 35,000 people from Hawaii who spent $30 apiece
to receive a ``free'' gift valued by the State Office of Consumer
Protection at one dollar.
I also want to point to a constituent from Hawaii, who believing he
won an American Family Publisher's sweepstakes, flew to Florida to
collect his prize. In the aftermath of his 5,000 mile journey, he was
interviewed extensively by individuals in the Florida State Attorney
General's office, who were quite interested in his story. Apparently
the gentleman was one of nearly two dozen people who travelled to
Florida to claim their money.
We heard yesterday from a number of witnesses whose personal
stories detailed the financial and emotional toll taken by dealing with
one specific type of mailing: Magazine subscriptions and other consumer
products. Each and every witness pointed to the mistaken belief that in
order to win or increase the chances of winning a sweepstake, a
purchase would help. We also learned that there are equally strong
feelings that a customer's purchasing history, including prior
purchases, frequency of purchases, and dollar amounts, added the
chances of winning.
The companies represented here today are the leaders in direct
marketing of magazine subscription services. I know from their printed
statements that they believe they act in a responsible manner. While I
do not dispute the legitimacy of their business, I am concerned that
there are far too many Americans who would not agree with them.
Nearly one-third of all 156 million new magazine subscription sold
annually in the United States are through sweepstakes mailings. This
represents one-third of a $7 billion business, which in many instances,
provides a convenient means for consumers to subscribe to magazines and
buy consumer products, in order to win prizes. Unfortunately, as we
heard yesterday, there is a minority of subscribers who do not
understand that the mailings are merely games of chances whose
underlying purpose is to sell products.
I am interested in hearing from American Family Publishers,
Publishers Clearinghouse, Time Inc., and Reader's Digest about the
monies awarded throughout the United States and Canada; how their
solicitations are developed and how consumers are targeted; and most
importantly, what steps are taken to ensure that customers know--in
plain English--that no purchase is ever necessary to win.
What troubles me deeply is the assertion by these companies that a
reasonable person knows that these sweepstakes promotions do not
require a purchase and that repeated purchases do not increase the
chances of winning the grand prize. I know from speaking with
constituents that there is a strong and unwavering belief among too
many Americans that a purchase is necessary to win and that multiple
and or repeat orders enhance the potential of winning.
A study conducted in behalf of AARP found that 23 percent of
individuals participating in sweepstakes felt that buying a solicited
product would increase their chances of winning. They did not believe
that they did not need to buy to win. Another 17 percent in the survey
felt that a purchase might increase their chances of winning, which
meant that 4 out of 10 respondents in the AARP study believed that a
purchase would or could increase the opportunity to win.
It is critical to pay attention to the AARP study because the
participants are senior citizens who, as the Subcommittee learned
through hearings yesterday and last year, are the most vulnerable
targets of deceptive or fraudulent direct mailings. It is a population,
that in many instances, is separated from families. The desire to
interact with others is thrilling, and the receipt of personalized
sweepstakes letters are enticing, as they are meant to be.
A staff member's relative has boxes of solicitations from the
companies represented here today. Although he has not entered any of
the sweepstakes nor subscribed to any magazine, he keeps the letters
because they are addressed to him.
Individuals who believe that their chances of winning are increased
by ordering products are impressed that a company knows their names.
They do not always understand how easy it is to manipulate computerized
correspondence. Added to the personal nature of these mailings are the
multiple inserts that include coupons for products, sheets of paper
providing the chance to win more money than the ``guaranteed'' amount,
and stickers to win cars and houses.
What is missing from these mailings are clear, easily read
advisories that ordering a product does not ensure winning and that
multiple and or repeated orders do not ensure winning. For those who do
not wish to order, there are generally no easy instructions on how to
enter.
I am proud to be a cosponsor of Senator Collins' legislation, S.
335, which creates new standards for sweepstakes and other prize
promotion mailings. This legislation would prevent fraud and deception
by requiring companies to be more honest when using sweepstakes and
other promotional mailings. It would establish new standards for such
mailings, including clear disclosures that no purchase is necessary to
enter the contest, the value and odds of winning each prize, the name
of the promoter of the contest, and an understandable statement of the
rules.
S. 335 would also strengthen the laws against mailings that mimic
government documents, thus prohibiting mailings using language or
devices that give the impression that the mailing is either connected,
approved, or endorsed by the Federal government. Any mailing selling a
product that the government provides at no cost would have to include a
disclosure that the product is available for free from the government.
An additional and important aspect of the bill would be the
imposition of civil penalties that includes fines ranging from $50,000
to $2 million, based on the number of mailings. Moreover, the bill
would give the U.S. Postal Inspection Service new tools to combat
deceptive and fraudulent postal practices. Administrative subpoenas for
records and documents would be available in limited cases. The bill
would not preempt State or local laws protecting consumers from
fraudulent or deceptive mailings.
Every State has unique problems with deceptive mailings and every
Senator has his or her own story to tell about the horrors constituents
have faced. Deceptive mailings take many forms, and I am pleased that
Chairman Collins' bill is broadly drafted to correct many of these
abuses.
As we move toward markup on this bill, I will explore with my
colleagues a problem unrelated to today's hearing, but equally
important and unique to Hawaii. Exotic plants, animals, and insects
that are illegally brought into the State many times arrive by U.S.
mail. Although Federal law prohibits such mailings, many of which are
deceptively marked, the law is not working well. I intend to offer
amendments relating to this problem at markup.
Again, I look forward to hearing from today's witnesses. What we
heard yesterday proves that there are many folks out there who believe
they have to enter a sweepstakes to win. Their stories were not
isolated examples. They responded to what they believed were
declarations of winning or invitations to win by companies and
spokespersons they trust. American consumers deserve more than this and
must be better informed when playing these games of chance.
Senator Collins. Senator Durbin, we are pleased you were
able to brave the storms of Chicago to be with us today.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you very much, Madam Chairman, and
thank you for this hearing.
This Subcommittee, under Senator Collins' leadership, has
developed such a positive reputation among consumers across
America. We have had hearings on food safety, on issues such as
telephone slamming and cramming, and I think it is appropriate
today that we are considering deceptive mailings and
sweepstakes promotions. I salute the Chairman, as well as
Senator Levin, for their joint leadership in legislation which
I am co-sponsoring to deal with this fraud on the public.
When it comes to sweepstakes, deceptive mailings come
around a lot more often than the Prize Patrol, and millions of
Americans are receiving these mailings each day and many
vulnerable Americans are falling prey to their tactics,
particularly the elderly.
When I first announced my support of the Collins-Levin bill
in Illinois, I started receiving letters from across the State,
and it amazed me the kinds of letters that I would receive.
They were from the sons and daughters of elderly people who
were absolutely despondent over trying to find a way to stop
what was, in fact, a wasting of limited assets by these senior
citizens.
One woman tearfully called me and said, ``I have no choice
but to go to court and have a conservator appointed for my
mother. She just will not stop sending in this money to these
sweepstakes offerings for magazines. She just does not believe
it when they say you do not have to buy something to win, and
so she just keeps throwing the money at them.''
That is a sad situation that is repeated many times over
across the State of Illinois and across the United States. We
have seen so many instances here, one person having 32
subscriptions to the same magazine, some running to the year
2018. It just suggests to me that when it comes to dishonesty,
and misleading mailings and deception, that the folks in this
industry are giving a run for the money to those who are
selling vinyl siding, home repairs and unnecessary medical
devices. I think that they have to accept some responsibility
here. To say that they are being honest in what they are
portraying is not accurate when you listen to the people who
have been deceived and have been taken advantage of under this
situation.
I want to salute my colleague as well, Senator Edwards, who
I believe yesterday proposed an 800 telephone number so that
consumers could request that their names be removed from
mailing lists. I would like to suggest perhaps a step beyond
that. There are a number of advocacy organizations and
governmental entities which regularly hear from and provide
helpful tips to consumers about particularly mail practice. I
understand there is not a single stop central point which
currently collects and maintains data about reported potential
fraudulent and other questionable mailings.
I suggest, as part of this legislation, we establish a
coordinated resource bank with a toll-free hotline which would
be available, so that if some consumer across the United States
receives what is apparently questionable in a mailing, they can
call this toll-free number and ask for some identification of
this group. We have seen so many of these mailings that look
like official government mailings and turn out to be nothing
more than an attempt to defraud innocent people of their
savings. I think, if that sort of information were compiled in
a toll-free hotline number, if the name of the group, for
example, would be followed by information from States where
attorneys general, for example, have brought actions and have
discovered this misuse of product, that might be helpful to a
lot of consumers.
The bottom line on this, of course, is that the people who
are in the industry argue for free speech. But when it comes to
commercial speech, there are limitations. Those of us, as
candidates, who send out deceptive mailings are held
accountable in the course of an election, if not by the press.
Your industry can be held to no lesser a standard. The fact
that you have become so profitable and made so much money at
the expense of so many vulnerable people should give you pause
at this moment.
Some have suggested a warning label on the mailings. I hope
it works. We put warning labels on cigarettes for a long time,
and it really has not done much, to be honest with you. But we
have got to communicate to people across America that some of
the things that you are suggesting in your mailing are just
downright false, they are misleading, they are dishonest, and
it has to come to an end.
I thank the Chairman for calling this hearing, so we can
consider legislative proposals to promote more honesty by those
who are sending out these mailings.
Thank you, Madam Chairman.
[The prepared statement of Senator Durbin follows:]
PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN
Madam Chairman, I am pleased to join you and our distinguished
colleagues at today's hearing which focuses on Deceptive Mailings and
Use of Sweepstakes Promotions in the direct marketing of products.
It's rare that any American household has escaped receipt of a
flurry of envelopes boldly proclaiming ``You're our next million-dollar
winner!'' or similar claims of impending good fortune. Most of us
recognize these prominent come-on phrases as the special language of
direct mail sweepstakes.
While many companies have used sweepstakes responsibly, others have
bilked consumers out of millions of dollars by falsely suggesting a
purchase is necessary to qualify for the sweepstakes or to increase the
odds of winning a prize. Some of these operators promise fame and
fortune, but they deliver fraud and false promises.
Just look at what's on the cover of the envelope: ``You're now in
line to win $1 million.'' ``You're one of the finalists.'' They talk
about the ``closing weeks'' of the contest, and it's a complete
deception. As it stands now, the sweepstakes industry isn't winning any
prizes for clarity!
Our elderly are particularly vulnerable to sweepstakes fraud. Some
senior citizen sweepstakes recipients have traveled thousands of miles
to claim prizes they thought they had been assured of winning. Others
spend thousands of dollars on magazines and other merchandise because
they are convinced it will boost their chances of winning.
I have heard from numerous constituents about how crafty purveyors
prey on the public, often persons on fixed or limited incomes, through
deceptive envelopes and packaging come-on techniques. Recently, one
constituent related how her elderly mother has become ``hooked'' on
sweepstakes. She shared with me a bulky stack of envelopes,
representing just a sample of the mailings.
She remarked how her mother is convinced that the company will
think better of her if she orders lots of merchandise, and that buying
more products will accord her special consideration and improve her
chances to win a lucrative prize. She noted that some companies, by
using clever typefaces, sophisticated and official-looking symbols,
gimmicky labels, and personalization, lead people to believe the
company is writing to them personally, and that the odds of winning are
high.
Another Illinois resident was so convinced he won that he enclosed
a hand-drawn map with his entry to make it easier for the prize
presenters to find his rural home. Their stories are just two more
examples to add to the countless ones we each have heard and those
shared by yesterday's panelists, such as one person having 32
subscriptions to the same magazine, with some running to the year 2018.
How can this be happening? Their experiences--in some cases involving
depleting life savings and creating rifts among loving family members--
are why it is so important to ensure that strong laws are enacted to
address deceptive practices.
I am pleased that the United States Postal Inspector, the National
Fraud Information Center of the National Consumers League, the American
Association of Retired Persons, the Better Business Bureau, the Direct
Marketing Association, the Federal Trade Commission, and a special
committee of the Association of State Attorneys General are each
actively seeking ways to ensure that consumers are informed and
protected from dishonest marketing ploys.
Madam Chairman, on that note, while there are a number of advocacy
organizations and governmental entities which regularly hear from and
provide helpful tips to consumers about particular mailing practices, I
understand there is not a single-stop central point which currently
collects and maintains data about reported potential fraudulent and
other questionable mailings. I suggest that establishing such a
coordinated resource bank with a toll-free hotline would be worthwhile
to consider along with the other elements of our legislative reform
proposals.
Without such a resource, it is difficult to determine the full
scope of this problem. Lack of a single headquarters to track and refer
complaints against particular operations and to coordinate
dissemination of information and respond to inquiries leaves many
consumers not knowing exactly where to turn.
As it is now, some call the National Fraud Information Center or a
Better Business Bureau, others contact their local Postmaster or notify
the Federal Trade Commission, still others write to AARP, Ann Landers,
``Dear Abby'', their Attorney General's Office, or to us, their
Senators here in Washington. And sadly, as we have come to learn, some
embarrassed victims of these schemes are just too afraid or ashamed to
ever let anyone know that they have squandered their money and
stockpiled unneeded items on the belief they'll be the next big prize
winner just as the envelope told them!
When I have discussed with fellow Illinoisans my ideas about
legislation to better protect consumers by reining-in these mailing
practices, I hear the Direct Marketing Association warning Congress to
``tread lightly, particularly when it comes to regulating speech.'' The
DMA says it supports helping consumers understand the do's and don'ts
in order to participate in the sweepstakes, so perhaps they'd be
willing to step up and shoulder some responsibility here for such a
consumer resource center.
I look forward to hearing the perspectives of today's witnesses--
leaders in the sweepstakes industry--as we continue to examine the use
of prize giveaways and other promotions to market products. I have some
serious questions for them about some of the abusive and misleading
marketing methods that have led to financial heartaches and emotional
disappointments for some victims and their families. I welcome their
responses and hope we can enlist them as allies in our efforts to
curtail deceptive solicitations.
Furthermore, I hope that action will be taken soon to advance the
Collins and Levin bills, both of which I am proud to cosponsor. Our
legislative proposals will go a long way to promote more honesty by
product marketers, clearer disclosure for consumers, tighter penalties
for violators, and quicker and more effective enforcement tools for
more rapid response to unscrupulous practices.
Thank you, Madam Chairman.
Senator Collins. Thank you for your support.
Our witnesses this morning are representatives of the major
sweepstakes companies. They include Naomi Bernstein, who is the
vice president of Marketing Services. She is representing
American Family Enterprises; Deborah Holland, who is the senior
vice president of Publishers Clearing House; Elizabeth Long,
who is the executive vice president of Time Incorporated; and
Peter Davenport, the senior vice president of The Reader's
Digest Association. I appreciate your all being here this
morning.
Pursuant to Rule 6, all witnesses who testify before the
Subcommittee are required to be sworn in, so I would ask that
you stand and raise your right hand.
[Witnesses sworn.]
Senator Collins. Your complete written testimony and other
submissions that you may wish to have included in the record
will be made part of the record. I would ask that you limit
your oral presentation to no more than 10 minutes.
As I mentioned, your complete prepared testimony will be
printed in the record in its entirety.
Ms. Bernstein, we are going to start with you. Would you
please proceed.
TESTIMONY OF NAOMI BERNSTEIN,\1\ VICE PRESIDENT OF MARKETING
SERVICES, AMERICAN FAMILY ENTERPRISES
Ms. Bernstein. Thank you. Madam Chairman, I am pleased to
appear before the Subcommittee today. My name is Naomi
Bernstein, and as you stated, I am the vice president of
Marketing Services for American Family Enterprises. Before
joining AFE, I spent more than 25 years at Reader's Digest.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Bernstein appears in the Appendix
on page 130.
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AFE was founded in 1977 by a group of publishers who
realized they could find subscribers by offering a broad range
of magazines to a mass consumer audience. For more than 20
years, AFE has provided magazine publishers with millions of
new readers who are critical to the continued financial
viability of the U.S. magazine industry.
Sweepstakes are commonplace throughout the business world
today. Coca-Cola, McDonald's, as well as many charitable
organizations and other household names, use sweepstakes to
promote their products and causes. In the magazine industry,
sweepstakes contests serve specifically to attract attention to
mailings amidst an extremely cluttered mailbox. In order to
encourage consumers to open our mail, AFE uses a sweepstakes
prize as the primary focus of each of its mailings.
Since 1977, AFE has awarded more than 300,000 prizes,
including $92 million in cash and merchandise prizes. Every
prize offered in our promotions is awarded.
The point of our mailings is not to convince people they
have won a sweepstakes, but rather to be excited about the
possibility of winning and to consider our products. The vast
majority of people who receive our mailings understand them and
do not believe either that they have won or they must order to
win.
AFE mails hundreds of millions of individual pieces of U.S.
mail each year. AFE does not target any demographic groups, nor
do we collect demographic information from our respondents. We
have never sent out a mailing directed at senior citizens or
any other demographic group. In fact, people of all ages and
interests subscribe to AFE's magazines, including titles
ranging from Sesame Street and Teen to Rolling Stone, Parenting
and Fortune.
AFE's goal is to reach consumers with as wide a range of
ages, income levels and interests as possible. As a result,
AFE's target market is every American who reads magazines.
Our data shows more than four out of five of our mailing
recipients do not respond at all.
Of those who do respond, more than half enter the
sweepstakes without ordering, plainly indicating their
understanding that no purchase is necessary. Of those who
choose to order, most have entered an AFE sweepstakes
previously without ordering; again, indicating they understand
that in AFE's sweepstakes promotions, no purchase is necessary
to enter or win.
Indeed, a significant majority of winners of AFE
sweepstakes have submitted winning entries without placing
orders. In fact, 11 of 17 grand prize winners, including the
three most recent winners--Daniel Rogers of Michigan, John
David Gryder of Texas and Leavitt Baker of Maine--submitted
their winning entries without an order.
Our mailings are not designed to and do not induce
consumers to buy an inappropriate number of magazines. In
several places throughout each mailing, AFE reminds recipients
that no purchase is ever necessary to win a sweepstakes prize.
Instructions for entering without purchasing are clearly placed
in more than one location.
Among our customers who make a purchase, the average annual
amount spent on magazines is $40. We estimate that more than 9
in 10 customers spend less than $100 a year with AFE. Only 2
percent of those who place orders spend more than $200
annually.
We estimate that, in 1997, fewer than 3,000 people, and, in
1998, fewer than 750 people, spent more than $1,000 with AFE.
To put these numbers in context, a household would reach the
$100 spending level simply by ordering through AFE the
equivalent of an annual subscription to People magazine. By
adding TV Guide, Newsweek, and Sports Illustrated to the list,
the annual subscription charges through AFE would easily exceed
$200 or roughly the annual cost of a daily newspaper.
While it is clear that the vast majority of our customers
understand and enjoy participating in our sweepstakes
promotions, it became evident to AFE's new management team in
1998 that a very small minority of consumers may have
disregarded, been mistaken or somehow been confused about our
sweepstakes rules and procedures. In order to address this
issue, AFE began to re-evaluate its marketing and promotional
methods.
AFE listened and responded to the suggestions and concerns
of consumer advocates and government officials, including
Members of this Subcommittee. Based upon our re-evaluation, AFE
has implemented a number of important changes to our
sweepstakes promotion.
These changes include:
One, including in all mailings prominent statements that no
purchase is ever required to enter, and all entries have an
equal chance to win;
Two, clearly disclosing the odds of winning;
Three, directing that all sweepstakes entries be returned
to the same city, reinforcing the message that all entries are,
in fact, treated equally;
Four, establishing our Web site to answer frequently asked
questions;
Five, avoiding the use of language referring to the
recipient as a member of a small or select group, suggesting an
improved chance of winning the sweepstakes prize.
AFE has also instituted a pilot program to try to identify
and protect potentially vulnerable sweepstakes consumers; that
is, those individuals who are purchasing an unusually large
number of magazine subscriptions. While this might simply
represent an appropriate choice for that person, we recognize
that it may also indicate that someone incorrectly believes
they must order a magazine to enter the sweepstakes. This group
of frequent purchasers appears to represent less than \1/2\ of
1 percent of AFE's customers.
As part of this program, AFE began sending a ``no purchase
necessary'' reminder letter to those individuals generally
stating that all entries, including those without an order,
have an equal chance to win and specifically reiterating that
no purchase is ever necessary to enter or win.
AFE also elected not to mail certain customers for whom the
``no purchase necessary'' letter may not be enough. Initially,
AFE has chosen to stop sending mailings to approximately 25,000
people. AFE also blocked certain customers from making future
orders, including those who have been identified to AFE as
being incapable of making rational purchasing decisions.
AFE also maintains a much larger list of consumers who have
asked AFE not to send them promotional mailings or who have
been identified to the company by others as not interested in
receiving such mail.
AFE's goal is to offer magazines and products that people
want to purchase and use and to guarantee customer
satisfaction. Accordingly, AFE's policy is to offer refunds on
a ``no questions asked'' basis for all unserved magazine issues
or returned merchandise. AFE is committed to excellent customer
service.
Madam Chairman, could I just take an additional minute or
two to express support for the legislation?
Senator Collins. Certainly.
Ms. Bernstein. As I mentioned earlier, Madam Chairman, AFE
is well aware of the strong interest that you, Senator Levin
and other Senators have in this issue. We have preliminarily
reviewed the legislation that you introduced earlier this year
and believe that it contains provisions that would help ensure
that sweepstakes promotions are used in a responsible way and
by reputable companies.
Furthermore, AFE believes that your bill, as well as the
legislation introduced by Senator Levin, will help weed out
fraudulent operators and set higher standards for legitimate
users of sweepstakes.
AFE takes very seriously the concerns that this Subommittee
has raised, and we have already adopted many provisions
contained in your two bills. For example, AFE's mailings
contain several reminders that no purchase is ever necessary to
participate in our sweepstakes. In addition, AFE discloses the
odds of winning each sweepstakes prize that it awards, as would
be required by the legislation.
In these instances and many others, AFE not only supports
the substance of your legislative proposals, but has already
implemented many of them in connection with our promotions.
While AFE does have concerns about the specific wording of
some provisions, as well as concerns about some of the
procedural aspects of both bills, we would like to work with
you, Senator Levin, and your staffs to see whether these
concerns might be addressed as these proposals move through the
legislative process.
In conclusion, I think it is clear that the vast majority
of the individuals who receive our mailings understand our
sweepstakes promotions. Generally, if consumers choose to order
our products, they do so because they want to, not because they
believe they have to in order to win our sweepstakes.
However, with respect to the very small minority of
individuals who may not understand our sweepstakes promotions,
we stand ready to work with the Subcommittee and other
governmental and industry representatives to develop
appropriate standards.
Madam Chairman, that concludes my statement.
Senator Collins. Thank you. I am going to have to ask you
to stop there because we do have a lot of other panel members.
I am going to turn to Senator Edwards to see if he has any
comments that he wants to make before we go to the next
witness.
Senator Edwards. Thank you, Madam Chairman. No, not in
addition to the opening statement I made yesterday.
Senator Collins. Thank you.
Ms. Holland, would you please proceed.
TESTIMONY OF DEBORAH J. HOLLAND,\1\ SENIOR VICE PRESIDENT,
PUBLISHERS CLEARING HOUSE
Ms. Holland. Thank you, Madam Chairman, Senator Levin and
other Members of the Subcommittee for the opportunity to be
here today.
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\1\ The prepared statement of Ms. Holland appears in the Appendix
on page 133.
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My name is Debbie Holland, and I am senior vice president
of Publishers Clearing House. I have worked for the company for
20 years. We at Publishers Clearing House are proud of our
company, our sweepstakes and our many consumer education and
protection programs. We believe that we have been ethical and
honorable in dealing with our customers and welcome the chance
to tell our story.
Publishers Clearing House has been serving American
consumers and the publishing industry for nearly half a
century. Today, we are a very broad-based business offering
thousands of products, as well as more than 350 magazine titles
that appeal to our millions of satisfied customers.
The famous Publishers Clearing House sweepstakes has
awarded over $135 million to nonpurchasers and purchasers
alike. Each year, tens of millions of Americans enter the
Publishers Clearing House sweepstakes without buying anything
and 22 out of the 29 winners of $1 million or more won with
nonorder entries.
These overwhelming statistics support our belief that the
vast majority of Americans fully understand that no purchase is
necessary and actively avail themselves of that opportunity.
Despite this fact, we recognize that there are some serious
problems that must be addressed.
In light of that, we support a three-pronged solution to
consist of: One, a comprehensive program of consumer education
and protection involving a public-private partnership between
government and industry self-regulatory organizations; two,
innovative and effective outreach and protection programs for
those consumers who, for whatever reason, are not able to
understand promotional material, including suppression programs
to get these individuals off sweepstakes mailing lists; and
third, Federal legislation that would provide business with
clear objective standards for sweepstakes mailings.
Publishers Clearing House is a direct marketer of magazine
subscriptions and consumer products. Our business is built on
service and value. We guarantee the lowest prices on new
magazine subscriptions offered to the general public, and we
are a valuable source of new subscriptions to the magazine
publishing industry.
We also offer a wide range of consumer products: books,
music and video, housewares, horticultural, collectible
figurines, coins and jewelry, sports memorabilia and household
cleaning products, to name a few. We carry thousands of items
and many product lines, more than you would find in 40
different catalogs.
A little-known fact about Publishers Clearing House is that
over 40 percent of the profits of our business go directly to
the benefit of charities and charitable interests.
As a direct marketer, we offer our customers access to the
kind of products they are interested in. We offer them the
opportunity to inspect any product they order and return it for
a full refund. We offer interest-free installment payment plans
and the convenience of shopping at home any time they want
without a salesman's presence or pressure.
At the same time, since we sell from a distance, we face
many challenges. We do not get to see our customers face-to-
face, so it is harder for us to get to know each other. We do
not get the same visual cues that a local shop owner would as
to the competence and financial condition of our customers, and
we have to work hard to find ways to send mail only to the
people who want to hear from us because it is expensive and
wasteful to send it to people who are not interested in hearing
our offers.
Our sweepstakes are an attention-getting device, and many
Americans enjoy entering for a chance to win valuable prizes.
The figures tell us, time and again, that people know that
winning big is a long shot and that they never have to buy
anything to enter and win. Seventy percent of the people who
receive a package do not respond at all. And of those who do
enter, there are always two, three or even four times as many
people who enter the sweepstakes without ordering as those who
do.
Our promotional mailings are our store, and like any retail
merchant, we want consumers to notice our store and come
inside. We try to give them lots of reasons to come in, from
the best deals on the magazines they want, to attractive
merchandise offers, and a chance to win a valuable prize.
We vary our packages and offerings, much as retail
merchants constantly change window displays and shelf
arrangements, because consumers demand variety and want
something new. We try to get to know our customers through what
they tell us in their responses to our mail and engage them in
a personal dialogue about the things that interest them by
offering items in the same or a related area, much in the same
way as a salesman in a store would greet a customer by name and
suggest items he thinks the customer might be interested in. We
also want our customers to know that we appreciate their
business, and we hope they will shop here again.
All of our promotional mailings clearly show that they are
from Publishers Clearing House, contain clear ``no purchase
necessary'' messages, particularly on the order form, and have
clear instructions on how to enter without ordering. We mail
our promotions many times throughout the year to a wide variety
of people across the United States. Mail volumes range from the
hundreds of thousands to many millions. We do not target any
particular demographic group, and our product offerings include
items that appeal to all ages and all walks of life. In fact,
the limited amount of available market research we have shows
that about 70 percent of our customers are under the age of 65.
Even though the figures strongly demonstrate that the vast
majority of our customers understand our promotions, we
recognize the need for continuing consumer education that no
purchase is necessary. And even more than that, we recognize
that there are some individuals who are not capable of
understanding the message, regardless of how much explanation
or education they receive from us or anyone else, even their
closest friends and loved ones.
While these individuals make up a very small fraction of a
percent of our total customer population, Publishers Clearing
House is very concerned about these individuals and feels an
ethical responsibility to identify them and remove them from
our mailing list.
Publishers Clearing House has developed a practical and
effective solution that is unique in the industry. We have
found a way to reach out and contact high-activity customers
individually, and assess their suitability for sweepstakes
promotion. We call it High Activity Identification and
Suppress, and it is an important part of our Project
Sweepsmarts described in the pamphlet that has been made
available to the Subcommittee.
We started almost a year and a half ago, and we have
already removed over 6,000 names from our active mailing lists
as a result of these contacts and blocked all future orders
from these people, forever. And it works. Both of the
individuals brought to our attention by the Subcommittee staff,
Mr. Hall and Mr. Doolittle, were identified by our program and
removed from our mailing list over a year ago.
But that is not all we are doing under Project Sweepsmarts.
We started sending nonpromotional letters to active customers 5
years ago reminding them that no purchase is ever necessary to
enter and win in a Publishers Clearing House sweepstakes. Last
year we sent out over 125,000 of these letters. We are
delighted that other companies have followed our lead and have
now started sending out ``no purchase necessary'' letters of
their own.
We are ready to share the other elements of Project
Sweepsmarts with you, with other marketers and our industry
trade associations because we advocate an industrywide self-
regulatory system that would help all of us identify and
protect the vulnerable.
Publishers Clearing House is proud to be the leader of the
industry, and we take our leadership role very seriously. We
want to maintain public confidence in sweepstakes. We urge all
interested parties, both government and private business, to
join together in a public-private partnership to ensure that
those who need help are protected.
At Publishers Clearing House we urge broad-based consumer
education, effective outreach programs to identify customers
who are not able to understand promotional materials and get
them off sweepstakes mailing lists and Federal legislation with
clear standards for business.
We endorse and support your goals and want to supplement
the governmental efforts with private resources. We want to be
part of the solution.
Thank you.
Senator Collins. Thank you very much.
Mr. Davenport.
TESTIMONY OF PETER DAVENPORT,\1\ SENIOR VICE PRESIDENT, GLOBAL
MARKETING, THE READER'S DIGEST ASSOCIATION, INCORPORATED
Mr. Davenport. Good morning. My name is Peter Davenport. I
am the senior vice president of Global Marketing at The
Reader's Digest Association, and I am based at our headquarters
in New York.
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\1\ The prepared statement of Mr. Davenport appears in the Appendix
on page 144.
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Reader's Digest is a leading publisher of magazines, books,
music and videos. Since the magazine's founding in 1922, our
mission has been to create products that inform, inspire,
enrich and entertain, initially in the United States, but now
around the world. We take great pride in our products,
especially in the fact that their quality is so respected.
Our flagship magazine is read by more people than any other
paid circulation on the planet, over 100 million in 19
different languages. To illustrate its breadth in the U.S., it
is read by more households with six-figure incomes than
Fortune, Business Week and Wall Street Journal combined. It has
more PC users than the top four best-selling PC magazines and
more rock fans than Rolling Stone.
Yet we are not just a magazine. We create a wide variety of
publishing products to offer our subscribers and customers that
span an array of interest categories, including health, home
improvement, gardening, travel, reading for pleasure, classical
music and the like.
The major reason for our success over the years is that we
establish a long-term, mutual, respectful relationship with our
customers. Yes, our customers trust us and our products, but
they do so because we seek to honor their trust in everything
we do. This is the very foundation of our business, and it is
the reason why Reader's Digest is, in fact, called an
association.
We have used sweepstakes in the United States to help
introduce people to our products for over 30 years. They are
aimed at encouraging people to open our mailings in the
competitive marketplace, just as a department store uses
various promotions to bring people inside their doors. But at
the end of the day, however, it is the appeal of our products
tied into the trusted brand which determines the success of our
business.
Given the breadth and the variety of our products we offer,
our mailings appeal to a broad variety of audiences. The
criteria to select people to receive any particular offer are
driven by the specific product. The Family Handyman magazine
has a different audience than our Leading Ladies Music CD,
which has a different audience from our upcoming book on
computers.
Most of our products, like the Reader's Digest magazine, of
course, have a very wide appeal across many audiences.
Sweepstakes are sent to all of our potential customers and not
limited to one particular segment. Reader's Digest does not use
sweepstakes to target specific consumers by age or any other
demographic.
Through our testimony here today, we want to make clear our
position on the appropriate use of sweepstakes. We fully
recognize there are legitimate concerns about certain marketing
practices that could undermine consumer confidence in them. We
are pleased to join in any effort aimed at assuring that the
millions of America who enjoy participating in the sweepstakes
do so with confidence in the fairness and the integrity of
them.
Over the years, we have adopted marketing guidelines for
sweepstakes which, in fact, go well beyond those required by
current regulations. I would just like to mention some.
First, Reader's Digest is clearly identified as the sender
on the outside of the envelope. Sweepstakes deadlines are real
and are strictly enforced. And although not required by law,
all prizes are given away.
Second, we agree with Senators Collins and Levin on the
importance of ensuring that consumers understand they do not
need to buy a product to enter or win, nor will a purchase
enhance their chances of winning. To that end, not only do our
mailings state that no purchase or payment is necessary to
enter, we also state that all entries have an equal chance to
win. They also provide explicit instructions on how to enter
without a purchase at least twice in the mailing package, and
those instructions are easy to find and follow. Consumers do
not navigate the package to find them.
Third, regardless of whether they are placing an order or
not, customers are offered the equivalent means of entering
sweepstakes. Those who respond without an order are never asked
to provide their own envelope. Sweepstakes entrants are
directed to the same processing facility. To speed the
processing of orders, we sometimes use different post office
box numbers for ordering or nonordering envelopes, but we
always strive to ensure that consumers fully understand that
they have the same chance of winning whether they place an
order or not.
And, finally, we want all consumers to clearly understand
the exact chances of winning, so all Reader's Digest mailings
state the numeric odds of winning in the sweepstakes.
We believe that the effectiveness in communicating that no
purchase is necessary is reflected in our consumer responses.
On average, 80 percent of Reader's Digest consumers entering
our sweepstakes do so without an order. However, we share the
concern that there are a small number of people who may have
difficulty with certain promotion offers, including
sweepstakes, and we are committed to addressing those special
situations. And already we have policies and practices to
ensure that our products are purchased only by those who really
want them.
All of our products carry a money-back guarantee.
Subscriptions can be canceled at any time with a complete
refund. The purchaser of any product may return it at any time
for a complete refund.
Second, we maintain our own ``do not mail'' list and add
names from the Direct Marketing Association to it. We also
honor requests from legal guardians.
Third, once a customer has purchased a product or magazine,
we will not send a solicitation for that product again, except
to renew the magazine subscription, of course.
Fourth, we support efforts like the recent policy of the
Magazine Publishers Association aimed at detecting and
preventing consumers from entering into excessively long
subscription terms.
And, fifth, last year we began a practice which we plan to
continue every year of sending a letter to high-activity
customers reminding that no purchase is necessary to enter a
Reader's Digest sweepstakes. The feedback from this effort
demonstrate an overwhelming level of understanding of how
Reader's Digest sweepstakes operate and, indeed, customer
satisfaction with the products they had received.
Finally, we support those elements of Senator Collins' and
Senator Levin's proposed legislation that provide an
appropriate level of consumer protection while allowing those
millions of Americans to continue to enjoy sweepstakes.
Reader's Digest is very proud of the relationship we have
developed with our subscribers and customers over many years,
and we are committed to building on this. We firmly believe
that direct-mail sweepstakes is a legitimate and effective
marketing tool if companies who use them adhere to firm ethical
guidelines that promote consumer confidence in them.
And we are eager to work with other companies, trade
associations, with Congress, with the Postal Inspection Service
and other Federal and State regulators to achieve this goal.
Thank you.
Senator Collins. Thank you very much, Mr. Davenport.
Ms. Long.
TESTIMONY ELIZABETH VALK LONG,\1\ EXECUTIVE VICE PRESIDENT,
TIME INC.
Ms. Long. Good morning, Madam Chairman, and thank you for
the opportunity to testify today. My name is Lisa Long. I have
worked at Time Inc., for the last 20 years. I came through our
circulation ranks before being made, in succession, publisher
of Life, publisher of People, and then publisher of Time
magazine. I am currently executive vice president of Time Inc.,
and I have responsibility for several corporate entities,
including those directly related to the circulation and
subscription sales of our magazines.
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\1\ The prepared statement of Ms. Long appears in the Appendix on
page 149.
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As I think you know, Time Inc., is a wholly-owned
subsidiary of Time Warner. We are the largest magazine
publisher in the world with 32 publications worldwide.
Madam Chairman, Time Inc., recognizes that there are
problems stemming from sweepstakes, and the testimony we heard
yesterday was powerful and troubling. There is obviously much
to cover on this subject, so in the interest of time, I am
going to limit my comments to four main topics: Why Time Inc.,
uses sweepstakes, why we use headline copy, the fact that we do
not target the elderly, and our views on how best to address
the concerns raised in these hearings, including reactions to
the bills you and Senator Levin have introduced.
Let me just say a few words about our business. Most of our
magazines are sold primarily through subscriptions as opposed
to single copies sold at the newsstand. And the economics of
the subscription business is such that we invest considerable
resources up front to attract new subscribers, and the long-
term relationships we develop with them are what drives
circulation profitability and allows us to deliver our
circulation guarantees to advertisers.
Simply put, our business relies on repeat business, and our
success is based on a history of satisfied customers who, once
they try our publications, appreciate their content, their
quality and then renew year after year.
But our first challenge is to get people to try us, and to
do that we have to break through other promotional clutter, get
people's attention, involve them in our offer, motivate them to
pick up the phone or drop an order in the mail. For us to do
anything to undermine the trust that must exist between us and
our subscribers would be self-defeating, and it would be wrong.
We promote first-time subscriptions through a variety of
media, including television commercials, insert cards in the
magazines and direct mail. And we use a number of marketing
tools to get people to try our magazines, including premium
discounts, free trial issues or a chance to enter a
sweepstakes.
Sweepstakes are an effective attention grabber for many
types of marketers. I like to compare them, as my colleagues
seem to as well, to a sale sign in a department store that
drives traffic into the store. Sweepstakes' main purpose is to
get people to open the envelope and take a closer look at what
we have to offer. Plenty of people have no interest in
sweepstakes. Eight-two percent of the people to whom we mail
these offerings do not respond. However, a lot of people enjoy
them and understand them. And of the 18 percent who do respond
to our sweepstakes mailings, 9 out of 10 do so only to enter
the sweepsstakes and do not order. In the end, only 2 percent
of the people who receive our sweepstakes mailings actually
purchase a subscription. And because enough of them will become
satisfied, renewing customers, sweepstakes are, in fact, one of
our ways to encourage people to try our magazines.
Like other legitimate sweepstakes marketers, we are very
concerned about the scam artists and the fraudulent mailers who
abuse this marketing tool. I can assure you that Time Inc.,
sweepstakes are run fairly and honestly. In each of our
mailings, we list the odds of winning in the rules section. Our
prizes are awarded once a year without contingencies, and our
promotions repeat several times in clear, concise language that
no purchase is necessary to win, something our sweepstakes
players certainly understand, since nine times as many entrants
make no purchase as those who do.
Now, let me move on to two specific areas that I know are
of concern to this Subcommittee. The first is what is generally
referred to as headline copy. This would be a statement in
large type suggesting that the recipient is a winner, coupled
with a qualifying statement in smaller type. In our mailings,
the qualifier is always directly adjacent to the headline and
explains that the recipient must have the winning number and
return it in order to win.
Are we trying to deceive readers into thinking they have
won the prize? No. It would serve absolutely no business
purpose. Everything we know suggests that the vast majority of
our mail recipients understand that these headlines are simply
a way to involve them, create some excitement around our offer.
And like headlines in newspapers, headline copy in sweepstakes
offerings are there to get your attention and to draw you into
the whole story.
However, in light of current concerns over this, we have
been developing tougher standards and tightening our review
process across all Time Inc., entities. The second issue is the
concern that sweepstakes marketers target the elderly. Let me
be absolutely clear that Time Inc., sweepstakes promotions are
mailed across the board to all demographic segments of the
population, with the only objective matching the interests of
prospective subscribers to the content of our individual
magazines.
Having said all of this, I want to acknowledge that your
efforts have made us aware that there is a small percentage of
people who, for one reason or another, may not understand our
sweepstakes mailings.
Because Time Inc., is a decentralized organization whose
magazines operate independently of one other, we have not been
able to easily identify individuals who are making multiple
purchases across all of our publications. Your scrutiny of the
issue led us to probe our files and, thankfully, the total
number of such multiple purchasers is extraordinarily small.
For example, out of the 1.4 million people who subscribed to
our magazines through sweepstakes in 1998, only 480 of them
spent as much as $500 with us. Nonetheless, if any of these 480
people ordered because they were confused by our offer, we take
this very seriously.
We are committed to identifying those who may have placed
an unusually high number of orders for the wrong reasons,
communicating with them and their families and removing them
from our mailing and rental lists. As a percentage, the
incidence of people who make numerous purchases due to our
sweepstakes offerings is tiny. As an absolute number, it is
still very small. Yet even one confused customer is too many
and deserves our attention.
The scope of the problem, however, demands that the
solution be pinpointed rather than sweeping. As I noted, Time
Inc., along with other publishers and trade associations, is
exploring how to identify and communicate with these
individuals who have a problem with sweepstakes.
Madam Chairman, we concur with you that there is a role for
legislation as well, and we agree with much of the bill that
you have proposed. S. 335 is certainly responsible and
constructive, and we welcome the opportunity to discuss its
finer points, as well as those contained in Senator Levin's
bill, S. 336, which addresses many of the same issues.
We would also urge that whatever is implemented be
consistent with the First Amendment's protection of commercial
speech and distinguish between the occasional misunderstanding
of sweepstakes and outright scams. Your Subcommittee is
performing an important public service in helping marketers and
regulators to find the scope of the situation and find ways to
respond to it.
At Time Inc., we look forward to working with you and the
Subcommittee to achieve a balanced, yet effective, solution to
this problem. Thank you.
And, of course, I would be happy to answer your questions.
Senator Collins. Thank you very much, Ms. Long.
We are now going to have a 10-minute round of questions for
each of the Senators, and then we'll have a 5-minute round
after that.
Ms. Holland, I want to start with you because I have to
tell you that I was absolutely stunned by a statement that you
made in your testimony. You said, ``We believe that our
promotions are clear and that no reasonable person could be
misled by them.''
Well, Eustace Hall is a reasonable person who testified
before us yesterday, and he was completely misled by your
mailings. We have had hundreds of consumers from across the
United States contact the Subcommittee with concerns about
sweepstakes, mainly yours and the other companies who are
represented here today. They are reasonable people. My
constituents in Maine who have had trouble with sweepstakes are
reasonable people. The attorneys generals who have sued your
companies and others because of the deception are reasonable
people.
I am just appalled by that statement, given the
overwhelming evidence that we have of people being deceived by
your mailings. It is disappointing to me because I would hope
that you could acknowledge that there is a problem and that we
could work together to ensure that it is corrected.
I want to show you a couple of your mailings, and let's
talk about how a reasonable person would view these mailings
and whether or not they are clear. I would like to have the
exhibit ``Open your door to $31 million'' put up.\1\ I know you
have a copy of all of the exhibits that we are using.
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\1\ See Exhibit No. 2 in the Appendix on page 157.
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I think that many reasonable people would be deceived by
this mailing into thinking that they had, in fact, won $31
million. It is personalized. It says, ``Open your door to $31
million.'' It has a specific date. It has the name of the
consumer. It has the word ``winner'' in it 23 times. It has
qualifying words like ``if'' or ``could'' only in smaller print
and only nine times. It has ``We have pencilled in your name as
our next winner.'' It says the name of the consumer ``goes on
our giant check for $31 million.''
Do you really think that no reasonable person would be
deceived by this mailing into thinking that they had won $31
million?
Ms. Holland. Well, first of all, we know that our
statistics are similar time and again: That 70 percent of the
people or more who receive these mailings do not respond at
all. Of those who do respond, we receive far many more entries
without orders than with. In this particular mailing, it is
very clearly written in the conditional that you could win or
if you have the super prize number. For example, in the exact
same size type as the rest of the text of the letter we say,
``Then, if the winning super prize number comes in and it is
yours, I will definitely ring `the person's name' doorbell on
January 31. Do not miss out on this special opportunity to win
millions.''
Senator Collins. Well, let me take that very part that you
just read. ``If the winning number is yours'' is not in bold
type. It is followed by indented bold type text that says,
``I'll definitely ring `the consumer's name' doorbell on
January 31.'' ``I'll definitely ring your doorbell on January
31.''
I realize that a careful reading of this letter does, in
fact, show that it is conditional. But to say that no
reasonable person could be deceived by this mailing is just not
true.
Ms. Holland. Well, we do know what our statistics are, and
they are the same time and again. They have been for years. We
also know that our mailings have been tested in the courts
several times and that has been the conclusion: That no
reasonable person could be misled.
Senator Collins. Well, in fact, you have settled lawsuits
with a number of States, have you not?
Ms. Holland. I believe so. I would like to point out also--
--
Senator Collins. And made restitution.
Ms. Holland. That the super prize--if the winning super
prize number comes in, and it is yours, is the exact same type
size as the statement below it.
Senator Collins. The problem is the impression that this
mailing gives, and there is another problem with this mailing.
It says, ``You see your recent order and entry has proven to us
that you are indeed one of our loyal friends and a savvy
sweepstakes player.''
That language implies a connection between ordering and
winning; your recent order is what got you this mailing.
Ms. Holland. Well, it is true that all direct-marketing
companies, whether they are running a sweepstakes or not, send
mailings to people who order. We want to send our mailings to
people who are interested in receiving them, and we do not want
to send them to people who are not.
On the reverse side of the letter, we have several messages
telling people that, ``There are absolutely no strings attached
to winning our prizes.'' That is in bold-face type, the same
size as the rest of the text, and it is set off in its own
paragraph. We also say, ``Whether or not you decide to take
advantage of these terrific offers, I want you to know that I
deliver the prizes with no strings attached. We never ask you
to pay any money to claim your prize.''
Senator Collins. Well, let me show you another exhibit, and
this one is the Eustace Hall letter from Dorothy Addeo.
You are familiar with this letter, Ms. Holland. This is a
mailing that Mr. Hall brought to the attention of the
Subcommittee. It is a personalized letter from the contest
manager at Publishers Clearing House.\1\
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\1\ See Exhibit No. 1 in the Appendix on page 155.
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It says, ``Dear Eustace Hall: I am in a bit of hot water
and only you can get me out.
``My boss dropped into my office the other day, sat down
and sighed. `What's the story with Eustace Hall? I see that
name on our Best Customer List, on our Contender's List, on our
President's Club List, but I don't see it on our Winner's List.
There must be something we can do to change that. It's not
right when someone as nice as Eustace Hall doesn't win.'
``Then he sighed again, looked at me and left, and I sat
there wondering what to do. I had my mission, Eustace Hall, to
make you a winner and soon.''
Now, how many people received this mailing that made Mr.
Hall feel so special, feel like he was singled out for special
treatment by your company?
Ms. Holland. This mailing was sent to millions of people.
This is a personalized mailing, it's direct mail. The whole
reason for this letter is to simply announce that there is
another contest opportunity coming up and that the recipient
should watch his mail box for it.
Senator Collins. Mr. Hall told our investigators that he
believed that this exact conversation took place; that, in
fact, Dorothy Addeo's boss did drop into the office and say
these words. Did this conversation actually take place with
regard to Mr. Hall?
Ms. Holland. This conversation and this situation is a
dramatization of actual conversations that did take place when
we were planning this very special new contest opportunity. The
announcement in this letter is that we have a new contest in
which everybody who enters will be guaranteed to win a prize.
All they have to do is enter.
Now, again, as I mentioned earlier, this is simply an
advance notice telling people to watch for the upcoming
mailing. You can't enter from this. You can't even order.
Senator Collins. But, in fact, the conversation did not
take place, and this letter is deceptive. This was sent to 9
million people, was it not--personalized letters
Ms. Holland. Yes.
Senator Collins. Were there 9 million conversations between
your contest manager and her boss?
Ms. Holland. Of course not. This is advertising. This was a
dramatization of situations and conversations that happened in
the company. It is sort of like ``ring around the collar.''
Senator Collins. But do you not see why this would be
deceptive to a reasonable person like Mr. Hall? Do you not see
why it made him think that he was special?
Ms. Holland. We do not think that this is deceiving. We
thought it's perfectly fine. I did want to note for the record,
though, that the company has stopped mailing this letter over a
year and a half ago because, even though we did think it was
fine and not confusing, we wanted to be responsive to input
that we got.
Senator Collins. Thank you.
Ms. Bernstein, you have testified that the instructions for
entering without making a purchase are clearly placed in your
mailings. I want to take a look at the instructions on how you
could enter the American Family Publishers sweepstakes without
ordering, and it is my understanding that you have been given a
copy of this.\1\
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\1\ See Exhibit No. 6 in the Appendix on page 172.
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Ms. Bernstein. Yes, I have.
Senator Collins. It is in small print, so I am going to
have to hold it quite a ways out from me to read it.
``If not ordering, affix bar code label to Box 1 of
instruction form after confirming that the bar code label
finder code matches the finder code in Box 2 of the form. Do
not affix any order stamps and sign as indicated in Box 6.
Place instruction form in your own envelope and enclose a 3 by
5 card with the following handwritten in block letters:
`American Family Publishers Sweepstakes. No order enclosed.'
``Affix 7-day response requirement stamp and the enclosed
nonorder entry bureau address label or address to American
Family Publishers . . . '' it gives the address ``. . . to the
front of your envelope and mail within 7 business days.''
So, if you are going to enter your sweepstakes without
placing an order, you have to supply your own envelope, you
have to have a special sized paper, you have to have a 3 by 5
card, you have to hand write on it, it has to be in block
letters.
Why do you make it so much more difficult for individuals
who are not ordering to enter your sweepstakes?
Ms. Bernstein. Senator, AFE is in the business of selling
magazines. We use sweepstakes and contests so that our
customers--to elicit our orders. Clearly, we do not believe
that there is anything confusing in this offer. What we are
saying, our stats indicate that more than four out of five
totally ignore our mailing. The people who reply, Senator, more
than half of them reply saying no without entering an order.
Senator Collins. But don't all of these additional
requirements reinforce the misperception that your chances of
winning are improved by making a purchase? If it is easy to
enter your sweepstakes if you make a purchase, but it is
difficult to do so if you don't make a purchase, what message
does that send the consumer?
Ms. Bernstein. All of our packages have the AFP promise,
which clearly say all entries are treated equally. The vast
majority of people who receive our mailings, Senator,
understand them.
Senator Collins. My time has expired. This is something I
want to pursue on the next round.
Senator Levin.
Senator Levin. Thank you, Madam Chairman. And I want to put
the Eustace Hall letter back on.\1\
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\1\ See Exhibit No. 1 in the Appendix on page 155.
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You indicated to our Chairman that there were not 9 million
conversations of this kind, although there were 9 million
letters that were sent out to individuals representing that a
conversation quoted in that letter took place.
My direct question to you is, when you wrote Eustace Hall
saying, ``My boss dropped into my office the other day, sat
down and sighed,'' and then, `` `What's the story with Eustace
Hall? I see that name on our Best Customer List, on our
Contender's List, on our President's Club Member List, but I
don't see it on our Winner's List. There must be something we
can do to change that. It's not right when someone as nice as
Eustace Hall doesn't win.' ''
Did that particular conversation take place?
Ms. Holland. Senator, we did have many conversations----
Senator Levin. No. Did that quoted conversation take place?
Ms. Holland. As I stated earlier, those exact words are a
dramatization of conversations that did take place. Consumers
understand dramatizations.
Senator Levin. Now let's get to my question. Did that
quoted conversation take place? Yes or no?
Ms. Holland. No, it did not. It's a dramatization.
Senator Levin. But you told this gentleman that it did. Is
that true, that you told him that quoted conversation took
place? You lied to a customer.
Ms. Holland. When you are making a dramatization, you do
have the people in the situation speak, and when you write
that, it has quotation marks around it.
We did want to find a way to let customers and other people
who enter have a chance to win, for everybody to have a chance
to win, and that is why we started this contest.
Senator Levin. Right. Now let me get back to my question.
That conversation, you acknowledge, did not take place.
Therefore, you told a customer that a specific conversation
regarding him occurred which did not occur. You testified a
moment ago that, in your judgment, that that letter is
perfectly fine. That letter is perfectly a lie. It is perfectly
false. It is perfectly misleading. It is purposely deceptive.
Now, there is no other way that, sitting here, you could
describe a quoted conversation saying that a particular
conversation involving a particular customer took place, which
you now acknowledge did not take place, without saying you
stated something to a customer about him. You didn't say, ``We
had a discussion about how to attract 9 million people into a
thing, and you are one of the 9 million.''
You said, ``We had a conversation about you, Eustace
Hall,'' and it seems to me that is the description of deception
and falsity. That is the perfect example. You can't get a much
clearer example than when you say, ``We spoke about you,'' and,
in fact, you did not speak about him.
Now, I'm glad you ended that letter, but I must tell you I
am deeply distressed when you can come here and say that that
letter is perfectly fine, when that letter incorporates a
perfect deception and a perfect lie. And the fact that
something was going to follow rather than something being in
this letter does not make it any less of a deception or less of
a lie.
Now, I want to go back to Mrs. Roosenberg, whose videotape
we saw earlier today of every room in her house being stuffed
with stuff that she didn't need; \1\ $12,000 worth of products
from Reader's Digest.
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\1\ Exhibit No. 20 is retained in the files of the PSI
Subcommittee.
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Mr. Davenport, I will be asking you now about this
particular thing. This is the 400 items I believe that she
bought. This is part of the 400 items that she bought in 1
year. These are the ones that she bought from Reader's Digest.
It is about $12,000.\2\
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\2\ See Exhibit No. 17.a. in the Appendix on page 205.
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She then gets a letter from Reader's Digest with a
certificate in it received from your vice president for
Marketing, Brian Kennedy.\3\ Oddly enough, by the way, that
letter is dated March 11, 1999. I'm not sure why it has that
date, but here is what it says on it:
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\3\ See Exhibit No. 14 in the Appendix on page 200.
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``Good news. You've been selected to receive one of our
highest honors, The Reader's Digest Recognition Award. It's
your obvious love of Reader's Digest and sweepstakes that made
you an ideal candidate. In fact, it was your recent
subscription request that finalized our decision. The Reader's
Digest Recognition Award is simply our way of saying thank you
for your loyalty.
``The Certificate of Recognition above is a symbol of that
appreciation and very much more. Within its borders is a free
gift.'' I'm not sure what that free gift is, but maybe we can
find out if we read this.
But here comes the part which I find so incredible. This is
somebody who has spent $12,000 in a year on Reader's Digest
products. You are giving her the highest, or one of your
highest honors, the Reader's Digest Recognition Award, which is
a piece of paper. And then you go on to tell her that, in
addition to that piece of paper, you are going to find a way,
it says here on that piece of paper, ``to guarantee her a
chance to win $500,000.''
Why do you do that? I mean, why do you send to someone who
is a $12,000 customer of yours a piece of paper which pretends
to tell her that she is receiving one of Reader's Digests
highest honors when the point of that letter is to try to suck
her into doing something more and to issuing her, God knows
what, her 51st check for the year? Why do you do that?
Mr. Davenport. Can I, first of all, answer the distressing
and obviously very worrying situation? But when this came to
our notice last Friday----
This came to our notice, in fact, it didn't come directly,
it came to us from a member of the press. As is our policy in
such situations, we immediately sent a letter off to the family
saying how distressed we are.\1\ There is no way you can
justify this sort of level of expense and what you have shown
here. As soon as we know of these occasions and they occur, we
immediately take action, and we have offered, obviously, to
take all of the products back, and refund and all of the rest
of it. There is no way I can sit here and justify that.
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\1\ See Exhibit No. 23.e. in the Appendix on page 233.
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The mailing piece I am not familiar with. It was not one of
the ones that I was asked to look at, so I am not aware of the
details of it. However, I can guarantee you that it was not
directed at her because of the $12,000--whatever the amount of
money it is, when we come to see, it was, by what you read in
the copy, and I would have to come back to you, that it is
probably as a reaction to probably taking out either a new--or
renewing a subscription.
The piece here is, of course, just one of a total package,
Senator, and I think we just have to look at the whole one. I
think it is fairly clear what the offer and what the gift is,
as we go further down. But there is no way that I can sit here
and justify a mailing into this particular situation. All I can
do is tell you that whenever we come across it we do our utmost
to remove it, to address the situation.
We have a particular marker, in fact, we changed to
something new 10 years ago so we can recognize in our file what
we call guardian requests. So, in fact, if someone does ring,
whatever reason, and says we have reason to suspect that you
are sending mail or products to a relative or somebody whom we
have some responsibility for, we can not only just not mail to
that person, but we can also ensure that that person never gets
any product even if they send them back in, and that is all I
can say.
I can give you a measured reply to this particular----
Senator Levin. This is Exhibit 14 in your book, by the
way.\2\
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\2\ See Exhibit No. 14 in the Appendix on page 200.
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Mr. Davenport. I appreciate that. I am just----
Senator Levin. I want to just read the bottom two
paragraphs, too.
``The Reader's Digest Recognition Award also entitles you
to a free gift. Attached to the above certificate is a Reader's
Digest Recognition decorative nameplate. Simply peel the
nameplate off the certificate, place it on one of your favorite
possessions and write your name on the line provided.''
That is one of the highest awards at Reader's Digest.
[Laughter.]
You know, you have a good name, and it amazes me that a
company with a good name would engage in that kind of a shoddy
practice. I must tell you I look at this, and I visit with the
people who have been taken in by this, and I do not know why
companies who have good names and good reputations would lower
themselves by sending out that kind of a come-on.
My time is up, and I want to come back to that issue
because I think, in a way, the haunting issue here is that we
have companies in front of us who have worked hard, in many
instances, to build up names and reputations. In the case of
Time magazine, people, including me, read Time magazine and
believe, we actually believe much of what we read, not all, but
much of what we read, as much in Time as in any other magazine.
And yet--I am going to get to Time later on--we find the
come-ons trying to get people to believe that they have won
something. And the printed word should mean so much to you
folks, and it is so sloppily used in order to get people to
subscribe to a magazine, and I think it tarnishes a good name.
I want to come back to you--my time is over--because it is
not fair for me just to say that without giving you an
opportunity--and I will in my next round.
Thank you.
Senator Collins. Thank you. We are recognizing people in
the order that they appeared today. So, Senator Durbin, I
believe you are next.
Senator Durbin. Thank you very much.
First, let me say a word in defense of the people who are
at the witness table, and this may come as a surprise. But we
live in a Nation and in a society where government condones
lotteries which prey on poor and elderly people. We live in a
society where government condones and licenses gaming and
casinos, where we know that the poor and the elderly show up
and spend a lot of money that they should not spend, and I
cannot make any excuse for either of those.
The fact is we are not investigating those two forms of
gambling. We are investigating sweepstakes today. And the
people who are before us have to be held accountable, as all of
us in government have to be held accountable for our policies.
I would like to address several specifics. First, let me
tell you that one of my constituents, who heard of my interest
in this subject--I mentioned her earlier--from Rockford,
Illinois, wrote about her 88-year-old mother who lives in
Brevard, North Carolina, in a retirement community.
My friends, this represents what she collected from her 88-
year-old mother in just a few months. This is 1 day. September
28 was a big day. Some of these are related to magazines, some
are not. She is on the Reader's Digest list and many others.
Let me tell you the problems this woman has in protecting
her mother. ``Senator,'' she says, ``it's nearly impossible to
figure out how to get your name off the list. The address to
which one sends the money entry is frequently not the address
of the company itself.'' So I don't think many of you are
making it easy for people who are trying to protect the elderly
and vulnerable by giving them a clear address to mail to to
remove their names.
Second, she objects to the suggestion that people are
somehow moving up the list, they are preferred customers. Let
me just ask, in general, is that a fact; when they say you are
moving up, now there are only two people left in this drawing?
Ms. Bernstein, is that true, that they are down to two people;
one is going to win $11 million, one isn't, and the person who
received the mailing may be the one to win?
Ms. Bernstein. Senator Durbin, I am sorry. I am not sure I
understand what----
Senator Durbin. All right. I get a letter in the mail that
says you are down to two people who can win $11 million. Is
that true, if that sort of representation has been made?
Ms. Bernstein. I can only speak for AFE, and I know we do
not make any kind of statement that would suggest finalists are
down to the final drawing.
Senator Durbin. So statements, for example, let me just get
in your particular--and this is American Family Publishers, and
here we are, let's look at Exhibit No. 7,\1\ and look what it
says in the front here. ``Down to a two-person race for $11
million.'' Was it down to a two-person race at that point, the
person who received the mailing and one other person? Is that
true?
---------------------------------------------------------------------------
\1\ See Exhibit No. 7 in the Appendix on page 178.
---------------------------------------------------------------------------
Ms. Bernstein. Senator, this is clearly stating that two
people are racing with one number, with a winning number, and
whoever returns that winning number wins it. And it says, ``If
you have the winning number, please be advised.''
Senator Durbin. So it is down to two people and one is
going to win $11 million.
Ms. Bernstein. ``If you have the winning number, please be
advised.''
Senator Durbin. What does that mean?
Ms. Bernstein. If you have the winning number, the winning
number is drawn----
Senator Durbin. Gee, limited education. Let me try to stick
with you for a second here. [Laughter.]
Are we really down to two people, and the one person who
received the letter is one of the two people who might win $11
million, just as it says there? I mean, I think a normal person
reading that, isn't that the conclusion most people would come
to? Is it true?
Ms. Bernstein. Senator, we had no information that
suggested that there was anything confusing about this, if that
is what you are saying.
Senator Durbin. ``You and one other person in Georgia were
issued the winning number. It is down to two people for $11
million. Whoever returns it first wins it all.'' Boy, that is
pretty clear to me.
Ms. Bernstein. Senator, our response in this mailing was no
different from any others----
Senator Durbin. I'll bet it wasn't.
Ms. Bernstein. We did hear complaints and concerns, and we
chose not to mail this particular package again. But the ``If
you have the winning number'' is very clearly stated here.
Senator Durbin. Well, I can see you are not going to answer
my question. But I think the average person will understand, in
receiving this, that this is a lie. You are misleading people.
It is deceptive. Perhaps people are too naive to believe that
they might win $11 million, but it has happened, and they end
up buying magazines that they do not need as a result of it.
Let me just also reiterate, I won't go through it again,
what Senator Collins has said about what you require people to
do to get off the list or to participate in the sweepstakes
without ordering, this lady writes to me and says, ``Senior
citizens can't write well enough to fill out the required plain
card or whatever form is required.'' And she said, ``My
mother's bad handwriting results in endless name variations,
which has led to multiple mailings.'' So I don't think you are
making it easy to protect the vulnerable, though most of you
have testified you would.
Let me also talk a moment about Publishers Clearing House,
and Mr. and Mrs. Rohrer of Canton, Illinois, who sent me this
nice letter, handwritten letter. Their story is so sad. Let me
read from a Chicago Tribune article of February 22, 1999.\1\
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\1\ See Exhibit No. 21 in the Appendix on page 210.
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``After 20 years of faithfully entering mail-in
sweepstakes, Henry Rohrer was sure his diligence finally would
be rewarded. Last September, the 74-year-old retired miner said
he received a phone call from a Publishers Clearing House
employee saying he was `definitely a cash winner.' A month
later, the company notified him of his $5 million prize,
including an affidavit which needed to be signed to claim his
windfall. He mailed that back along with a $38 check for a
ceramic angel, one of the many products offered in the
sweepstakes mailing.
``The company spokesman said it was not necessary to
purchase anything to win, Rohrer related, but that it would be
`nice if we could say you like our products when the Prize
Patrol comes to your door.'
``With the paperwork, Mr. Rohrer also sent in a hand-drawn
map so they could find his home in rural Canton, Illinois.''
Mr. Rohrer sent along these mailings, and he calls us on a
regular basis to talk about this.
It is hard to believe some of the representations that have
been made about ``no purchase necessary'' and protecting the
elderly and the vulnerable when you hear this sort of
situation. And these phone-call follow-ups, how frequently is
that done, Ms. Holland?
Ms. Holland. I am not familiar with that phone-call follow-
up. It doesn't sound like Publishers Clearing House. Sometimes
there are fraudulent operators that call up and misrepresent
themselves as Publishers Clearing House, and we have been very
active in trying to collect information about that when we hear
about it from our customers. We formed an anti-scam database,
and we cooperate with the authorities to stamp out these types
of promotions.
Senator Durbin. He was on your prize patrol. It says,
``We're on our way to Canton, Illinois, here.''
Ms. Holland. I'm sorry. But does that refer to a phone
call? Because I am not familiar with the phone call, and I am
pretty familiar with our promotions.
Senator Durbin. That is his memory of it, and he has
represented that to us in writing, to the press and otherwise.
Ms. Holland. Yes.
Senator Durbin. I am not going to suggest that he may not
have made a mistake, but it doesn't come as a surprise, as you
follow some of the tactics here, that those sorts of things
might be done.
Mr. Davenport, if I might ask you a question. You made a
point in your testimony of saying that Reader's Digest enjoys a
very good reputation across America, and that is certainly
true. I can recall Reader's Digest in my home as a little boy,
and it was certainly I think one of the few magazines that our
family subscribed to.
Your CEO is Mr. Ryder; is that his name, now?
Mr. Davenport. That is correct.
Senator Durbin. He said something recently in an interview
in a Chicago newspaper, which I would like to put into the
record here.\1\ This was on January 3, 1999, in the Sunday
edition. He was being interviewed by Tim Jones of the Chicago
Tribune in Chautauqua, New York. He said the ways he would
change the Reader's Digest Company and his approach: ``Perhaps
the biggest move will be the Digest plan to reduce its reliance
on sweepstakes mailings which historically have been used to
generate circulation with the lure of winning big money.'' Mr.
Ryder said, ``I don't think we'll ever be out of the
sweepstakes business, but I want some other strategic levers
because I know that sweepstakes skew older, poorer and more
rural, and that takes the magazine to a place I do not want it
to be exclusively.''
---------------------------------------------------------------------------
\1\ See Exhibit No. 22 in the Appendix on page 213.
---------------------------------------------------------------------------
All of you have made a point of saying you do not target
the elderly, but Mr. Ryder concedes the fact that a sweepstakes
does, in fact, attract the elderly. So how do you reconcile
those two statements?
Mr. Davenport. Disagreeing with my Chairman doesn't exactly
enhance my career prospects---- [Laughter.]
And I am aware of that statement, and he confirms that he
made it.
Reader's Digest, as the people on the panel here said, we
do not skew, we do not target any particular group, certainly
not to the elderly. We have gone back over time. We have no
data or information that would indicate that that is true.
Senator Durbin. Let me ask you the specific question. What
percentage of the people responding to these sweepstakes
mailings are elderly? I want to ask it of each of you, and it
will be the last question I ask. What percentage of those whom
you solicit for magazine subscriptions are elderly who reply
affirmatively and buy the subscriptions through these
sweepstakes mailings? I will go right across the panel.
Mr. Davenport.
Mr. Davenport. I may have it in my--if I don't, I will
certainly give it to you--but, as we say, we have a wide
spectrum of subscribers and readers, and I gave you an
indication in my opening statement.
Let me see exactly--I don't know what you mean by elderly.
I am coming up at 60, do I qualify as elderly?
Senator Durbin. I started getting the AARP mailings at age
50.
Mr. Davenport. Me, too.
Senator Durbin. I returned them to the postmaster as
pornographic material. [Laughter.]
Mr. Davenport. I think what we can do though is give you a
breakdown of our subscription circulation by age. We can give
it to you in detail. If I don't have it here, you will have
it.\1\
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\1\ See Exhibit No. 23.a. in the Appendix on page 217.
---------------------------------------------------------------------------
Senator Durbin. Can anyone else on the panel answer that
question; what percentage of your mailing sweepstakes mailings
are responded to affirmatively with magazine subscriptions by
those over the age of 55? Let's try that.
Ms. Long. I am sure I can get you that number. I do not
have it right in front of me.
Senator Durbin. Ms. Holland, do you have that number?
Ms. Holland. We were asked that question as part of our
cooperation with the Subcommittee, and we do not keep
statistics on individual customers for commercial purposes, but
we do have some limited market research information available,
and that information suggests that 70 percent of our customers
are under the age of 65.
Senator Durbin. So 30 percent of those who responded, your
customers, are over the age of 65?
Ms. Holland. Yes.
Senator Durbin. Ms. Bernstein.
Ms. Bernstein. Senator, we do not keep demographic
information on file.
Senator Durbin. Thank you, Madam Chairman.
Senator Collins. Thank you very much.
Senator Edwards.
Senator Edwards. Thank you, Madam Chairman.
Good morning.
It is very important to me to understand the mind set that
you all come to this situation with in order to determine what
level of regulation we need to protect people in this country
and for my purposes particularly in North Carolina.
Ms. Holland, I want to start with you, if I can, and I hate
to go back to the letter to Mr. Hall, but I do need to ask you
a couple of questions about it.\2\
---------------------------------------------------------------------------
\2\ See Exhibit No. 1 in the Appendix on page 155.
---------------------------------------------------------------------------
You said there were about 9 million of these letters that
went out; is that right?
Ms. Holland. Yes.
Senator Edwards. Without going through the 5 minutes you
spent with Senator Levin on this subject, you do acknowledge
that the conversation that is described in that letter about
Eustace Hall did not take place. You do acknowledge that.
Ms. Holland. Yes. That is the nature of a dramatization,
that it is----
Senator Edwards. Yes, ma'am. Did it take place or not?
Ms. Holland. Of course not.
Senator Edwards. So that letter describes a conversation
that did not take place. That letter contains a statement that
is not true. That letter went out to 9 million people.
And did I understand you to say that--I want to make sure I
got your quote right. Senator Levin, you help me with this--you
described this letter as, from your perspective, perfectly
fine, and I believe you are quoted in today's newspaper as
saying that you believe your company has acted ethically and
honorably.
So, from your perspective, sending out a letter that
contains a statement, a conversation, that is absolutely not
true to 9 million Americans is perfectly fine, ethical and
honorable. Do you stand by that testimony?
Ms. Holland. Yes. The truth is it is representative of
actual conversations and meetings that did happen at the
company, and what we wanted to do was provide a way, figure out
a way, by challenging the Contest Department--Dorothy Addeo is
the manager of the Contest Department; she is a real person--
challenging them to figure out a way that we could enable
customers and frequent participants to have the thrill of
winning, even if it is a small prize.
Senator Edwards. And you think it is all right to lie to 9
million people in order to create that challenge? Is that OK?
From your perspective, is that all right?
Ms. Holland. We do not believe that it is a lie to
represent----
Senator Edwards. Is it true?
Ms. Holland [continuing]. Actual conversations----
Senator Edwards. Yes, ma'am. Is it true?
Ms. Holland. It is true that we had a number of
conversations and meetings that touched on this subject.
Senator Edwards. Was there a conversation about Eustace
Hall?
Ms. Holland. There was a conversation about all of our
customers and entrants, and when you put each person's name,
added up, it is the customer file.
Senator Edwards. This letter that you have written, that
you have described as ethical, honorable, perfectly fine, from
your perspective, do you understand why an elderly gentlemen
like Eustace Hall, who received this letter, that talks about
him personally, that describes a personal conversation that
went on within Publishers Clearing House about him, do you
understand--if you can step away for just a minute from being a
corporate representative and just think about this from a human
perspective--do you see why someone like that would feel
special when they received a letter like that? Does that make
sense to you?
Ms. Holland. Well, we are very concerned about Mr. Hall.
Senator Edwards. I am asking you, does that make sense to
you? Do you understand why someone like Mr. Hall or other
elderly people like him would feel special when they received a
letter from an organization like Publishers Clearing House
saying that folks in your office were sitting around actually
talking about him, and showing concern about him and wanting
him to be a winner? Do you understand why Mr. Hall and other
elderly people who got a letter like that in the mail that it
would make them feel good? Do you understand that?
Ms. Holland. Well, I think that most businesses would want
their customers to feel good and feel like the businesses
appreciate them.
Senator Edwards. Do you want to take advantage of that?
Ms. Holland. No, sir, and that's why we have our Outreach
Program which identified Mr. Hall over a year before we ever
heard about him from the Subcommittee. We determined when we
contacted him that he did not understand that no purchase was
necessary, and even his own daughter, his loved one who told
him no purchase was necessary, he did not believe. Somebody
like that, we believe should not be receiving these mailings.
Senator Edwards. Besides these 9 million letters that you
sent to people that contained statements that weren't true, do
you know how many other letters, how many millions of letters
Publishers Clearing House has sent to other customers around
this country that contained statements like this that are not
true? Do you have any idea?
Ms. Holland. We send out tens of millions of mailings every
year. We believe that our mailings are truthful and not
misleading, and we believe----
Senator Edwards. Including this one. You believe this one
is truthful and not misleading; is that correct?
Ms. Holland. I did explain why, and that is because it is a
dramatization.
Senator Edwards. Does it say it is a dramatization?
Ms. Holland. It is like ``ring around the collar.'' Did
some housewife somewhere say, ``Oh, my husband has ring around
his collar. I better get a better laundry detergent.'' It is
advertising. Consumers understand advertising. They understand
situations and dramatizations, and that is all that this is
intended to be.
Senator Edwards. So you think consumers----
Ms. Holland. That was our point of view.
Senator Edwards. I am sorry. I didn't mean to interrupt
you. I apologize.
Ms. Holland. I am sorry.
Senator Edwards. So you believe consumers understand that
you are going to tell them things in these letters that aren't
true, that you are going to lie to them? Do you think consumers
understand that?
Ms. Holland. We know that the results to any of these
mailings are consistent over the years, whether it has a
dramatization or not, that, by and large, 70 percent or more of
the people don't even respond, and of those who do, we always
receive far more nonorder entries than orders.
Senator Edwards. And the fact that they don't respond makes
it OK to say whatever you need to in these letters?
Ms. Holland. The fact that they don't respond makes us
understand that they know it is a sweepstakes, that they know
it is a long shot, that they know they can choose whether to
open it or not, whether to respond or not.
Senator Edwards. Ms. Holland, you have also testified under
oath in your testimony that there is clear ``no purchase
necessary'' language in all of the entry order forms that are
contained in the mailings that you send. Do you remember giving
that testimony?
Ms. Holland. Yes.
Senator Edwards. Could we put up the chart, please.
This is one of your order forms, is it not? Do you see
Publishers Clearing House at the top? \1\
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\1\ See Exhibit No. 24 in the Appendix on page 235.
---------------------------------------------------------------------------
Ms. Holland. Yes.
Senator Edwards. In fairness to you, this is only the front
of it, not the back of it, right?
Ms. Holland. Yes.
Senator Edwards. Can you show us on this, what we are
looking at right now, where this ``no purchase necessary''
occurs.
Ms. Holland. Yes. Right below the stamp boxes it very
clearly says, ``If not ordering, place the no stamp from the
sheet of stamps over the first two order boxes.'' In addition--
--
Senator Edwards. Let's stop right there. So when you have
testified under oath before this Committee that clear ``no
purchase necessary'' language appears on your order forms, you
would say that this language that you have just read, ``If not
ordering, place no stamp from the sheet of stamps over the
first two order boxes,'' that that makes it clear to people
that no purchase is necessary?
Ms. Holland. Yes, because why else would we instruct them
how to enter without ordering?
Senator Edwards. I see. And----
Ms. Holland. I would like to point out, also, please----
Senator Edwards. Yes, ma'am. Let's look at the back. I have
the back.
Ms. Holland [continuing]. That on the back of this is the
official rules.
Senator Edwards. And where on the back does it say that no
purchase is necessary? That language never says no purchase is
necessary, does it?
Ms. Holland. Right here.
Senator Edwards. What we just looked at, those words do not
appear on that page, do they?
Ms. Holland. Those exact words do not appear on the face,
but I still would----
Senator Edwards. Are they on the back?
Ms. Holland [continuing]. Ask why would we give
instructions on how to enter without ordering if you couldn't
do so?
Senator Edwards. Do the words ``no purchase necessary''
appear on the back?
Ms. Holland. Yes, they do, sir.
Senator Edwards. Can you show me where those are, please.
Ms. Holland. Yes.
Ms. Holland. Yes. They are in bold-face type, all capitals,
set off in their own paragraph right here.
If you would like, I can submit this for the record.
Senator Edwards. Actually, I have a copy, and we will
submit both the front and the back for the record.
Ms. Holland. In addition----
Senator Edwards. Now let me show--excuse me. I am sorry. I
didn't mean to interrupt you.
Ms. Holland. I am sorry. Did you want to hear the other
``no purchase necessary'' message in the rules?
Senator Edwards. If it appears somewhere else, yes, ma'am.
Ms. Holland. Right here, this top paragraph very clearly
describes, ``If you are not ordering this time, paste your
nonorder entry stamp over the order boxes,'' and it goes on to
describe it. Anybody who could read a newspaper could read and
understand this.
Senator Edwards. ``If you are not ordering this time,'' you
believe that indicates, to a normal person, that no purchase is
necessary in order to enter the sweepstakes; is that correct?
Ms. Holland. Yes.
Senator Edwards. Let me just show you an example--if you
would put that on, Maureen, please--can you see what she is
holding up in front of your chart?
Ms. Holland. Yes.
Senator Edwards. Do you see the language that says, ``Your
odds of winning $3.5 million are approximately 1 in 85
million''? Do you see that?
Ms. Holland. Yes.
Senator Edwards. ``Odds may vary based on the total number
of entries received.'' Do you see that?
You want people to know, don't you, Ms. Holland, what their
chances are of winning in your sweepstakes, right?
Ms. Holland. We believe that people have a very good idea
that a sweepstakes is a long shot to win a big prize.
Senator Edwards. Yes, ma'am. You want people to know what
their odds are of winning. Can you please, if you can, answer
that yes or no.
Ms. Holland. [No response.]
Senator Edwards. Do you want them to know that or not?
Ms. Holland. Yes.
Senator Edwards. And you want them to know that purchases
do not increase their chances of winning. That is something
that you believe consumers, in fairness, ought to know, right?
Ms. Holland. Yes, and we believe that they do because many
people enter without ordering time and again.
Senator Edwards. You want them to know that information,
correct?
Ms. Holland. Yes, and we believe that they do.
Senator Edwards. And you want them to know the letters they
are receiving are, in fact, computer generated and are not
special personal letters that they are receiving from your
company. You wouldn't have any objections to them knowing that,
would you?
Ms. Holland. I think that they already do.
Senator Edwards. Well, you wouldn't have any objection to
them knowing that, would you?
Ms. Holland. No, because I think that they already do know
that.
Senator Edwards. All right. Well, let me ask you a simple
question. This insert that appears here, since you don't have
any objection to them having all three pieces of that
information, you wouldn't have any objection to a law that
requires those three things to appear in that size on any order
form that your company sends out. You wouldn't have any
objection to that, would you?
Ms. Holland. [No response.]
Senator Edwards. Just in that form, the way we have it up
there.
Ms. Holland. Senator, there are many different types of
order forms and entry forms.
Senator Edwards. Do you object to this or not?
Ms. Holland. We would not object to clear disclosure of all
that information and clear standards for business to follow.
Senator Edwards. So you have no objection to this
information appearing on your order form in exactly the way we
have just shown it to you; is that correct?
Ms. Holland. I do not know if I could agree with that as
you asked it.
Senator Edwards. Thank you, ma'am. I see my time is up.
Thank you, Senator.
Senator Collins. Thank you, Senator. Senator Specter,
thanks for joining us.
Senator Specter. Thank you, Madam Chairman. I was just
waiting for Senator Edwards to ask the Court to direct the
witness to answer the question. [Laughter.]
Senator Edwards. Do you have the power to do that, Senator
Specter? [Laughter.]
Senator Specter. I have the power to ask the presiding
officer to direct the witness.
Senator Levin. You are not harkening back to this
impeachment court, are you? [Laughter.]
You wouldn't do that to us.
OPENING STATEMENT OF SENATOR SPECTER
Senator Specter. It may surprise you to know, Senator
Levin, that there are other courts besides the impeachment
court. I am on record as not thinking very much of the
impeachment court for a number of reasons, which I will not go
into.
I commend our distinguished Chairwoman for convening these
hearings, and they are really very, very startling. And it
would be my hope that publications of the standing of Time
Inc., Reader's Digest, Publishers Clearing House, and American
Family Enterprises would act on their own, your own, to inform
your readers as to what is going on. Because we have practices
which are conclusively deceptive on their face, beyond any
question, beyond any question. And I have only participated in
a part of the hearings, but I have had staff watch them.
But, Ms. Holland, I would ask you to review Senator
Edwards' questions and your own responses and to see if your
firm wouldn't be doing something to clear up the record without
waiting for legislation. It is going to be a fair amount of
time between this moment and the time the Congress acts if, in
fact, the Congress does act.
What I would ask each of you, and the others who are a
party to these kinds of practices, is to take back to your
board of directors and to tell them the reaction, at least, of
the Senators who were watching. C-SPAN reaches a limited number
of people. The number who are going to see that brilliant
cross-examination by Senator Edwards at substantially lower
than his customary hourly rate will be seeing it at 3 a.m. and
really won't see very much of it. So I would urge that all of
you go back to your companies and ask them to re-examine what
they are doing and tell them the real disdain, and objection,
and horror that these practices are viewed by.
Ms. Holland, I know you are trying to defend your company
here, but your answers are really very, very defensive and
don't really ring accurately, at least in my judgment. But you
have an obligation to set forth the facts without waiting for
congressional action.
Mr. Davenport, you responded to Senator Levin by saying
that whenever we come across some undesirable practice or
something to the effect that you take action to correct it. Is
that really so? How do you do it, and how do you account for
the kinds of questioning which Senator Levin raised which, on
their face, showed a very palpable disregard for the rights of
the people who are receiving the information?
Mr. Davenport. Senator, we adjust constantly. And I can
answer, very specifically answer, but it is a constant--if
wherever any practice----
Senator Specter. When you adjust, do you wait for someone
to come to you with a complaint?
Mr. Davenport. I think, as a result of these hearings, not
just today or yesterday, but I think it started last August and
some of the other hearings have been done with the States
Attorneys General.
Senator Specter. Well, did you wait for those hearings
before you started to adjust?
Mr. Davenport. We have recognized that a number of
practices, for not only that justice should be done, but
justice should be seen to be done, that we need to address. As
a result, for instance, on the high-activity customers,
including those that might be at some risk, if I can put it
that way, it came as a surprise to us. I think it was first
seriously raised at the hearing----
Senator Specter. Mr. Davenport, we do not have a great deal
of time with the 10 minutes, but would you do this: Would you
respond to the Subcommittee in writing as to what you have done
on the specific cases by way of responding?\1\
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\1\ See Exhibit No. 23.b. in the Appendix on page 219.
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Mr. Davenport. I will do more than that, Senator. I will
tell you what we have done, I will tell you what we propose to
do effective immediately, which is more than we have done
because quite clearly the safety net which we thought we had
strengthened isn't going to be enough.
Senator Specter. Let me ask the other three witnesses to do
the same, if there have been responses from your companies,
those described by Mr. Davenport, what you have done.\2\
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\2\ See Exhibits No. 25 and 26 in the Appendix on pages 237 and
243.
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I know that in your prepared testimony, Ms. Valk Long, that
you say that ``our sweepstakes are run fairly and honestly, and
they are administered by an independent judging organization.''
Could you amplify what that independent judging organization
does?
Ms. Long. Actually, I am probably not the best person to
explain that, but it is a company that administers sweepstakes
prizes. It is purely a back-office, back-end sort of function.
Senator Specter. Would you put up Exhibit No. 8.\1\ I
believe this one has not been the subject of inquiry, and I am
advised that this is a Time publication. As you note on the
top, in heavy black letters, second line, ``Urgent Notice For .
. .'' and the name of the man is redacted. ``You are declared
one of our latest sweepstakes winners and you are about to be
paid $833,000-plus in cash,'' and in small print at the top it
appears ``If you have and return the grand prize winning
numbers in time, we will issue this,'' and then it has the
urgent notice.
---------------------------------------------------------------------------
\1\ See Exhibit No. 8 in the Appendix on page 179.
---------------------------------------------------------------------------
And then after the heavy black print with the suggestion
that the recipient is about to get $800,000-plus appears the
language, ``And if you return the winning entry, the status of
recent cash prize winners and sweepstakes presented would then
read as follows:''
You say in your prepared statement that our sweepstakes are
run fairly and honestly. Is that an illustration of a fair and
honest sweepstakes?
Ms. Long. What is at issue here is our headline copy which
we did address directly. Every time we have a headline
suggesting that the recipient is a winner, we have a disclaimer
or qualifying statement directly adjacent to that headline.
Senator Specter. And what is the disclaimer statement?
Ms. Long. ``If you have and return the grand prize winning
number in time, we will issue this: Urgent''----
Senator Specter. That print is a small fraction of the
other print. Do you think that that is an adequate disclaimer,
Ms. Valk Long?
Ms. Long. Well, we actually--it is the size print of a
standard letter or a newspaper. Obviously, the headline is to
get attention. It is to get you to read on.
And the point that I need to make is I am not sure what
business purpose it would serve if somebody actually thought
they had won the prize. What we are trying to do is to get them
to read on and, as they read on, consider our offer.
Senator Specter. Well, going back to my question, do you
think it is an adequate disclaimer?
Ms. Long. Yes.
Senator Specter. Well, how can you say that when the urgent
notice that you were declared one of our latest sweepstakes
winners is in heavy black, and about five-eighths, three-
quarters of an inch high, and the disclaimer which you refer to
is in light print, about a sixteenth of an inch high of
something that I had to read four times and then get assistance
from staff, which is not unusual, to figure out.
Do you want to rethink and reanswer the question as to
whether that disclaimer is adequate?
Ms. Long. I need to let you know that my answer is informed
by results. Of the people who do respond to our packages, 9 out
of 10 enter the sweepstakes and do not order. They would not be
ordering if they thought they had already won.
Senator Specter. I believe there are a lot of reasons why
the responses may be one way or another.
Ms. Bernstein do you think that that is an adequate
disclaimer. You are closer to it, so you might be able to read
the disclaimer.
Ms. Bernstein. I think it is perfectly clear.
Senator Specter. My question was not whether it is
perfectly clear. My question was do you think it is an adequate
disclaimer.
Ms. Bernstein. I really can't comment about this piece. I
know we do not heavily use----
Senator Specter. Why can't you comment about this piece?
Ms. Bernstein. Well, I can clearly see. I see the
excitement that it is intended to elicit, and I see the
statement.
Senator Specter. I won't press the question because the
yellow light is on, but I think on its face it is conclusively
not an adequate disclaimer. It would be pretty hard to lose
that case to any jury in America, unless Senator Edwards was
defending the publication. [Laughter.]
These issues are really of utmost importance. Just
yesterday, the Pennsylvania State Senate turned down gambling
in Pennsylvania, and the States do pretty much what they would
like, subject to using the mails where there is Federal
jurisdiction. And the Judiciary Committee is taking up, again,
the Internet issue. But people do lose a lot of their money
that they ought to be devoting for family purposes and
necessities of life, and I would hope that you folks would go
back to your companies and take action to correct it.
The kind of an attitude that I see here this morning, very
candidly, suggests that there ought to be some very, very
punitive sanctions involved in violations. If you think, Ms.
Valk Long, that it is adequate, and if you think, Ms.
Bernstein, that you wouldn't comment about it, then there has
to be some very, very tough action taken by Congress to stop
it.
Thank you, Madam Chairman.
Senator Collins. Thank you very much, Senator.
We are now going to do 5-minute rounds of questions.
Ms. Bernstein, I want to go back to one of the mailings
that is from your company, American Family Publishers. It is
the, ``It's down to a two-person race'' mailing.
Senator Durbin questioned you about this and whether or not
it really was down to two people, and you said that you felt
that this mailing was clear. Isn't this the mailing that caused
some of the recipients to actually fly to Florida because they
were trying to be the first one to claim that prize?
Ms. Bernstein. Senator, first, let me say that the number
of people who flew to Tampa has been greatly exaggerated. And,
in fact----
Senator Collins. Well, why don't you tell us how many did.
Ms. Bernstein. Well, we know that in 1998 we have been
given to understand about 25 people came to Tampa. But that
being said, one person mistakenly travelling to Tampa is one
too many, and we certainly recognize that we are not in the
business of having people come to Tampa, and we also know that
our professional customer service contractors in Tampa deal
compassionately and sensitively with any visitor who comes to
Tampa.
Senator Collins. But if it caused people to actually fly to
Florida--there was one of Senator Akaka's constituents who flew
from Hawaii to Florida to get there first, doesn't that tell
you that this was misleading?
Ms. Bernstein. Absolutely not, Senator. This does not say
this is misleading. It tells us it has urgency, it is exciting.
That is what it--and we heard the concerns, and we did stop
mailing this.
Senator Collins. If you didn't think it was misleading, why
did you stop mailing it?
Ms. Bernstein. We heard the concerns, and we stopped
mailing it.
Senator Collins. Wasn't there legal action taken by the
Attorney General in the State of New York based on this mailing
against your company?
Ms. Bernstein. Senator, I am not a lawyer, and I cannot----
Senator Collins. Well, neither am I, but let me help you on
that. It is my understanding that you did, in fact, enter into
a consent decree with the New York Attorney General, under
which American Family Publishers provided $60 refunds to more
than 12,000 individuals for magazines that they purchased in
response to this and similar mailings.\1\ Is that at odds with
your understanding?
---------------------------------------------------------------------------
\1\ Exhibit No. 36 is retained in the files of the PSI
Subcommittee.
---------------------------------------------------------------------------
Ms. Bernstein. Senator, as I stated, I am not a lawyer, but
your staff certainly requested information about the New York
settlement prior to this hearing, and I had our attorney
prepare a document which I think was forwarded to you.
Senator Collins. So you are not contesting that, in fact,
this mailing prompted legal action against your company.
Ms. Bernstein. Senator, as I said, I am not a lawyer----
Senator Collins. I don't think you have to be a lawyer to
answer that question.
Ms. Bernstein. I certainly understand that our company has
admitted to no wrongdoing and has voluntarily entered into any
settlements.
Senator Collins. But paid $60, approximately, to more than
12,600 consumers.
Ms. Bernstein. If that is the terms of the agreement.
Senator Collins. Ms. Long, what is Time's policy for
dealing with relatives of elderly parents who call Time and try
to get restitution or refunds on subscriptions and also ask to
have their names deleted from mailing lists because they are
making excessive purchases?
Ms. Long. When we get such a call, we automatically refund
any unserved issues. And if it is brought to our attention that
the parent ordered for the wrong reasons to begin with, we
refund the entire amount paid.
Senator Collins. I am going to invite your attention to the
testimony that we heard from one of our witnesses yesterday.
She testified that she had difficulty in getting refunds when
she discovered that her father had spent over $50,000 in
response to various sweepstakes solicitations on products that
he did not need. Time was one of the companies. I believe, it
was under the Guaranteed and Bonded Division of Time Inc.
The result of her inquiries to your company was that her
father's estate--he died, in the meantime--started receiving
mailings from Time Inc., to his estate.
Ms. Long. I heard that testimony yesterday, and don't
understand it. I have no explanation for you, and I will get
you one.
Senator Collins. I would be interested in that because here
the daughter was trying to get refunds, and what instead she
gets are more mailings. So this would be at odds with your
company's policy?
Ms. Long. Absolutely.
Senator Collins. Does it suggest certain weaknesses in your
company's approach?
Ms. Long. If that, in fact, happened, yes.
Senator Collins. Well, she has the actual envelope from
Time Inc. which says, ``To the estate of Joseph McElligott.''
\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 18 in the Appendix on page 208.
---------------------------------------------------------------------------
Ms. Long. There is obviously something that fell through
the cracks there.
Senator Collins. Senator Levin.
Senator Levin. Thank you, Madam Chairman.
First, a Reader's Digest issue. One of the mailings of
Reader's Digest included a letter from an armored car and
courier service. This is Exhibit 16. It is in your book. If we
could put that up.\2\
---------------------------------------------------------------------------
\2\ See Exhibit No. 16 in the Appendix on page 203.
---------------------------------------------------------------------------
The person gets the letter from Reader's Digest with the
big instructions for prize delivery, a whole page of
instructions for how to deliver the prize, and then they get
included in that letter a letter from an armored car company
that says, ``Reader's Digest has informed me you are among a
select group and are probably as close as ever to winning a
major cash prize in the $5 million sweepstakes. That is why I
have been authorized to ask you how would you take delivery of
your prize money if you are a winner.
``Enclosed with this letter are personalized prize delivery
instructions prepared by the Reader's Digest Prize Distribution
Center for final stage entrant,'' and then with the name of the
person that this letter was sent to.
``These prize delivery instructions are your guaranteed
entry into the final stage of the sweepstakes. Because you may
be as close to winning as ever before, return them immediately
to Reader's Digest after indicating whether you would want
prize money delivered to your home in cash or cashier's check.
``Reader's Digest customarily mails prize checks to major
cash winners. However . . .'' and this is now underlined ``. .
. they feel winners might prefer to have their prize money
delivered to their homes in person as soon as possible.
Therefore, Hudson Armored Car and Courier Service of
Westchester has been retained to deliver cash or a cashier's
check directly to the major cash winner's home.''
And then you have this long page of instructions that goes
into detail--they are supposed to be put into one or two
envelopes; one that says yes and one that says no.
Mr. Davenport. Right, Senator.
Senator Levin. By the way, the two envelopes go to
different post office box numbers. The one envelope that says,
yes, of course, has big print on the front: ``Valid for
Reserved Benefits.'' The other one says: ``Not Valid for
Reserved Benefits'' on the envelope.
I am just wondering how many people were told that they
should instruct you as to whether this huge prize should be
delivered, if they win it, in an armored truck? How many folks
got that letter, millions?
Mr. Davenport. It is certainly thousands, hundred
thousands, but we can give you the exact figure, and, in fact,
we may well have submitted it because I think it may have been
a question asked by the staffers.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 23.c. in the Appendix on page 231.
---------------------------------------------------------------------------
But you ask a number of questions.
Senator Levin. I haven't asked a question yet. The letter
says from Hudson that Hudson needs to know how the consumer
wants their sweepstakes winnings delivered to them, and they
need to know that right away--right away they have got to know
this--before the actual sweepstakes drawing. Is that true?
Mr. Davenport. It is what we requested of them to do. That
is quite correct.
Senator Levin. Is it important----
Mr. Davenport. It is also true that we would, even with
their instructions, if it was sent, we would then go back to
them and confirm if that is what they would like to happen.
Senator Levin. Is it important to you to know how millions
of people who are not going to win want their sweepstakes
winnings delivered?
Mr. Davenport. Clearly not.
Senator Levin. What is important to you is that people put
that instruction in the yes envelope, is it not?
Mr. Davenport. It is part of an overall promotion, a
sweepstakes promotion. In that particular instance, the ratio
of no's to yes's were above average.
Senator Levin. But is it not, my question, important to
you? What your goal is, is to have as many people as possible
put these long instructions about how they want millions of
dollars delivered in the yes envelope. That is what your goal
is; is that not correct?
Mr. Davenport. The goal of running sweepstakes is indeed to
sell products and to make orders, yes, sir.
Senator Levin. And so what your hope is with this is that
they put this in the yes envelope.
Mr. Davenport. But it is not in our long-term interests
that people order anything they don't want to, and all of the
customers we mail it to is part of an ongoing communication
with them. So whatever happens on this particular occasion, we
are going to make quite sure that they--we realize we are going
to be going back to them again, so it is absolutely imperative
that we--is it on?
Senator Levin. The Attorney General of Maryland, yesterday,
I think spoke for many of us on this Subcommittee when he said
it was a shame that a reputable company like Reader's Digest
would stoop to a tactic like this, telling millions of people
that they should say whether they want this prize delivered in
an armored car, when 99.9 percent of those people could not
expect to receive a prize in an armored car.
And that is what is so deceptive and so misleading about
this kind of a practice, and I would hope that Reader's Digest
will reconsider its use of this kind of a tactic because it is
just clearly misleading. You are just not doing what you say
you want to do.
I want to give Time magazine a chance to respond to Exhibit
10.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 10 in the Appendix on page 182.
---------------------------------------------------------------------------
First of all, is it Ms. Long or Ms. Valk Long?
Ms. Long. It is Ms. Long.
Senator Levin. You said before that people would not be
entering if they thought they already won.
Ms. Long. Right.
Senator Levin. I don't understand how you could say that.
The only way they can collect their prize or to be eligible to
claim a prize is if they do respond; is that not correct?
Ms. Long. Actually, if they are the only winner, there is
no point in responding. Their number has already been selected.
Senator Levin. But you say that people wouldn't be entering
if they thought they had already won. Is it not true that
people would be entering because they think it is necessary to
claim a prize that they must return something?
Ms. Long. I see your point. OK.
Senator Levin. This is Exhibit No. 10. There are a lot of
intriguing things about this, but one is that this seems to be
the same sweepstakes with two different numbers on it. This
seems to be guaranteed and bonded sweepstakes No. III, if you
look at both of these. Yet one of them says that the person
receiving this is--you can't read the fine print above it--if
you have the grand prize winning numbers. That is the little
qualifier that nobody reads or very few people can read. But
the big, bold headline is that that person is officially
declared an $833,000 winner in the exhibit on the right.
And it looks like it is the same sweepstakes as the one on
the left, which it says in bold print, ``We can now confirm
that `such and such' a number is the winning number and that
that number,'' with the name next to it, ``wins $1,666,000.''
My question is why would you send out for the same
sweepstakes two mailings to the same person, different
envelopes, different colors, different claim numbers? I think I
know the answer to this, but I would like to hear what Time
says about why you would do that.
Ms. Long. Unfortunately, I am not sure how these particular
packages are being used. If they are renewal packages----
Senator Levin. No, this is the same sweepstakes.
Ms. Long. Yes, but if the same subscriber is under renewal,
and if a sweepstakes offer is being used to encourage that
renewal, then that same subscriber might get several notices to
renew.
Senator Levin. My time is up. Why would it be a different
amount in the same sweepstakes?
Ms. Long. I believe that the difference is in whether it is
a lump-sum payment or a payment--you are shaking your head--you
may know more about this than I do.
Senator Levin. I hope so. I don't think that is the
explanation.
Is it not possible that you want this person to believe
that it is a different sweepstakes and that even if they
entered the first time with one color envelope with a totally
different number that this is a different sweepstakes and that
they could enter into a second sweepstakes which is different?
Ms. Long. I was correct. According to the people who know a
little bit more about this than I do, it is just a different
expression of how the prize money would be paid out.
Senator Levin. But it is the same sweepstakes?
Ms. Long. Yes, it is.
Senator Levin. Thank you. My time is up.
Senator Collins. Senator Edwards.
Senator Edwards. Thank you, Madam Chairman.
Mr. Davenport, I have three areas I want to ask you about,
and I will try to do it quickly.
We have heard from Ms. Holland, on behalf Publishers
Clearing House, that she believes it is OK to send out 9
million letters to people containing personalized stories that
are not true, and she says it is perfectly fine, ethical and
honest.
On behalf of Reader's Digest, do you agree with that?
Mr. Davenport. I am not----
Senator Edwards. If you can tell me as quickly as you can
whether you agree with that or not.
Mr. Davenport. I was distracted. I am sorry.
Senator Edwards. That is OK.
Mr. Davenport. The way that that is described is not the
way we do it at Reader's Digest.
Senator Edwards. And you would not agree that that is a
perfectly fine way to do things.
Mr. Davenport. It is not the way, nor would we do it at
Reader's Digest, no.
Senator Edwards. The second thing I want to ask you about,
and I have asked someone to hand you an exhibit, is one of your
letters.\1\ It is a letter addressed to Mr. Bagwell, who is a
constituent of mine in North Carolina. Do you have that with
the Reader's Digest heading at the top?
---------------------------------------------------------------------------
\1\ See Exhibit No. 27 in the Appendix on page 250.
---------------------------------------------------------------------------
Mr. Davenport. I do.
Senator Edwards. I am reading from the first sentence. This
is a letter, dated February 1998, where it says, ``Attached you
will find three letters of recommendation that . . .'' and this
is underlined and in bold ``. . . virtually guarantee your
chance to win our customer appreciation prize.''
What do the words ``virtually guarantee'' mean to you?
Mr. Davenport. Senator, I am not sure.
Senator Edwards. You are not sure what they mean?
Mr. Davenport. Well, I understand what ``virtually
guarantees'' means. I think this is clearly saying that it
ensures that they will be given a chance, that they will be
getting an advance letter. I am getting this out of context, so
I am trying to--I think this is a separate letter from the main
mailing piece, and this is----
Senator Edwards. Is this one of your company's mailings?
Mr. Davenport. Yes. I am not personally familiar with it
because I have looked at the pieces that we were told to look
at beforehand. I don't know this piece. I have never seen it.
Senator Edwards. Well, in fairness to you----
Mr. Davenport. But I will give you a measured response,
obviously, to it.
Senator Edwards. And I appreciate that.
Mr. Davenport. Having looked at it a bit further, I am sure
what it is saying is there is another mailing on the way to
them, but I will have to make sure that that is true because I
do not know it.
Senator Edwards. Do you believe that regular folks who
would get this in the mail would read ``Virtually guaranteeing
your chance to win,'' that some people would see that as an
indication that they have a very high likelihood of winning? Do
you think some----
Mr. Davenport. I think I would have to see--I understand
your point.
Senator Edwards. And you would concede that some regular
people would respond that way.
Mr. Davenport. I would need to see the whole package On its
own, I would agree with the point that you are making.
Senator Edwards. Do you know who Mr. Bobby Bagwell is, the
man who received this letter?
Mr. Davenport. Do I know him? No, of course, not, Senator.
Senator Edwards. Were you here yesterday when I talked
about Mr. Bagwell being a constituent of mine who was----
Mr. Davenport. I was not here, no.
Senator Edwards. Well, he is an elderly gentleman who lives
in North Carolina who has Alzheimer's disease and apparently
has purchased about $20,000 worth of goods through your
company. We are talking here today about legislation to protect
consumers from some of the abuses that we believe are present;
some of which, I believe, in fairness to you, you have
recognized.
What would you intend to do about people like Mr. Bobby
Bagwell who have suffered as a result of what has occurred in
the past as opposed to----
Mr. Davenport. If this came to our attention now, we would
immediately get hold of him or anybody close to him and
ascertain whether he had purchased or was continuing to receive
mail from Reader's Digest. If he said that he had, or if it was
there, that we had it, we could have checks or whatever you
want, that there were goods that he didn't want, we would take
them back and give a refund check, regardless of how far back.
Senator Edwards. Would you do that for all of the customers
who have similar problems?
Mr. Davenport. Yes, even if it is one.
Senator Edwards. And we have that commitment from you
today.
Mr. Davenport. It has been our commitment for 50 years.
Senator Edwards. Thank you, sir. Is that a commitment you
have made people aware of?
Mr. Davenport. Yes. We guarantee you may return a product
at any time and get a refund, yes.
Senator Edwards. Well, I hope folks hear that.
Are you aware that Mr. Bagwell's daughter-in-law contacted
your company on a number of occasions and told you that he was
elderly, that he had Alzheimer's disease, please stop sending
him these mailings, and to this day, he still receives
sweepstakes mailings from your company?
Mr. Davenport. I heard it because I heard it as a result of
yesterday's hearing, and we will look up and, clearly, there
has been a slip-up at handling this particular account. I can
tell you our practices.
Senator Edwards. You are going to do something about it now
that we have brought it up in a congressional hearing.
Mr. Davenport. If it hasn't already been dealt with. I hope
that something's happened.
Senator Edwards. You have not been able to determine that
you have done anything about it in the past, though, have you,
Mr. Davenport?
Mr. Davenport. On this case?
Senator Edwards. Yes, sir.
Mr. Davenport. No, I have not. This particular case, I have
not. I will give you an answer.\1\
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\1\ See Exhibit No. 23.d. in the Appendix on page 232.
---------------------------------------------------------------------------
Senator Edwards. I have one last thing I want to ask you
about before I run out of time. If we could put up the exhibit,
please.
You heard me ask Ms. Holland whether she could agree, and I
will show you the insert about three specific things. Let me
ask you, first, whether you agree that you want your customers
to know what their actual odds of winning are. You do want them
to know that.
Mr. Davenport. I think it is imperative that our customers,
if they want to know the odds, know where to find them, and
they are prominently displayed.
Senator Edwards. Fair enough.
Mr. Davenport. That I do agree with.
Senator Edwards. Good. And you would want them to know that
purchases do not increase their odds of winning. In fairness,
you would want them to know that, right?
Mr. Davenport. Yes. Absolutely.
Senator Edwards. And you would want them to know, if the
letters--now, this may not, and I do not know whether your
company sends these kind of personalized letters that
Publishers Clearing House does--but if letters are computer
generated, you would certainly have no objection to them
knowing they were computer generated, would you?
Mr. Davenport. I think that----
Senator Edwards. I mean, if it is the truth, you don't mind
them knowing it.
Mr. Davenport. Absolutely. No, I have no objection.
Senator Edwards. So these three pieces of information, what
their actual odds of winning are, that purchasing goods does
not increase their chances of winning and that letters they are
receiving are computer generated, those are all three pieces of
information that you would want your customers to know,
correct?
Mr. Davenport. And do provide, except I don't think they
are computer generated, but the others----
Senator Edwards. And you would have no objection to those
three things, which you say you want your customers to know,
you would certainly have no objection to those three things
appearing in the same size type on the front of the page as the
largest type that appears on the page; you would have no
objection to that, would you?
Or specifically to a law that says that is what you should
do?
Mr. Davenport. I think that all those three, I think we
need to negotiate, if that is not quite the word, but discuss
with you or any Members of the Committee the most appropriate
way of handling that. I am not sure that the way you have
proposed it is necessarily the most effective way to handle it,
but we are quite happy to look at it. We will have to discuss
any particular issue with you.
Senator Edwards. Well, if, in fact, experts determine that
the most effective way to handle it is to make it in the
largest type and to put it prominently on the front page as
large as any type that is on that page, you wouldn't have any
objection to that, since you want your customers to know this
information, fair?
Mr. Davenport. We want them to know where it is. We don't
necessarily want to put it in the headline, obviously.
Senator Edwards. Well, you don't want to hide it from them,
do you?
Mr. Davenport. No, we don't.
Senator Edwards. So you would have no objection to it
appearing prominently, and you would be willing to at least
talk about putting it in as large a type----
Mr. Davenport. I think prominently I am prepared to live
with.
Senator Edwards. And what about as large a type as anything
else that appears on the page?
Mr. Davenport. I have reservations about that, but we would
be happy, as a company, to talk to you about it.
Senator Edwards. Thank you, sir.
Senator Collins. Thank you, Senator.
Mr. Davenport, I want to go back to an issue that Senator
Levin touched on, and that is a very common technique that
sweepstakes companies use, which is to have two different
envelopes, depending on whether or not an order is placed. Now,
I understand that there is a legitimate reason for you to want
to have two different envelopes so that orders are processed
more quickly perhaps than nonorders.
My problem with the two different envelopes approach,
particularly when you have text on it such as this, is it gives
the impression to the consumer that entries with orders are
treated differently than entries without orders. Let me direct
your attention to the two exhibits we put up, and this is an
example of the yes and no envelopes which Reader's Digest
uses.\1\
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\1\ See Exhibit No. 11 in the Appendix on page 184.
---------------------------------------------------------------------------
One says, ``No. Reward entitlement denied and
unwarranted,'' in big red print. The other says, ``Yes. Reward
entitlement granted and guaranteed.''
This is not unusual. A very recent mailing that you have
sent out has yes and no envelopes and, indeed, the text of the
mailing says, ``So far over $159 million has gone to over 2
million people who have answered yes to our questions.'' \1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 13 in the Appendix on page 187.
---------------------------------------------------------------------------
Don't you think that this misleads the consumer, your
customer, into thinking that entries with orders are treated
differently or have a better chance of winning than those
without?
Mr. Davenport. All our evidence and data suggests that our
customers do understand what they are entering, that they can
say no, that we indeed offer yes/no envelopes for precisely the
reason that you--where we offer it, and we have done so for
many years.
In this particular mailing, again, we looked up the ratios
of the people who ordered versus those who didn't, and there is
a higher proportion than normal for the people who, in fact,
said no.
All of the evidence says, and there are customers whom we
deal with on a regular basis, fully understand what we are
doing. Yes, we do offer, as you were saying, they do have
different post boxes, and that is just for sort purposes. Years
ago we had the yes and no envelopes--just to show you how
carefully we know we have to treat our subscribers--years ago
they all used to go to the company, and part of speeding the
process, we decided to outsource the nos and have it done
outside. Our phones rang off the hook, and it was very clear
they thought that we were beginning to cheat them. So
immediately we had to bring everything back inside and make
sure that everything came--if we wanted to outsource them, we
had to track it somewhere else.
Senator Collins. I want to tell you that our investigation
suggests that consumers do believe that there is a difference
and that that is why you are using different envelopes and,
indeed, with one of the companies, not yours, we found that
there is a high percentage of customers who use the yes
envelope regardless because they think it increases their
chances of winning.
Mr. Davenport. That is not, I believe, true for us. We were
asked that question by one of your staffers on Friday and
provided some information where we had it.
Senator Collins. Well, I think you do not track it; isn't
that correct?
Mr. Davenport. We track it for the magazine to its prospect
file, and the percent of the total responses in the yes, the
order form, 2 percent apparently say I don't want it, 2 percent
of the total.
Senator Collins. Let me go on to another issue, a related
issue. You said in your written statement that Reader's Digest
Association's mailings convey the ``no purchase necessary''
message clearly and prominently in language that is easy to
find, easy to read, and easy to understand.
I would like to direct your attention to Exhibit No. 12.\2\
Is this a promotion offered by Reader's Digest?
---------------------------------------------------------------------------
\2\ See Exhibit No. 12 in the Appendix on page 186.
---------------------------------------------------------------------------
Mr. Davenport. Yes, it is, Senator.
Senator Collins. Can you tell us where the ``no purchase
necessary'' disclaimer is.
Mr. Davenport. I cannot--I will get hold of the mailing
piece, but it is certainly in the first----
Senator Collins. It is hard to read, isn't it?
Mr. Davenport. But it is also two or three other places in
the mailing piece as well, so it is not just in the--this is
the rules from one side of the mailing piece.
Senator Collins. In these sweepstakes rules, where it says,
and I have to take my staff's word for it because I can't read
it, it says no purchase is necessary to win, and I realize it
is at the top of those rules, but it is in 6.5-point type,
extremely small. Do you really think that is easy to read, as
your testimony says?
Mr. Davenport. I think you are being kind to say it is 6.5-
point. I think it is even less than that.
We have a policy in--directive is too strong a word--we
have a policy which says that everything should be, at a
minimum, 7-point, we did this a couple of years ago and let it
transition over time. Two of the mailing pieces, I believe,
that we sent you were not 7-point type. In fact, we made the
decision, because it looks as if it is going to be an industry
standard, that effective immediately, regardless, anything
prepared today is actually going to be in 8-point type. So that
is a decision we have made this week.
Senator Collins. And that is certainly a step in the right
direction. But as Senator Edwards has pointed out, that still
makes it the smallest type of anything in your mailings, and I
think you would agree that in this example it is not easy to
read.
Mr. Davenport. I would agree with you on that.
Senator Collins. Thank you. Senator Levin.
Senator Levin. Could we put Exhibit No. 13 up.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 13 in the Appendix on page 187.
---------------------------------------------------------------------------
Senator Collins. Senator Levin, I just want to interrupt to
clarify something that I have checked with my staff. The one
that I showed you is a new Reader's Digest mailing. So there is
still definitely a problem.
Mr. Davenport. Yes.
Senator Levin. This is a letter of Reader's Digest's.
``So far over $159 million have gone to over 2 million
people who answered yes to our question.''
And then when you go to the end of the letter--I think the
Chairman read the beginning of that letter--and I want to now
have you look at the other board which has the end of the
letter, which says, and this is to you, Mr. Davenport: ``Good
luck, and remember the word that every winner since 1962 has
used, yes.''
Now, you are representing to your readers that trust you
that every winner since 1962 has used the word ``yes.'' And
then you provide two envelopes, and I don't know if we have
those blown up or not. One says yes and one says no in the same
letter.
Now, you have just told your readers that every winner
since 1962 has used yes. Do you not think a reasonable person
would then think that it would increase his chances of winning
to use the yes reply card?
Mr. Davenport. The letter that you are showing is part of--
because we were asked to look at the mailing piece, this piece,
beforehand--the letter is part of, obviously, a much larger
mailing piece, and this is one letter in it. In this case, the
yes actually refers to entering the sweepstakes. There is no
actually reference to the product offering on that particular
letter. But the wording is unfortunate to use the word ``yes''
as opposed to an entry into the sweepstakes and will not be
used.
Senator Levin. Well, you say unfortunate. It is misleading.
Mr. Davenport. It will not be used--it has not been used
again.
Senator Levin. Now, if we could get Exhibit 10 up again.
This is back to Time magazine.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 10 in the Appendix on page 182.
---------------------------------------------------------------------------
Ms. Long, in your testimony you have indicated that the
point of the mailings is not to convince people that they have
won a prize. Do you not think that a reasonable person, getting
this kind of a notice in the mail, might think that, in fact,
that they have won a prize when the big print, for instance, on
the right says, this woman is officially declared an $833,000
winner, and that is what jumps out at her? There may be that
real fine print above that, which if she noticed, might say
maybe she is not.
But is it not fair to say that a reasonable person, at
least, might look at that and decide, by God, they have won
something?
Ms. Long. Senator Levin, that very small type that you
refer to is 12-point type.
Senator Levin. The point-size type isn't the question. My
question is could not a reasonable person--I am not saying
everybody--but could not a reasonable person, receiving that in
the mail, with their name and with that number that is her
number, that she is officially declared an $833,000 winner,
could not, at least, some reasonable person believe, in fact,
that they have won a prize?
Ms. Long. If that reasonable person had very poor eyesight,
then, yes, but I think the qualifying type in 12-point type
which is the same size as type in a standard letter, is
qualifying type that is directly adjacent to the headline.
Senator Levin. Can you read that type?
Ms. Long. Yes.
Senator Levin. Right now?
Ms. Long. Yes. I have very good long-distance vision, as
well. It is not as good close up.
Senator Levin. Yes. A lot of reasonable people, and we had
a lot of them here yesterday, reading this very tiny qualifier
don't even see that when they see the big notice below it. I
think you won't concede that some reasonable people would not
get that impression. You are not going to concede that. I just
simply say I think you are wrong, and I hope we legislate
otherwise, based on what I think most people would say, which
is that some reasonable people, getting that in the mail, would
reach the conclusion that they have won something.
But I want to get back to the----
Ms. Long. Senator, may I make a comment?
Senator Levin. Sure.
Ms. Long. I think that a lot of the people that we heard
from yesterday were sons and daughters of people who had been
trying to persuade their own parents that they need not make
purchases in order to enter these sweepstakes and had failed to
be able to do that.
Senator Levin. After the homes of the parents were filled
up with boxes which had not been opened, then----
Ms. Long. And I think----
Senator Levin [continuing]. Why the parents were so
embarrassed and ashamed that they couldn't even invite their
kids into their homes. Yes, at that point, then the kids----
Ms. Long. The only point I am trying to make is I think it
is that, that we need to address.
Senator Levin. All right. Well, thank you.
The last question has to do with a provision in my bill
which has been referred to by Senator Edwards, and I want to
ask each of the four of you. Two of you have answered this.
There are three provisions that he pointed out or three
possible statements that could be made by the four companies in
your mailings in big print that he has referred to.
And I want to just refer to one that my bill particularly
focuses on, and that is the middle one, if you can put that up,
which is that a purchase--according to my bill. I am now going
to read the bill--that your notices would advise that purchases
do not increase the odds of winning. Purchases do not increase
your odds of winning. That is one of the focuses of my bill.
Two of you have been asked whether you have any objection
to that being in large print in your mailings, and I think both
of you have said that is subject to further discussion. So I
want to ask the two who have not responded, just on that one
point, since that is a key part of my bill.
Ms. Bernstein, do you have any objection to the law
requiring that you, in big print, put in that purchases do not
increase their odds of winning.
Ms. Bernstein. Well, Senator Levin, now, all of our
mailings now include American Family promise which states, ``No
purchase is ever required to enter. All entries have an equal
chance to win.''
Senator Levin. I understand.
Ms. Bernstein. It is prominent, it is large, and it is
communicated.
Senator Levin. And it is different from this. My question
is do you have any problem with prominently representing and
stating to your recipients that purchases do not increase your
chance of winning or purchases do not increase your odds? Do
you have any problem with that statement in large print being
required in your mailings? I know you say there is something
there which is similar to it. My question, though, is do you
have any problem with that required to be included?
Ms. Bernstein. We are willing to consider anything
reasonable.
Senator Levin. Is that reasonable, in your judgment?
Ms. Bernstein. I think this is the way it should be stated.
Senator Levin. So you don't agree.
Ms. Holland, you have already said you would have problems
with it. Mr. Davenport, I think you have already answered the
question that you want to talk about it. Ms. Long, do you have
any problem with that being required in large print of your
recipients?
Ms. Long. Well, since you and I have already established
that we have different ideas of what is large print, I think
what I heard you and Senator Edwards say is that you want it in
print as large as any print in our package.
Senator Levin. Well, let's just start out with large print,
without getting into whether it is as large as your biggest.
Ms. Long. I would certainly be willing to discuss that.
Senator Levin. Willing to discuss it, but offhand you
cannot give us a response as to whether you would have any----
Ms. Long. A particular type size, I----
Senator Levin. No, not type size, just that it be required
that it be stated in your mail.
Ms. Long. I have absolutely no trouble at all with the
odds.
Senator Levin. No, the middle line.
Ms. Long. With the middle one. I am not going to rule it
out, no. I would be open to it.
Senator Levin. That is the heart of the problem here, is
that, frankly, 40 percent of your recipients, according to the
AARP poll, believe that purchasing something will increase
their odds of winning. That is, also, it seems to me, the
response of a whole lot of reasonable folks. And that is really
one of the issues that we are going to be deciding here. If you
have any further thoughts on that question or the other pieces
that Senator Edwards has gone through with you, I know that we
would welcome your comments, for the record, on it.
But that, to me, is absolutely essential; that in large
print, and I agree, by the way, it ought to be as large as
anything you put in there, but in large print that you tell
people purchases do not increase your odds of winning, and that
is a key provision in my bill which I am going to be pushing
very hard. So anything you want to add for the record I know
would be welcome on that.
Senator Collins. Senator Edwards.
Senator Edwards. I do have to tell you that I find it very
surprising that among the four of you no one agrees that you
would be willing to do that, even though you claim that this is
information that you want your customers to receive.
I want to ask you for a personal thing. Mr. Bagwell, who I
asked, I believe, Mr. Davenport about earlier, I believe has
received--I am not certain of this--but I believe has received
mailings from all four of your organizations. I would just like
for you to search your records, find out if he has, and if you
would respond to my office in writing, please, that he has, in
fact, been taken off your mailing list, I would appreciate that
very much.\1\
---------------------------------------------------------------------------
\1\ See Exhibits No. 23.d., 25.b., 26.c., and 28 in the Appendix on
pages 232, 242, 248, and 251.
---------------------------------------------------------------------------
With that, that is all I have, Senator.
Senator Collins. Thank you, Senator.
I just have one final issue that I want to raise in the
time remaining. We have heard testimony and have received
complaints from consumers that when an elderly parent gets
enthralled in the sweepstakes game and makes excessive
purchases, that it becomes a vicious cycle because with each
order that the consumer places it triggers yet more mailings. I
would like to get a sense of how many mailings it is possible
for one person to receive from each of your companies in a
year.
Ms. Holland, I would like to start with you. What is the
maximum number of mailings that a person could have received
from your company in 1 year?
Ms. Holland. That question was asked of us by the
Subcommittee staff.
Senator Collins. Right. I want to get it on the record.
Ms. Holland. The number of mailings--I am sorry?
Senator Collins. I would like to have you answer it here.
Ms. Holland. I believe the number of mailings that we said
are the maximum number of mailings in a year are 144, and we
are not sure if one individual could receive them all or not.
We do not track the information in that way.
Senator Collins. It is my understanding that it is at least
144, plus there could be a certain number of test or affinity
mailings; is that correct?
Ms. Holland. I believe that is the way it was stated. But,
again, we do not track by individual as to how many mailings an
individual got.
Senator Collins. Well, I think that is a problem also. I
mean, 144 separate sweepstakes solicitations is a huge number,
and it is going to the people who are most likely caught up in
this vicious cycle.
Mr. Davenport, how about Reader's Digest, what is the
maximum number that one consumer could receive from your
company in a year?
Mr. Davenport. The maximum that was received----
Senator Collins. That was received.
Mr. Davenport [continuing]. Last year was 122, which we
provided your staffers. On average, it was six. And we'll
look----
Senator Collins. But, see, that's my point exactly. The
person who received 122 is the person who has responded time
and time again.
Mr. Davenport. I think we have--we agreed to send you in
writing what actions we are taking \1\ as a result of--and
addressing these very high-activity, if you would like to call
them frequent, where they clearly are vulnerable, is something,
instead of just putting a safety net, as I call it, down, we
are going to have to take some very proactive discussions. From
our research, we almost cannot find them, but that doesn't
mean--we are going to have to take special action.
---------------------------------------------------------------------------
\1\ See Exhibit No. 23.d. in the Appendix on page 232.
---------------------------------------------------------------------------
Senator Collins. And I will give both Reader's Digest and
Publishers Clearing House credit for starting to take some
steps to deal with the frequent purchasers. I was shocked when
I saw that Reader's Digest in 1997 had 300 customers who
purchased $10,000 or more of merchandise, and that Publishers
Clearing House had a list of 125,000 people who purchased more
than a $1,000.
Mr. Davenport. I don't think that figure is correct. I will
give you----
Senator Collins. That is the information provided to us by
your company.
Mr. Davenport. Last year, no one, I don't think spent as
much as $10,000.
Senator Collins. But that was a 1997 figure, which was the
300 purchasing more than $10,000, a truly shocking number.
Ms. Long, how many could one individual receive from your
company?
Ms. Long. Unfortunately, when your staff asked this
question, we were not able to give them an answer without
extensive programming because of our very decentralized nature.
Our databases are vertical by magazine and very hard to
aggregate a single subscriber's name across all of our
entities.
Senator Collins. And I would suggest to you that that
creates a real problem when the adult children of victims are
trying to solve the problem. Because when they call you, they
can't even get an answer of how many subscriptions there are,
how much money has been paid from one location. That was a
complaint that we got; that they had to go from all of the
magazines that are sold by Time Inc., individually, and it made
it very difficult for them.
Ms. Long. And, Senator, we do credit you with bringing that
to our attention and are committed to building the systems
required to be able to do that in the future.
Senator Collins. Ms. Bernstein, how many from American
Family Enterprises could, how many solicitations could one
individual receive in a year?
Ms. Bernstein. Well, Senator, we know that 81 percent of
our files received six or fewer mailings from us and a small
number, it is somewhere around 600,000, received 20. Now, in
addition, we have put in place a program that now is close to a
year old in which case we have identified the people for whom
the ``no purchase necessary'' letter may be insufficient and,
in fact, we take them off our list, and they have not been
getting any further mailings from us.
Senator Collins. So 600,000 people received 20 or more from
your company, sweepstakes solicitations, in a single year. And
there is a smaller percentage, which you have been unable to
quantify to date, that received significantly more than that;
is that correct? That is the information----
Ms. Bernstein. That is not correct, Senator Collins. It
depends what you mean by ``significantly more.'' We don't
mail----
Senator Collins. Well, why don't you define that for me.
Those are the words from the responses we received from your
company.
Ms. Bernstein. Yes. What I would like to say is they
received more, and a small number may receive as many as 40,
and that is what they receive.
Senator Collins. I hope this makes you understand the
problem that we are dealing with. Because you are individual
companies. Consumers are not just receiving mail from one of
you. They are receiving mail from all of you. So start to add
together the figures that you have just given me, and you can
see why all of us have consumers who bring us literally boxes
of sweepstakes solicitations, and those are the consumers that
are most likely to be taken in by the very aggressive and, in
some cases, deceptive marketing techniques that we have talked
about today.
Senator Levin, do you have a final question?
Senator Levin. Just a couple questions as to which of your
companies rent your lists to other companies. And I wonder if
each of you could answer just that question first.
Ms. Bernstein, does your company rent your list to other
companies?
Ms. Bernstein. Senator Levin, we do not rent our magazine
subscribers.
Senator Levin. How about your list?
Ms. Bernstein. Well, I will tell you----
Senator Levin. Are there any lists that you rent to other
companies, any lists at all that you rent to other companies?
Ms. Bernstein. There is a small program of book buyers, of
merchandise buyers, that are rented.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 26.b. in the Appendix on page 247.
---------------------------------------------------------------------------
Senator Collins. Ms. Holland.
Ms. Holland. We do not rent our mailing list.
Senator Collins. Mr. Davenport.
Mr. Davenport. The magazine 2 years ago started to rent its
magazine subscriber list.
Ms. Long. Yes, we do rent our list.
Senator Collins. And do you rent from other companies?
Let's start with you, Ms. Long.
Ms. Long. Yes, we do.
Mr. Davenport. Yes, we do.
Ms. Holland. Yes, we do.
Ms. Bernstein. We rent names to acquire new customers.
Senator Levin. You acquire names.
Let me start with you, Ms. Long, one question about how
many letters a person could get that looked different about the
same sweepstake. We know from what you have testified to
already that at least two letters, looking different, for the
same sweepstake could go to the same person. What would be the
maximum number of different letters for the same sweepstakes
that could go to one person, different looking letters? Do you
know or could you check with your----
Ms. Long. I would hate to hazard a guess. I am not sure
whether you are trying to--all of our magazines use the same
prize structure. Is that what you are asking?
Senator Levin. The same what structure?
Ms. Long. The same prize structure. So at Time magazine----
Senator Levin. No, what I am talking about are two
letters----
Ms. Long. Two different magazines.
Senator Levin. No. They're both from Time magazine.
Ms. Long. OK. But my point is that----
Senator Levin. It is the same sweepstake. You have already
testified to that. My question is how many different looking
entry material----
Ms. Long. Would Time magazine send someone?
Senator Levin. Yes, for the same sweepstakes.
Ms. Long. I don't know.
Senator Levin. Could it be three, four, five, or six?
Ms. Long. If it were a renewal notice.
Senator Levin. For the same sweepstakes.
Ms. Long. Sure.
Senator Levin. Would you have any objection to--see, the
problem here is that people then think they are getting entries
to different sweepstakes and that they have not entered that
sweepstakes already. Would you have any objection--I will go
down the line with this--to saying only one letter per
sweepstakes per recipient?
Ms. Long. I just have never thought about it that way.
Senator Levin. Mr. Davenport.
Mr. Davenport. I think, as long as it is made very clear,
that this was not a unique entry, I would object, yes.
Senator Levin. You would object.
Ms. Holland.
Ms. Holland. Yes, I would object. The sweepstakes have a
starting and ending date which is clearly outlined in the
rules, and different mailings are sent throughout the life of
the sweepstakes. I don't think there is anything wrong with
that, and that is why I would object.
Senator Levin. Ms. Bernstein.
Ms. Bernstein. I am certainly not prepared to comment. But
let me tell you that each mailing is an entry to the
sweepstakes, and that is clear.
Senator Levin. I think what we have really seen here is
that sweepstakes are much--all of these promotions here are
much more than just simply a way to get people's attention, to
get them to open the envelope. They become much more than that.
And what happens here is that the sweepstakes promotion has
overtaken the product promotion and that people are buying
products that they don't need too often and don't want in order
to be eligible for the sweepstakes, in their mind, or, in order
to believe that they would have a better chance of winning the
sweepstakes. We know that from testimony, we know that from the
market testing which has been done by groups such as AARP.
They are not used only to get a person to open an envelope,
they are used to get people to respond, and in responding, to
order products. And too often those are products that people
just do not need, and that is, frankly, what this is about in
terms of the abuses.
Nobody that I know of has a problem with marketing your
particular products in ways that do not persuade or mislead
people that they have to buy something to enter or, what is
more likely, is that their chances of winning will be increased
by entering.
And the design of these materials, as well as frequently
the language in these materials, and the way the type is set in
these materials, is all intended to achieve that goal. And if
it is not intended to do that, then what we are seeing with our
own eyes is deceiving us. Because these examples clearly would
lead many reasonable people to believe that they have won the
sweepstakes, and if they enter in a certain way, that they can
collect their prize--armored car or otherwise.
And that is why these solicitations, the way they are used,
have become deceptive. They try to make people believe that
they have won something or that they are in a special category
of people who can win something or have a better chance of
winning if they order something.
And we have just learned that reputable companies are
willing to use these particular tactics. In one case, we
learned that they will use an outright lie in their mailing,
and we just simply have to try to put an end to it, hopefully,
with your cooperation. But either way, we have an obligation to
legislate here, to close the loopholes in the existing law, and
to toughen the law where there are no loopholes to get at the
abuses.
These mailings play on the emotions and the hopes of the
American people, and they do it for profit. There is nothing
wrong with profit at all, but there is something wrong in
abusing people's hopes in the way these mailings do too often.
And, again, with or without your cooperation--hopefully,
with--we just simply should act. And I hope in this Congress
that we will adopt many of our proposals which we have
discussed, and I know that all of us would welcome any further
comment that you have relative to the questions that we have
asked or any other thoughts that you might have for the record.
And, again, let me commend you, Madam Chairman, for your
leadership and for your convening these hearings. They have
been very helpful.
Senator Collins. Thank you, Senator Levin.
Senator Edwards.
Senator Edwards. Just very briefly. Madam Chairman, let me
also commend you for your wonderful work on this subject and,
Senator Levin, also, for conducting these hearings. I have to
tell you all I came here this morning with a hope, and I think
even an expectation, that I would leave the hearing feeling
better about this situation than I came to it with. That did
not occur. I leave the hearing more concerned than I came to
this hearing with.
There are, it is clear, any normal person would look at
these mailings that have been displayed during the course of
the hearings this morning, and their response would be that
they are intended to fool people, to mislead them.
And when you are asked specifically about telling people
about their odds of winning, and that purchases are not
necessary and do not improve their chances of winning, and that
these mailings are, in fact, computer generated, and when, in
one specific instance, you are asked about an outright lie in a
letter, your response is to defend, to say we are willing to
negotiate, we are not willing to agree that these suggestions
that you are making are appropriate, I think leads me to a
simple conclusion, which is we have to deal with this problem
because we have got to make sure that people like Mr. Bagwell,
in North Carolina, are not inundated with these mailings, are
not victimized by them and that they are protected.
And I, along with Senator Collins and Senator Levin, I
think intend to do everything in our power to do that. But I do
thank you all for being here.
Senator Collins. Thank you, Senator Edwards.
Before adjourning this hearing, I want to make just a
couple of comments. What troubles me most about what we have
heard during the past 2 days is that you are the legitimate
sweepstakes companies. You are the leaders in your field. You
are companies whose reputation is high. And yet what we have
heard is a pattern of deception, of misleading copy, of taking
advantage and exploiting elderly people that I think should
cause all of you great concern.
In subsequent hearings, we are going to focus on fraudulent
sweepstakes, those in which no prize is ever awarded or a
consumer is forced to pay for something with no product at all.
But I have to tell you that, in many ways, I think you, the
legitimate companies, do far more harm than those outright
fraudulent companies because your reach is so far.
You enter the mailboxes of virtually every American. That
troubles me greatly. It troubles me that I have heard such an
overwhelming pattern of highly aggressive and highly deceptive
techniques that are used to market your products.
I am going to ask you today to not only adopt internal
reforms, but to work with us in a constructive way, so that we
can have a tough new Federal law that ensures that we do not
hear of any more Mr. Halls. That we do not hear from
constituents whose relatives have spent tens of thousands of
dollars, who have squandered their life savings, spent their
Social Security checks, borrowed money thinking that if they
made a purchase that grand prize was going to be there.
I am very troubled by what I have heard. I invite you to be
part of the solution. I do appreciate your being here today and
your cooperation with this investigation.
I also want to thank the staff which has worked very hard
on this investigation--Kirk Walder has been the chief
investigator--Senator Levin and his staff, as well as Senator
Cochran and his staff have also been very involved in the
investigation.
I thank you for your attendance. The Subcommittee is now
adjourned.
[Whereupon, at 12:40 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
PREPARED STATEMENT OF EUSTACE HALL
My name is Eustace Hall and I am here today to tell of my
unfortunate experience with sweepstakes. I am a 65 year old retired
medical technologist. I currently work for AT&T selling mobile phones.
I had to take this job with AT&T due to debts I incurred while playing
sweepstakes.
I asked my daughter Angela to accompany me here today, as this is a
difficult topic for me to discuss. I first began entering sweepstake's
at the end of 1992. I began entering sweepstakes because I wanted to
provide my daughter Angela, who was in law school at the time, with
more financial assistance. I am proud to say Angela is now an attorney,
but the money I thought I was due from the sweepstakes never came.
I now realize that the letters I received from sweepstakes misled
me into making unnecessary and excessive purchases. I estimate I have
spent $15,000 to $20,000 from 1992 to the present on sweepstake
purchases. I have had dealings with all of the major sweepstake
companies including Reader's Digest, Publishers Clearing House, United
States Purchasing Exchange, Michigan Bulb Company, American Family
Publishers and others.
Every time I made a purchase I always looked for the cheapest
products. I always made purchases because I believed that through
purchases I increased my chances of winning. The mailings always looked
official and they used a lot of tricky phrases. The letters were
confusing. They always led me to believe that I had to purchase
products to win. I thought that my past purchases made me more likely
to win.
I was not aware of the ``no purchase'' option. The instructions
which were written on the back of these sweepstakes entries were so
small and hard to read that I could not read them without a magnifying
glass. Moreover, I believed from the letters I received that my
purchases gave me a better chance of winning. After all the time and
money I spent I have nothing to show for it. I have never won anything.
The sweepstakes used phrases that made me think I was a winner and
that the prize was guaranteed and bonded. Over the years, I received
many personalized letters from the sweepstakes companies thanking me
for being such a good customer and telling me that my chances of
winning were good or that it would soon be my time.
I have a copy of a letter from Dorothy Addeo, Publisher's Clearing
House Contest Manager. I would like to read a short portion of the
letter.
``My boss dropped into my office the other day, sat down and
sighed.
``What's the story with Eustace Hall? I see that name on our Best
Customer List, on our Contenders List, on our President's Club Member
List. But I don't see him on our Winner's List. Their must be something
we can do to change that. It's not right when someone as nice as
Eustace Hall doesn't win.''
This is just one example of how I was lead to believe that my prior
purchases made me special. I purchased things I did not need, magazines
I did not read. Some of the stuff I purchased I never even opened. I
stored the things in my garage and attic and tried to sell some at
garage sales, but I got very little money for the stuff since most of
it is just junk.
Another thing that cost me a lot of time and money was entering the
sweepstakes. I was informed by Publisher's Clearing House that if I
returned my sweepstakes entries within 24 or 48 or 72 hours, I would
win a specific prize. I often drove 20 miles to the main post office to
make sure my entry would get there in time. I often spent money to send
the entry in an express or priority envelope just to make sure I would
meet their deadlines.
Super Bowl Sunday was always a very depressing day for me. Super
Bowl Sunday is when the Prize Patrol delivers the big prize. I always
thought it was going to be my lucky day, but the Prize Patrol never
came to my door. I always became very depressed after I did not receive
a visit from the Prize Patrol.
I now realize that I was not special. I never was close to being a
winner. They just sent me mailing after mailing with each one making it
seem like I was closer to the prize. Well, they are the ones who won
the prize--all of my money. Playing the sweepstakes cost me a lot. I
had to return to work. I refinanced my house several times. And, I had
to borrow from my pension fund 4 or 5 times to pay my sweepstakes
debts.
I thank you for the attention you are paying to this matter. If new
laws help to stop someone from going through what I had to endure you
have done a good job. It just is not right the way these companies are
allowed to mislead and feed upon good peoples' trust.
PREPARED STATEMENT OF CAROL GELINAS
My name is Carol Gelinas and I would like to tell you how my late
father, Clyde Schott, was victimized by sweepstakes promotions. My
father had been a middle-management sales executive for the Crane
Company, in Chattanooga, Tennessee. After his retirement in 1977, he
worked part-time for several years for the TVA to ``have something to
do.'' Following the death of my mother in 1982, he lived alone in
Chattanooga until 1991, when health problems forced him to move to
Bangor, Maine, where my husband and me live. He then moved into an
assisted living facility. At the time of his move, he had granted me
power of attorney in anticipation of possibly needing help in the
future. Up until this time, he had handled all of his own affairs,
including managing his investments, which he continued to do for some
time after the move. My dad successfully invested his money, monitored
his stock and mutual fund investments, while at the same time his
sweepstakes related purchases became excessive. Due to health problems,
approximately 15 months after his move to Maine, I became involved with
his personal affairs. It was at this time that I became aware of the
amount of money he was spending in connection with sweepstakes
promotions.
In trying to balance his checkbook, I discovered that he was
writing 30 to 40 checks each month, when his only bills were his rent,
telephone, and cable TV. Most of the checks ranged from five to twenty
dollars, and frequently he had written many checks to the same
organization for the same amount of money. I estimate that over a 14
year period, from 1982 through 1996, dad spent approximately $60,000 on
sweepstakes related mailings.
When we visited him, my father often had small items of costume
jewelry, watches, synthetic unset gems, and other such trinkets that he
wanted to give me. He said these were ``free gifts'' to him, and he had
no idea why he had received them. In actuality, he had returned
purchase agreements that promised a ``free gift,'' not realizing that
he had ordered books (which his poor vision prevented him from
reading), audio and video tapes, music boxes, vitamins, etc.
Even though I possessed power of attorney, I found it very
difficult to curb these abuses. My father had always been a very
independent person, and it was important to his self-worth to remain at
least partially in control of his affairs. I had explained to him many
times that these ``free'' gifts were not free, but he truly did not
understand. I finally managed to set up a separate checking account for
his use, into which I deposited $300 a month, knowing full well that
all of it was spent in the vain expectation that he was about to win a
fortune in a sweepstakes promotion. He ordered tapes, books, videos,
and gift subscriptions for other people, believing that he was so close
to winning that these purchases would virtually guarantee it.
Particularly insidious were the ``personal'' letters addressed to
him that led him to believe that he was one of two or three finalists
in sweepstakes promotions. He did not understand that these were
generated by a computer: if the internal address was to him personally,
at his residence, and began ``Dear Clyde,'' he was certain that he had
been selected for special consideration. (He always referred to these
as ``letters'' and greatly enjoyed receiving them, even if he received
30 or more identical ones from the same organization on the same day.
They made him feel important, and he would often tell me with great
satisfaction how many ``letters'' he had received that day). In tiny
print, often in a shade of gray on a gray background, these ``letters''
accurately gave the odds of winning as one in a hundred million or
more. But these were literally invisible to him. Others informed him
that he was a ``guaranteed winner'' and that all he needed to do to
receive his prize was submit a processing fee, amounting to five to
twenty dollars. The prizes included such things as checks for twenty-
five cents, and many of the trinket items that, as far as he was
concerned, were of great value and arrived ``out of the blue.''
Two of the biggest problems were Reader's Digest and Time-Life
audio tapes. He had accepted ``free gifts'' that enrolled him in
automatic purchase plans. When the first purchase item arrived, he
would give it to me, not knowing why he had received it. When I
contacted Time-Life, I learned that he had made purchases of over
$1,500 in merchandise in one year, all of which he thought was free.
This company was helpful in disenrolling him once the outstanding bills
were paid and discontinuing mailings to him. Reader's Digest, however,
was extremely difficult to deal with. I called the customer service
number on several occasions to direct them to remove his name from
their mailing list. I always paid the outstanding bills (amounting to
hundreds of dollars) and sent them a copy of my power of attorney.
However, as soon as he was disenrolled, they sent him another promotion
and enrolled him again, beginning the cycle all over. What finally
stopped this was nothing I was able to do, but his failing eyesight.
This led him to give me all of his mail, and I was able to intercept
the continuous bombardment of Reader's Digest promotions.
Unfortunately, one outcome of these encounters was my father's
suspicion that he really HAD won millions, and that I had somehow taken
it. When my husband and I went on vacation, or on one occasion when we
bought a new car, my father was very suspicious about how we could
afford these things.
PREPARED STATEMENT OF PATTI McELLIGOTT
My name is Patti McElligott. I live in Tyler, Texas where my
husband and I own our own lawn sprinkler company. I have come to you
today to share my family's account of mail abuse by both magazine
companies and so called charities.
My husband's father, Joseph P. McElligott, Sr., was a retired Army
Lt. Colonel. He was active in the community and church and took care of
all of his affairs until he was moved into a retirement center in 1998.
Mr. McElligott started playing sweepstakes in 1992. For quite some
time, my husband had been after him about the amount of mail that he
received. He also emphasized that he couldn't and shouldn't believe
everything that he received in the mail.
After we moved my father-in-law into a retirement center, my
husband and I went to his home and removed the mail so that we could go
through it and determine what needed to be dealt with and what could be
thrown away. I took out 13 thirty-three gallon trash bags of mail.
Ninety nine percent of what I threw away was from sweepstakes,
contests, or various organizations asking for money. Many were multiple
copies of the very same mailing.
We immediately had all his mail forwarded to us at our office and
made sure that his phone number at the retirement center was unlisted.
I began receiving numerous magazines, sometimes as many as 20 in one
day. At first, I threw them aside thinking that the subscriptions would
soon expire. The magazines continued to pour in. I began to notice that
we were getting multiple copies of the same magazine. Five issues of
Time, three issues of TV Guide, 2 issues of Guns and Amino, and on and
on.
On August 5, 1998, my father-in-law died. At that point, I was able
to actively do something about this large volume of mail. One day, I
happened to look at an expiration date on a label of the magazine and
noticed that the subscription went past the year 2000. At that time, I
started to look at all the labels and noticed that almost all of them
expired somewhere past the year 2000. One subscription to U.S. News and
World Report ran to the year 2018. I began to call the various
magazines and requested refunds.
When I called the magazine companies, more times than not, I would
be told that the subscription was through American Family Publishers or
Publishers Clearing House. After making several calls to American
Family Publishers and Publishers Clearing House to request refunds, my
father-in-law's records mysteriously disappeared. After insisting that
records must be there and that the IRS requires all information to be
available for 7 years, we were told that we had to speak to a
supervisor, none of whom were ever available.
To date, we have deposited or are expecting nearly $3,000 in
magazine refunds. We still have some we have not had time to contact.
We did find it interesting that some organizations, like NRA, consider
the ``fee'' to be a contribution and the magazine was a gift.
Therefore, there would be no refund.
After going through most of the records, we found canceled checks
in the amount of $8,704.09 for United States Purchasing Exchange,
$1,075.71 for Time Warner-Sony Sound Exchange, $1,931.09 for Time Life
Books, $10,098.68 for Reader's Digest, $2,088.85 for American Family
Publishers, $3,090.08 for Easton Press, $6,797.52 for Publishers
Clearing House, $123.64 for Magazine Express, and $1,776.53 for
Astronomy Book Club. In total, we found canceled checks which totaled
more than $34,000, for the above listed companies. Additional checks
made out to individual magazines along with the above listed companies
total $53,335.13!
My father-in-law had subscribed to over 158 different magazine
titles. Many of the checks were made out to the magazine itself, but we
have noticed that the checks were being deposited into the account of
American Family Publishers. He also had multiple subscriptions to the
same magazine. The most blatant abuses were 32 subscriptions to U.S.
News and World Report with 17 of them going through Publishers Clearing
House, 4 through American Family Publishers, and 11 through the
magazine itself. There were also numerous subscriptions to Time and TV
Guide.
I firmly believe that my father-in-law's name had been passed onto
a ``sucker list'' for questionable charities as well. We have not
sorted and calculated all of the checks but it will surpass the amounts
on the magazines. The common thread seems to be again, sweepstakes,
contests, and the promise of winning money. We have worked with the
Post Office since the end of October to save all ``junk'' mail and we
pick it up from them. Since the end of October, we have amassed 3 large
archival storage boxes of junk mail including contests, sweepstakes,
and charities, most of which are bogus. We noticed quite a few from
Topeka, Kansas. The Post Office Boxes are very similar with merely a
few numbers difference. We have contacted the Better Business Bureau in
Topeka and requested information of the various organizations. We were
told that every year they send out a form and ask for information.
Legitimate charities and organizations return them. None of the ones we
had were listed, with the exception of one.
These are the highlights of what we discovered in reviewing my
father-in-law's check registers and mailings. We have boxes of mail
proclaiming Mr. McElligott as the winner of millions of dollars. This
mail abuse on our elderly must stop. My father-in-law came from a
generation that was trusting and could not believe that people would
actually try to swindle them. Many elderly people are just as trusting.
I assure you, there are many more Joseph McElligott's out there. I hope
these proceedings will heighten the awareness of this issue to prevent
other families from having to endure this abuse.
PREPARED STATEMENT OF STEPHANIE BEUKEMA
My name is Stephanie Beukema. I am a licensed psychologist from
Cambridge, Massachusetts. I am here today to tell you about my mother's
involvement with the purveyors of junk mail.
My mother always invested her money wisely and lived frugally until
she became involved with sweepstakes. She got involved through the
promise of prize money from companies like Reader's Digest and
Publishers Clearing House in order to replenish her savings after
treatment for breast cancer. The lure of luck and personalized letters
that seemed to single her out led her to respond to several mailings
from several companies. She spoke about her ``ship coming in'', and
asked why she shouldn't be as lucky as the next person. She would
receive letters that ``promised'' a reward for an immediate response.
She would dutifully respond, immediately sure that she was within the
time parameter. Her excitement built. She'd been told to have several
family and friends available for that lucky moment when she would
receive her prize money and benefits. This moment kept getting put off.
It didn't diminish her belief. But six months became a year and a year
went to a year and a half. She believed what she read in the letters.
My mother was very trusting of traditional organizations like the Post
Office and Reader's Digest.
As she became more involved, her mail-driven activity took up more
and more of her life. She couldn't leave her home to visit family and
friends overnight because she might miss a mailing or a surprise visit
from a company representative. She had to be there to get the mail
everyday. There was more and more mail with boxes of it arriving on a
daily basis. Who could find the gas bill and the tax bill in all those
letters? She began to irregularly pay her ongoing bills as she started
juggling money so she would have enough to send to Publishers Clearing
House, The Lottery Doctor and American Purchasing Company. She couldn't
even pay large expenses, like homeowners insurance and property taxes,
because she didn't have enough money in her account. She then stopped
paying for the magazine subscriptions she'd ordered, and the debts
began to mount and they went into collection.
She became very defensive with her family and friends, and insisted
that she was as likely to win as anyone: ``Someone has to win and why
shouldn't it be me?'' she would ask. She was in danger of having her
house and property repossessed for nonpayment of taxes when I, along
with my siblings, stepped in and suggested that she needed some help.
In her house, there were literally narrow paths between boxes of
unopened mail, stacks of magazines, books and videos, and boxes of
merchandise she'd ordered.
After participating in sweepstakes for 18 to 24 months, she had
spent somewhere between $60,000-$80,000. She had sold stocks, had
thousands of dollars in credit card debt and, most humiliating for her,
she had lost her good name in town. She was frightened she would be
seen as losing her faculties, so she hid more. She voluntarily gave
financial power of attorney to my brother, who was responsible for my
mother's finances until her death in December 1998.
In October 1994, I stopped all junk mail in my name from coming to
my house. I was unable to do so for my mother at her house. In some
cases, it was nearly impossible to contact some of the sweepstakes
companies because they did not include addresses on their packages.
Many people are vulnerable to fraudulent mail practices because they
are more trusting of the signs of legitimacy, like the name ``Reader's
Digest.'' They are vulnerable to letters that appear original and
personalized when, in fact, they go out to hundreds of thousands of
people. They respond to what seems friendly, exciting, and promising.
It is shameful what passes as legitimate and accepted business practice
when it decimates a person's sense of themselves as well as their
livelihood.
I am reasonably intelligent and not yet elderly. I could easily
spend several hours a day trying to understand the ``fine print'' that
is included in much of the mail that comes to my house. I spend several
hours a week protecting myself from unwanted solicitation. While the
laws that exist may be sufficient to protect me as a citizen, I really
don't think they are adequate to protect unusually vulnerable
populations like the elderly, which are not as capable of protecting
themselves from deceptive sweepstakes practices. I also am very
troubled when I begin to consider that the government itself can be
seen as legitimizing these practices by implicitly condoning fraudulent
and unethical scamming as legitimate. The mail is delivered to your
house by government employees. It all looks legitimate but what comes
to pass is shameful and secret.
I would like to thank you for allowing me to share my mother's
story with you. I hope that, through these proceedings, other senior
citizens will be spared the public embarrassment and humiliation that
my mother experienced.
PREPARED STATEMENT OF CHARLES DOOLITTLE
My name is Charles Doolittle, I am from Inverness, Florida. I am
here today to share the story of my parents involvement with
sweepstakes. My father, age 84, is a retired executive from a Fortune
500 company and my Mom, age 83, is a homemaker. They live close by, and
I now have power of attorney for their affairs.
My parents initially became involved in sweepstakes in 1992. My
parents routinely participated in sweepstakes offered by United States
Purchasing Exchange, Publishers Clearing House, Reader's Digest,
American Family Publishers and assorted charities seeking donations.
Mom and dad always purchased items believing that purchases enhanced
their odds of winning.
Mom and dad bought magazines they never read and products of little
or no use to them. They purchased numerous compact discs and VCR tapes
even though they didn't have a CD player or a VCR.
I have brought checks here which reflect money they spent on these
mailings in 1997 alone: $704.30 to American Family Publishers,
$3,036.60 to Publishers Clearinghouse, $1,713.28 to Reader's Digest,
$260.90 to Time, $3,993.07 to United States Purchasing Exchange and
$413.06 to assorted charities. This totals $10,121.37 for 1997 alone.
I believe our nation's seniors are very susceptible to the
deceptive mailing practices of some companies. It always amazed me when
I went to visit Mom and Dad and saw the pile of solicitations they
received on a daily basis. There always was a pile on the dining room
table of sweepstakes, many which stated they were a winner or a
finalist. The mailings implied that they were valued customers and that
because of their past purchases they would soon be big winners.
I asked my mailman if the sweepstakes offerings they received was
an unusual amount, since they seemed to receive more than their share.
The mailman told me he had several people on his route who received
numerous sweepstakes offers every day. The mailman said that most
offers seemed to go to elderly widows.
The last few Super Bowl Sundays have been tough. Mom has been
convinced that her prize would be delivered on Super Bowl Sunday and
insisted on being home to collect her winnings. Mom believed that the
Prize Patrol was going to show up on her doorstep to deliver her Grand
Prize.
I also have a complaint with the billing procedures. I believe some
of these organizations may double bill and double ship merchandise to
unsuspecting seniors. Customers end up sending payments, placing more
orders, and the cycle continues. It is like watching someone take money
right out of my parents pockets and there is nothing I can do.
I have tried contacting companies to get my parents names off
mailing lists but, to this day, the offers continue to roll in.
It may be to late for my parents, as they have already lost
thousands of dollars. It is my hope, however, that these hearings will
shed some light on what I believe to be a fraud perpetrated upon the
most vulnerable and trusting seniors.
PREPARED STATEMENT OF DR. KAROL CARTER, DVM
Madam Chairman and Members of the Subcommittee, my name is Karol
Carter and I reside in Troy, Michigan. I would like to say I am here on
behalf of my 86 year old father, Allan Carter, but he currently is
upset that I am attending these hearings. He is concerned that I am
ruining his chances of winning a Reader's Digest sweepstakes when he,
and I quote, ``Am getting close to winning.'' My father has a doctorate
in organic chemistry and retired from Chrysler Corporation. He resides
with my 84 year old mother in a condominium in Troy. I have never
questioned his intelligence, but since the sweepstakes began all sense
of reasoning with him has become impossible. He has never gambled in
his life nor will he play our State lottery.
The problem began innocently enough with his first entry to a
Reader's Digest Sweepstakes about 15 months ago. He suddenly was
inundated with contests from all over the United States, Australia,
England, and Canada. I began a serious effort to halt this by
contacting the Postal Service and was advised to write the Mail
Preference Service Direct Marketing Association in Farmingdale, New
York. I wrote twice, the last date July 8, 1998. I have mailed 26
certified letters to 26 companies who have contacted him, requesting
the stoppage of all solicitations and that his name be removed from the
mailing list. Copies of those letters have been provided to the
Subcommittee. I requested a letter of response. I also stated that a
copy of the sweepstakes had been mailed to the Consumer Protection
Division of the Michigan Attorney General's Office and also the U.S.
Postal Service. I actually only mailed complaints regarding Motor
Vehicle Awards, SETA Corp., and Reader's Digest to the Attorney
General, in April 1998. I received written responses from the Attorney
General stating that the information had been received and that letters
had been written to the organizations.
My father is totally convinced that these contests are legitimate.
The marketing concepts of these companies are cunning. All sweepstakes
are associated with making a donation, paying an entry fee to upgrade
your winnings, or making purchases. Small print notifies ``no purchase
necessary to enter.'' If you decline to purchase or to upgrade, the
address for your ``NO'' entry is different from the address for ``YES,
I'd like to buy something.'' My guess would be that one leads to a
trash dumpster and the other to company profits.
An example of this is the Motor Vehicle Awards entry which states,
``You have been identified as an award recipient in a national
sweepstakes. You, Allan Carter, are guaranteed to receive a brand new
automobile or cash award. There is no mistake your award is waiting to
be claimed. Your award has been confirmed by our auditing department
and is formally identified by the award registration number that has
been preselected and assigned by Motor Vehicle Awards. Legal Title to
the brand new Chevy Malibu will be executed and transferred to you,
Allan Carter, pursuant to and in accordance with the Motor Vehicle Code
of the State of Michigan and the regulations of this presentation as
they appear on the reverse side of this document. In addition an
Optional Commodities Package with a fully redeemable value of over
$2,500 is being held pending your submission of the standard
acquisition fee.'' The fee is $14.98. The award registration form asks
to verify the correct name and address, but also requests a telephone
number and if you have a Visa or MasterCard. The back of the form
states that the winning claim number has been preselected and that
3,000,000 copies have been mailed. My father entered this contest July
1998. Further reading reveals that all entries must be received by
August 31, 1999. The Grand Prize will be awarded on or about October 1,
1999. This allows Motor Vehicle Awards a year to collect $14.98 from
those willing to fall for the Commodities Option as he did.
Another sweepstakes gimmick is games of skill. Games such as Cash
21 require you to try to obtain the highest possible total score with
the last two digits of the solution not exceeding 21. You continue to
receive new entries to the same contest to break your tie score with
other contestants. My father received eight entries on the same day in
the mail. All were to the same contest but with each a different ID
Number. A $1.00 processing fee is required for each entry. If you do
not continue to the next level, you receive further mailings stating,
``You are in danger of losing out on a potential GRAND PRIZE.'' I was
receiving daily calls to help him on this contest. This math project I
dumped on another family member. Unfortunately the rules state,
``Evidence of collusion or use of computer devices other than
calculators are grounds for disqualification.'' This contest mercifully
ended September 30, 1998.
Sweepstakes are also supported through ``Donations.'' The contest
states that most ``winners and entrants'' include a small donation to
help provide food, shelter, medical supplies or whatever for animals,
children, or veterans. Boxes are normally marked $10, $15, $50, etc. My
father, generous soul, enters these `` free'' contests with a $50 or
$100 donation, foolishly thinking the money is all going to help the
needy--not run the contest. This method is used by Easter Seals, Little
Shelter, Miracle Flights, Wildlife Fund, Missing Children, Childhood
Leukemia Fund, the Paralyzed Veterans, the Disabled Veterans and so on.
Once a donation is made you will receive a similar request on a monthly
basis.
Finally we have the contests associated with (1) magazine
subscriptions, (2) clubs such as the Travel Club, or Favorites from the
Classics, and (3) the purchase of catalogue items. At 86 years of age
my father has all the possessions he and my mother should need, or so I
thought. Now thanks to Reader's Digest, American Family Publishers,
Time, Life, U.S. Purchasing Exchange, etc., he has enough videos to
open a video store--about 200--and at least 150 compact discs. These
items are sold at inflated prices and the quality is often poor. Many
of these video cassettes have not ever been opened. This leads me to
believe that he did not want them. He purchased them to increase his
chances of winning. He saves all the packing boxes to appease me,
``because they can be returned for a full refund.'' He really had no
intention or need to have a magic feather duster, plastic microwave
dishes, jewelry, imitation crystal plastic vases, rear view mirror
magnifier which does not work and is dangerous, and the electronic stud
detector. Of course, sadly, many of the magazine subscriptions are sent
to family members or my office so we are all on the dreaded LIST.
Many contests implore you to act quickly. Entries must be returned
by ``next Tuesday.'' They arrive by bulk mail with no date. Most
envelopes are official looking with words such as ``Very Important
Issuance,'' ``Notice Authorized by Executive Order,'' and ``Special
Advisory.'' Some contain promotional $1,000 bills. The odds of winning
vary from 1 in 3,000,000 to the ridiculous Readers Digest 1 in
85,000,000. One has a greater chance of being struck by lightening. Of
course, all winnings go only to the named contestant. Father stands a
good chance of not even being alive by contest end. He thinks the money
will go to his estate and help care for my mother. That is the beauty
of preying on the elderly--they may not even be alive to collect the
total amount which is paid out over 30 years, should any of them become
the 1 in 85,000,000.
What is this costing him? I feel like Sherlock Holmes sneaking his
financial information. Checks written for less than two months last
year amounted to $1,400. Charge card expenses for one month amounted to
$980, with $680 to United States Purchasing Exchange. My mother suffers
from a dementia which, regarding this mess, is probably a blessing as
she has no idea how much money has been wasted. My pursuits have been
as follows:
(1) My parents have had an unlisted telephone number for 15 years
to prevent unwanted solicitations. I had the number changed again after
he was Conned out of $9,880 over the telephone by some smooth talking
``attorney'' who had obtained his unlisted telephone number from one of
the sweepstakes companies. The Cashiers Check was delivered by Federal
Express to Quebec, Canada, but cashed in Israel.
(2) His Visa Card company issued him a new card.
(3) I contacted the Oakland County Probate Court to consider
petitioning for conservatorship. I cannot take over control of the
funds of a man who can still drive, shop, get to appointments, take
medications properly, and care for my mother. He functions normally in
every other way. Though this would stop the sweepstakes it is too
brutal. One might say that his behavior is not ``normal'' and certainly
at this point it is an addiction. The contests give him something to do
while caring for my mother. He was once an avid reader but that has
been replaced by sweepstakes.
I have read through statements from Ms. Collins, Mr. Levin, and Mr.
Durbin regarding the Deceptive Mail Prevention and Enforcement
Improvement Act (S. 336) and The Deceptive Games of Chance Mailings
Elimination Act of 1999 (S. 335). I am here today to lend support for
those bills. I am not naive enough to think that these operations can
be completely stopped by these bills, but the proposals provide exactly
the kinds of controls and protections that I hope can be established.
Some say here goes government meddling. I am both thankful and grateful
for your efforts. This concludes my testimony.
PREPARED STATEMENT OF J. JOSEPH CURRAN, JR., ATTORNEY GENERAL, STATE OF
MARYLAND
Thank you for the opportunity to speak to you about an issue that
affects all Americans but is, I believe, of most critical importance to
senior citizens. Direct mailings, and sweepstakes specifically, have
become a multibillion dollar business, with a reach into virtually
every home in this country. While many direct mail outfits are
legitimate businesses, there is a persistent and growing segment of
this industry which uses deceptive, misleading and illegal methods to
bilk our most vulnerable out of their hard-earned money. These
sweepstakes solicitors are experts at making people think the
unthinkable and believe the unbelievable. In short, they are masters of
delusion. These practices must be stopped, and I commend Senator
Collins and this Subcommittee for holding hearings to address the
problem.
First, the size and reach of the sweepstakes industry, and thus the
scope of this problem, is enormous. While this may seem an obvious
point, it is actually difficult to ascertain exactly how large the
industry has become, and many of the large companies will not release
revenue figures or mailing results. We do know that nearly one-third of
all new magazine subscriptions are generated through sweepstakes, which
makes them worth millions to publishers whose revenues from advertising
are tied to circulation figures. A sweepstakes mailing for magazine
subscriptions is four to five times more likely to produce an order
than a simple direct mailing, without a prize or contest. Two of the
largest companies send more that 400 million mailings into American
households each year, and a successful sweepstakes mailing will
generate subscription orders from at least 10 percent of the
recipients. Thus, sweepstakes are powerful, effective tools of
persuasion being used to reach millions of Americans each year.
I witnessed this first-hand when I instituted Maryland's first
Senior Sting last year. The initiative was designed both to identify
the organizations preying upon Marylanders for enforcement purposes,
and to heighten consumer awareness of these scams. Five hundred senior
citizens from all over the State collected their mail solicitations for
a month, and the amount of mail they received was in itself indicative
of the breadth of this problem. They collected over 10,000 pieces of
mail, of which about 40-45 percent were sweepstakes. We believe that
while roughly 10 percent of the mailings were actually fraudulent, a
far greater percentage were deceptive, confusing, or misleading
What do I mean by deceptive or misleading, in contrast to
fraudulent or illegal? A fraudulent sweepstakes would, for example,
solicit money from participants with no intention of ever awarding
anyone a prize. An illegal sweepstakes might award prizes to one out of
every 800 million entrants, but it would fail to disclose the chances
of winning, require paying a fee or purchasing a product in order to
participate, or violate other laws governing sweepstakes. These
operations are clearly unacceptable, and we must do all we can to put
them out of business
There is a far greater segment of this industry, however, which
complies with the letter of the laws governing sweepstakes, but
utilizes unconscionably misleading and confusing tactics of persuasion.
Some of these ploys are well-known to you, I am sure. For example, we
found many sweepstakes during Senior Sting in which the envelope blared
``You are a winner--a guaranteed winner of our $100,000 grand prize!''
in huge, bold letters. It would be only in the smallest possible type
above this headline that the careful reader might notice the preceding
sentence. ``Return the Winning Prize Entry and we will announce'' that
you have won the $100,000. It is, of course, likely that many readers
will not even notice the caveat, particularly those with poor eyesight.
Moreover, it is very confusing and could easily be understood to
guarantee winning as long as the entry is returned, which is completely
untrue.
There are countless other examples: the sweepstakes that does a
better imitation of a government document that some government
documents do; the ``free'' prize which turns out simply to be $100
toward a $600 stereo you must buy; the sweepstakes that claims you need
not subscribe to any magazines in order to be eligible for the prize,
but instructs you to send your entry to headquarters only if you do
subscribe, and to send it to a post office box in Iowa if you do not.
Indeed, sweepstakes companies employ the best marketing and promotion
experts, copywriters and graphic artists to develop ever more enticing
and effective pitches, all designed to make you believe you have won or
will win if you just take one more little step--like mailing in your
entry form along with a magazine subscription. And for far too many
Americans, that ``one more little step'' ends up in heartbreak, with a
lifetime of savings gone and nothing but humiliation to show for it.
Anyone can be vulnerable to these scams, but statistics show that
the elderly fall victim most often. Estimates are that senior citizens
represent over half of the people on ``mooch'' lists, which are lists
the industry compiles of past victims or people likely to respond to
mailings. Experts in gerontology are conducting studies to understand
better why the elderly are particularly vulnerable, but there are some
theories which make sense. For example, senior citizens more often
suffer from failing eyesight or other physical and mental disabilities
which can impair their ability to distinguish between the legitimate
and illegitimate mailing. They are often lonely, and thus more
susceptible to the excitement offered by the sweepstakes and less able
to consult with someone else about the advisability of responding to a
mailing. They also sometimes have more disposable income than younger
people; we are fairly certain, for example, that sweepstakes companies
do not concentrate on college dormitories. Finally, older folks grew up
in a different era, where people tended to be more trusting, had faith
in things that looked official, and were less apt to risk being
impolite by saying no, hanging up the phone, or throwing away their
mail.
In sum, I believe this industry has gotten out of hand, and I am
pleased that the Senate is taking a hard look, at the problem. State
Attorneys General around the country are stepping up both enforcement
and consumer education efforts in this arena. We are, for example,
currently working with other States on several investigations of
companies we identified through Senior Sting. I do believe the
Federalprotections offered by Senator Collins' bill would be welcome
additions to State laws and regulations. Along with Congressman Ben
Cardin, I supported a similar bill last fall in the House, and I am
pleased to see both the House and Senate taking steps to combat this
insidious and widespread exploitation of some of our country's most
vulnerable citizens. Thank you very much for the opportunity to speak
with you today, and I would be happy to answer any questions.
PREPARED STATEMENT OF VIRGINIA L. TIERNEY, MEMBER, BOARD OF DIRECTORS,
AMERICAN ASSOCIATION OF RETIRED PERSONS
Madame Chair and Members of the Subcommittee:
My name is Virginia Tierney and I am a member of the Board of
Directors of AARP. On behalf of AARP, thank you for inviting us here
this morning to discuss the impact of deceptive mailings, including
fraudulent sweepstakes, on older Americans. We will also comment on the
importance of enacting legislation that will aid the U.S. Postal
Service and law enforcement agencies' efforts to deter these fraudulent
practices throughout the country.
AARP is not here to condemn sweepstakes. We acknowledge that they
appeal to some of our members and are the foundation of magazine
publishers' efforts to obtain subscriptions.
However, sweepstakes and other forms of deceptive mailings are a
major concern to AARP because of the severe effects they have on our
members, who are victimized in large numbers. AARP's involvement in
this issue is not new. In the past three years, we have launched
campaigns against charity and telemarketing fraud based on research
examining older victims' behavior and perceptions, partnerships with
enforcement and consumer protection agencies, and warnings to consumers
through public service announcements, educational workshops and program
activities. AARP's research into telemarketing fraud and charitable
solicitations, which are closely tied to direct mail fraud, has
identified sweepstakes as a prime area of concern.
Sweepstakes were the No. 1 form of telemarketing consumer fraud
reported to the National Consumer League's National Fraud Information
Center (NFIC) in 1995, 1996 and 1997. This ranking is based on the
number of calls made to the NFIC, which handles 300 to 350 calls each
weekday. In 1997, almost 13 thousand reports of suspected telemarketing
fraud were made to the NFIC. Out of this total, close to 10 thousand
people gave their age and over 40 percent of that group was over the
age of 50. Based on these reports, the No. 1 scam was sweepstakes, with
magazine sales ranking No. 5. That helps to tell the story
statistically, but it doesn't begin to take into account the personal
anguish caused to individuals, and the friends and family associated
with them. That is painfully evident from the testimony of the people
seated with me here this morning.
AARP has taken extraordinary steps to educate our members and the
public at large as to how to differentiate between legitimate offers
and misleading, deceptive or fraudulent ones. Our goal is to reduce
fraud and deception in telemarketing and mailed solicitations. As part
of this mission, AARP has worked in tandem with the Attorney General's
office in my home State of Massachusetts, as we have with other State
Attorneys General, to gather information and warn consumers about
potential fraud.
Additionally, we were active participants in Operation Mailbox.
Operation Mailbox was a coordinated effort undertaken with the Federal
Trade Commission (FTC) and Federal and State law enforcement agencies
to identify fraudulent mail.
In December, 1997 as a function of the AARP Anti-Telemarketing
Fraud campaign, we placed an article in our monthly publication The
Bulletin. The article asked members to check their own mail for cards
and letters that looked suspicious or that carried claims that the
recipient was a ``guaranteed contest winner.'' We also requested that
they watch for mail that offered ``no risk'' investments, get-rich-
quick schemes, or solicitations for dubious charities as well as mail
that alerted the recipient to immediately call a 1-800 or 1-900 number.
We asked that such mailings be submitted to the Association. We told
our members that law enforcement experts would be reviewing the mail
for possible legal actions.
Throughout the next six months, AARP members submitted over 10,000
pieces of mail. Dozens of members sent envelopes and boxes stuffed with
solicitations. Over and over our members asked the same questions; ``Is
this a legitimate solicitation?'' and ``Can you help me get the money
I've won or help me get my money back?''
Subsequently, for more than three months AARP volunteers and staff
opened, read and sorted the mail sent in by members. In cooperation
with the FTC and Federal and State agencies, who formed the Operation
Mailbox task force, AARP identified more than 5,000 pieces of mail that
might require legal action. An outside firm was hired to code the
pieces under the system used in the Consumer Sentinel database.
Consumer Sentinel data is used by subscribing law enforcement agencies
to identify and investigate suspected fraudulent businesses or
individuals.
Based in part on AARP's contribution of over 5,000 complaints, at
no cost to law enforcement, the FTC/Operation Mailbox strike force
announced over 150 Federal and State enforcement actions against the
sponsors of these mailings in October of last year.
While Operation Mailbox was a tremendous success, we believed that
more needed to be done to identify what drives people to participate in
sweepstakes and to ascertain what their expectations might be. With
that in mind we embarked on research in this area. AARP contracted for
the services of Dr. William Arnold, an Arizona State University
professor, and a recognized expert on this topic. While his research
efforts on our behalf have not been completed, we would like to share
some of the preliminary results with the Subcommittee this morning. A
part of the research effort looks at the attitude of the consumer.
Preliminary results in this area show that 40 percent of older
Americans who receive sweepstakes solicitations, respond to them. Of
those who respond by purchasing a product or service, the consumer who
asks to be billed later is more likely to continue to participate in
sweepstakes than is the person who pays in advance.
What is distressing, however, is the finding that 23 percent of
those who participate in sweepstakes believe that purchasing something
increases their chances of winning. Combine that figure with the 17
percent who feel that purchasing might increase their chances and you
have fully 4 out of 10 participants who don't believe the statement,
``No purchase necessary to win!'' Finally, 87 percent of those
interviewed for Dr. Arnold's study believe that the government should
do something about deceptive mailings. As you can imagine, we look
forward to the final results of Professor Arnold's study and will be
happy to share those findings with the Subcommittee upon receipt.
The concern over the perception that a purchase might be necessary
to win is one area that can and should be addressed by the companies
that do the mailings, irrespective of what Congress does. Another more
serious issue that AARP believes requires Congressional action regards
the messages contained in the mailing devices. It is the use of ``you
have automatically won'' type language in sweepstakes promotional
materials. This language is at the core of the fraud and deception.
A sampling of letters from our members highlighting the ordeals
they have gone through and the range of concerns they raise is
instructive. Copies of several of these letters are attached. One woman
asks that the large amount of money just awarded to her spouse, who has
been dead for six years, be placed in his estate so that the family can
enjoy it. While she states that she doesn't expect to see the money,
she was clearly hurt by the solicitation and pleads, ``this kind of
nonsense must be stopped.''
Two others, both homebound and coping with disabilities, simply
ask, ``Where is my money?'' and ``Please help me get it.'' Yet another
has waited over a year for the promised $100,000, but is equally
agitated that she didn't receive her ``guaranteed'' $250 for
participating. In a similar vein, a member offers that the sweepstakes
sponsor has made a series of promises to her over a two-year period,
going so far as to schedule a special date for their appearance, only
to disappoint.
As was mentioned earlier, this is a problem that often involves
other family members as well. A daughter writes in regard to her
independent 87-year-old father and raises a different set of concerns.
She is uncomfortable intervening in her father's affairs, but does so
because he recently canceled a trip to visit his only sister, stating
that ``it conflicted with the date he was to be in New York to collect
his winnings.'' What is more alarming is the fact that he has taken
$13,000 out of his savings and spent $11,000 between May and August on
books and magazines. Our member asks, ``Why would the company allow
someone to purchase five copies of Victor Borge Then and Now or four
copies of Charlotte's Web within a 90-day period?''
Finally, there is the story of a daughter-in-law attempting to
settle the estate of her deceased father-in-law. She is in possession
of 17 boxes of sweepstakes solicitations sent to her father-in-law. She
can also verify that he spent over $10,000 on magazine subscriptions.
In light of what you have already heard, neither of these facts may be
particularly surprising. What is astounding, however, is that the
sweepstakes sponsor repeatedly renewed his subscriptions to ``Sports
Illustrated'' and ``Newsweek'' through the year 2086! That's right, an
87-year subscription! While the sponsor assured her that his account
balance was $0, no one offered to refund the monies already received to
extend the subscription nor have they agreed to do so upon her request.
Unfortunately, these are but a few of the many examples of harm
consumers have experienced from fraudulent and deceptive sweepstakes
promotions--and reflect just a few of the letters AARP has received.
Obviously, something needs to be done. That is why we are pleased
that this Subcommittee is taking action to aid consumers. We are
especially glad that Senator Collins is addressing consumer concerns
with sweepstakes by introducing S. 335, the ``Deceptive Mail Prevention
and Enforcement Act.'' AARP agrees with the 87 percent of respondents
in Dr. Arnold's study who believe that the government needs to do
something to deal with deceptive mail. While the legislation is not the
focus of today's hearing, we will comment briefly on some of the
provisions in S. 335 and offer suggestions on other areas that should
be addressed by the Congress.
One of the most attractive provisions in S. 335 is the civil
penalty provision. AARP has contended that the most direct means of
eliminating fraud is to take the profit out of it. The stiff
remunerative penalties, capping out at $2 million, are truly a
deterrent. We also applaud Sen. Collins for proposing to provide the
Postal Inspection Service with the authority to stop deceptive mail.
Finally, we support the definitions of nonmailable matter included in
the bill. We believe that clarifying what message may be contained in a
mailing and how it may be presented is of critical importance.
Also, we hope that the Subcommittee will, among other things, look
at provisions that would couple claims and promises with disclaimers
and clearly define games of skill and their risks and rewards. The
latter provision would require ``games of skill'' operators to detail
exactly how many levels a participant would have to achieve to win the
grand prize, what the maximum cost would be to participate, and a
timeframe within which the contest winner will be determined.
Additionally, we urge the Subcommittee to address the concerns we have
raised regarding consumers oversubscribing and the difficulty they
encounter in recovering money paid for multiple-year subscriptions.
Again, I thank you for the opportunity to provide the Subcommittee
with background and recommendations on this critical issue that impacts
so many Americans--particularly older Americans--so severely. AARP
stands ready to work with the Chair and Members of the Subcommittee to
enact legislation that will significantly curtail the fraud and
deception surrounding sweepstakes mailings.
I look forward to responding to your questions.
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PREPARED STATEMENT OF NAOMI BERNSTEIN, VICE PRESIDENT OF MARKETING
SERVICES, AMERICAN FAMILY ENTERPRISES
Madam Chairman, I am pleased to appear before the Subcommittee
today to discuss the promotional use of sweepstakes in the sale of
magazines and other products through direct marketing. My name is Naomi
Bernstein and I am the Vice President of Marketing Services for
American Family Enterprises, one of the leading subscription sales
companies. At AFE, my responsibilities include the administration of
marketing systems and database operations. Before joining AFE 2 years
ago, I spent more than 25 years at Reader's Digest where I was a senior
executive in both the marketing systems and data administration areas.
I am proud to have spent my career in the publishing industry,
Madam Chairman, and I hope that my testimony will help the Subcommittee
better understand the role that legitimate sweepstakes contests have
traditionally played in the publishing industry.
American Family Enterprises, then known as American Family
Publishers, was founded in 1977 by a consortium of four major magazine
publishing companies who sought to increase subscription sales for the
magazines they published. The founding publishers believed, correctly,
that it would prove to be more economical to offer to a mass consumer
audience a broad variety of magazines than to try to identify and
target potential readers for individual magazine titles through the
mail. They further believed, correctly, that subscribers who chose to
purchase a magazine from among many choices offered on a magazine
stampsheet would prove to be just as committed to the magazine and
therefore just as likely to renew from the publisher as those who
subscribed to magazines through direct-from-publisher channels. And,
indeed, for more than 20 years, AFE, along with others, has provided
magazine publishers with many millions of new readers who contribute
significantly to the flourishing magazine industry that exists in the
United States today. According to the New York Times, sweepstakes
solicitations account for roughly one-third of new subscriptions.
Without the subscriptions that AFE and its competitors provide, it is
likely that many publishers would be unable to sustain their
circulation levels, which would pose a serious threat to the continued
financial viability of many magazines.
Sweepstakes are commonplace throughout the business world today.
Coca-Cola, McDonald's and other household names use sweepstakes to
promote their products. In the magazine industry, sweepstakes have long
been associated with subscription sales by both single and multi-title
publishers. The reason is straightforward. Magazine subscriptions are a
discretionary purchase. As in industries with similar marketing
dynamics--from nonprofit fundraising by groups like the American Lung
Association to the President's Day warehouse sale--they require
attention-getting marketing. Sweepstakes contests serve specifically to
attract attention to mailings amidst an extremely cluttered mailbox, to
generate excitement in the possibility of winning and to raise interest
in the product or cause being promoted.
AMERICAN FAMILY ENTERPRISES
As you can see Madam Chairman, sweepstakes have played a major role
in the viability of the publishing industry. American Family
Enterprises is one of many companies that use this marketing tool.
Since its founding in 1977, AFE has used sweepstakes to promote more
than 300 different magazine titles as well as a limited selection of
books and other merchandise.
AFE's sweepstakes are judged by an independent organization. Since
1977, AFE has awarded more than 300,000 prizes, including $92 million
in cash and merchandise prizes. Every prize offered in our promotion is
awarded.
AFE believes, and the data discussed below confirm, that virtually
all individuals who purchase subscriptions through AFE's mailings do so
because we provide them with a low-cost and convenient way to buy one
of the broadest selections of magazines for sale in the United States
today. Consumers buy these magazines because they wish to read them on
a regular basis--not because they feel they must buy in order to win
our sweepstakes.
AFE is a true mass marketer, mailing hundreds of millions of
individual pieces of U.S. mail each year. In fact, if you have a
mailbox, it is likely that you have received one of our mailings.
People of all ages, incomes, and geographic locations receive the same
mailings from AFE.
Madam Chairman, AFE does not target any demographic groups nor do
we collect demographic information from our respondents. We have never
sent out a mailing directed at senior citizens, or any other
demographic group.
In fact, people of all ages and interests subscribe to AFE's
magazines, and people order all different kinds of magazines. Through
our stamp sheets, AFE often markets in a single mailing more than 100
subscription offers, including magazines ranging from Sesame Street and
Teen to Rolling Stone, Parenting, and Fortune. The same stamp sheet--
offering that broad array of magazine choices--is sent to all
customers. American Family's goal is to reach consumers with as wide a
range of ages, income levels, and interests as possible. As a result,
AFE's ``target market'' is simply every American who reads magazines or
who may purchase magazines by mail--in other words, nearly every
reading American household.
AFE is primarily in the business of selling magazine subscriptions.
In order to encourage consumers to open our mail packages, AFE uses a
sweepstakes prize as the primary focus of each of its mailings. Once
opened, AFE hopes a customer will choose to order from among the wide
variety of magazines offered at low prices and available to them in the
convenience of their home. The point of our mailings is not to convince
people they've won a sweepstakes, but rather to be excited about the
possibility of winning and to consider our products. The vast majority
of people who receive our mailings understand them and do not believe
either that they have won or they must order to win.
As the data we have provided to the Subcommittee demonstrates, more
than four out of five of all recipients of our mail do not respond at
all. Of those who do respond, more than half enter the sweepstakes
without ordering--plainly indicating their understanding that no
purchase is necessary. Of those who choose to order, most have entered
an AFE sweepstakes previously without ordering--again indicating they
understand that in AFE's sweepstakes promotions, no purchase is
necessary to enter or win.
This response behavior supports our belief that the overwhelming
number of people ordering from AFE are buying magazines they want to
read, such as TV Guide, Ladies Home Journal, Time, People, and Better
Homes and Gardens, to name a few of our popular selections.
In addition to the sweepstakes entry and official rules, which
explain in detail how the sweepstakes works, each AFE mailing contains
an order form for subscriptions to magazines. AFE offers these magazine
subscriptions at the lowest authorized prices available to the general
public
Our mailings are not designed to, and do not, induce consumers to
buy an inappropriate number of magazines. An analysis of our customers'
buying habits demonstrates that the overwhelming majority of our
customers are not spending excessive amounts with AFE. In fact, among
our customers who make a purchase, the average annual amount spent on
magazines is $40. We estimate that more than 9 in 10 customers spend
less than $100 a year with AFE. Only 2 percent of those who place
orders spend more than $200 annually. We estimate that in 1997 fewer
than 3,000 people and in 1998 fewer than 750 people spent more than
$1,000 with AFE. To put these numbers in context, a household would
reach the $100 spending level simply by ordering through AFE the
equivalent of an annual subscription to People magazine. By adding TV
Guide, Newsweek and Sports Illustrated to the list, the annual
subscription charges through AFE would easily exceed $200 or roughly
the annual cost of a daily newspaper.
In several places throughout each mailing, AFE reminds recipients
that no purchase is ever necessary to win a sweepstakes prize.
Instructions for entering without purchasing are clearly placed in more
than one location. Therefore, it is not surprising that most people who
enter AFE's sweepstakes do not enclose an order for a magazine. This
response pattern indicates that AFE's customers generally understand
that no purchase is necessary to enter AFE's sweepstakes, and that the
process to do so is clear. Indeed, a significant majority of winners of
AFE's sweepstakes have submitted winning entries without placing
orders. In fact, 11 of 17 Grand Prize winners, including our two most
recent winners--John David Gryder (Texas) and Leavitt Baker (Maine)--
submitted their winning entries without an order.
NEW STANDARDS FOR THE INDUSTRY STRENGTHENED COMMITMENT TO CONSUMERS
While it is clear that the vast majority of our customers
understand and enjoy participating in our sweepstakes promotions, it
became evident in 1998 that a very small minority of consumers may have
disregarded, been mistaken or somehow been confused about our
sweepstakes rules and procedures.
In order to address this issue, I, along with other members of
AFE's new management team, initiated a comprehensive re-evaluation of
AFE's marketing and promotional methods. During this process, our
efforts were guided by the following three goals:
(1) To bolster consumers' faith that AFE sweepstakes are
legitimate, truthful and fair;
(2) To better identify and respond to the small number of consumers
whose response behavior may indicate confusion about AFE sweepstakes
mailings;
(3) To continue AFE's tradition of marketing its products in a
manner that continues to be fun and engaging for the consumer.
As part of this process, AFE listened and responded to the
suggestions and concerns of consumer advocates both within and outside
the government. We were also mindful of the concerns that you, Madam
Chairman, as well as the Ranking Minority Member of the Subcommittee,
Senator Levin, and others have raised regarding the conduct of
sweepstakes promotions.
SIGNIFICANT CHANGES BY AFE
The success of our business depends entirely on consumer
confidence. We have every interest and incentive in consistently
delivering value and service to our customers. Based upon our re-
evaluation, AFE has implemented a number of important changes to our
sweepstakes promotions. These changes include:
(1) Clearly disclosing, in numeric form, in AFE's Official Rules,
the odds of winning each prize.
(2) Reminding all mail recipients repeatedly that no purchase is
necessary to enter the sweepstakes.
(3) Including in all mailings a prominent statement of the
``American Family Promise,'' which states that:
--LThe magazine prices that AFE offers are always equal to the
lowest available to the general public.
--LAll sweepstakes prizes are awarded.
--LNo purchase is ever required to enter.
--LAll entries have an equal chance to win.
--LSubscriptions can be canceled at any time and money will be
refunded for all unserved issues.
--LProducts can be returned for a refund if unsatisfactory for
any reason.
(4) Directing that all sweepstakes entries, whether with orders or
without, be returned to the same city, reinforcing the message that all
entries are, in fact, treated equally.
(5) Establishing a website (www.americanfamily.com) to, among other
things, answer consumers' most frequently asked questions, reiterate
the sweepstakes rules and publish the American Family Promise.
(6) Avoiding the use of language referring to the recipient as a
member of a ``small group'' with an improved chance of winning the
sweepstakes prize. This includes language stating that a recipient is a
``finalist'' or ``tied'' to win a prize.
AFE also has instituted a pilot program to try to identify and
protect potentially vulnerable sweepstakes consumers. By this we mean
individuals who are purchasing an unusually large number of magazine
subscriptions. While this might simply represent an appropriate choice
for that person, we recognize that it may also indicate that someone
incorrectly believes that they must order a magazine to enter the
sweepstakes. This group of frequent purchasers appears to represent
less than \1/2\ of 1 percent of AFE's customers. As part of this
program, beginning in the spring of 1998, AFE began sending a ``no
purchase necessary'' reminder letter to individuals whose ordering
patterns suggested that they might not understand AFE's sweepstakes
procedures. This letter generally states that all entries, including
those without an order, have an equal chance to win, and specifically
reiterates that no purchase is ever necessary to enter or win.
As part of the program, AFE has elected not to mail certain
customers for whom the no purchase necessary letter may not be enough.
Although the program is in its initial stages and is under on-going
review, AFE has chosen to stop mailing to approximately 25,000 people.
This means that these customers will no longer receive sweepstakes
solicitations from AFE. The Company has also been working diligently
with the Direct Marketing Association to develop ``best practices''
recommendations on the issue of protecting the vulnerable.
AFE also blocks certain customers from making future orders,
including those who have been identified to AFE as being incapable of
making rational purchasing decisions. AFE also maintains a much larger
list of consumers who have asked AFE not to send them promotional
mailings or who have been identified to the Company by others as not
interested in receiving such mail.
AFE's goal is to offer magazines and products that people want to
purchase and use and to guarantee customer satisfaction. Accordingly,
AFE's policy is to offer refunds on a ``no questions asked'' basis for
all unserved magazine issues or returned merchandise. This refund
policy is prominently featured in all of AFE's mailings. In addition,
customer representatives have authority to go further in appropriate
circumstances in order to handle customer concerns in a compassionate
manner. AFE is committed to excellent customer service.
These actions and others are a central focus of AFE's strengthened
commitment to consumers. Consumer confidence and customer satisfaction
are AFE's highest priorities.
PROPOSED FEDERAL LEGISLATION
As I mentioned earlier, Madam Chairman, AFE is well aware of the
strong interest that you, Senator Levin, and other Senators have in
this issue. We have preliminarily reviewed the legislation that you
introduced earlier this year and believe that it contains provisions
that would help ensure that sweepstakes promotions are used in a
responsible way and by reputable companies. Furthermore, AFE believes
that your bill as well as the legislation introduced by Senator Levin
will help weed out fraudulent operators and set higher standards for
legitimate users of sweepstakes. AFE takes very seriously the concerns
that this Subcommittee has raised and we have already adopted many
provisions contained in your two bills. For example, AFE's mailings
contain several reminders that no purchase is ever necessary to
participate in our sweepstakes. In addition, AFE discloses the odds of
winning each sweepstakes prize that it awards as would be required by
the legislation. In these instances, and many others, AFE not only
supports the substance of your legislative proposals but has already
implemented many of them in connection with its promotions.
While AFE does have concerns about the specific wording of some
provisions, as well as concerns about some of the procedural aspects of
both bills, we would like to work with you, Senator Levin, and your
staffs to see whether these concerns might be addressed as these
proposals move through the legislative process. Indeed, we look forward
to working with you to develop comprehensive standards for the entire
industry.
CONCLUSION
I think it is clear that the vast majority of the individuals who
receive our mailings understand our sweepstakes promotions. Generally,
if they choose to order our products, they do so because they want to--
not because they believe they have to in order to win our sweepstakes.
However, with respect to the very small minority of individuals who may
not understand our sweepstakes promotions, we stand ready to work with
the Subcommittee and other governmental and industry representatives to
develop appropriate safeguards.
Madam Chairman, that concludes my statement. We appreciate the
opportunity to provide testimony at today's hearing. I would be pleased
to answer any questions that you or other Members of the Subcommittee
have at this time.
PREPARED STATEMENT OF DEBORAH J. HOLLAND, SENIOR VICE PRESIDENT OF
PUBLISHERS CLEARING HOUSE
Thank You, Chairwoman Collins, Senator Levin and other Members of
the Subcommittee for the opportunity to be here today.
We at Publishers Clearing House are proud of our company, and the
many magazines and products we offer our customers. We are proud of our
mailings and our sweepstakes. We are proud of our many proactive
consumer education and protection programs, and believe that we have
behaved ethically and honorably in dealing with our customers and the
general public. Specifically,
1. LWe believe that our promotions are clear and that no
reasonable person could be misled by them.
2. LPublishers Clearing House promotions have been tested in
the courts, and in each instance have been found to be lawful
and not misleading.
3. LPublishers Clearing House is a leader in the direct
marketing field, and has numerous innovative and effective
programs in place to educate and assist consumers with direct
marketing questions and problems.
4. LPublishers Clearing House does not unfairly target the
elderly or any other population group.
We support a three-pronged program to address the concerns raised
by the Subcommittee, consisting of:
1. LFederal legislation that would provide business with clear
objective standards for sweepstakes mailings.
2. LA comprehensive program of consumer education and
protection, arising from a public-private partnership between
government and industry self regulatory organizations.
3. LInnovative and effective outreach and protection programs
for those consumers who, for whatever reason, are not able to
understand sweepstakes promotions, including suppression
programs to get them off of active sweepstakes promotion
mailing lists.
Introduction to Publishers Clearing House
Publishers Clearing House is a direct marketer of magazine
subscriptions and consumer products that employs a free by-mail
promotional sweepstakes to draw attention to its mailings and offers.
Our mailings are disseminated to consumers throughout the United States
and Canada and our product offerings include, in addition to magazine
subscription offers, home entertainment products (principally books,
audio and video), housewares, horticultural products, gift foods,
collectible figurines, coins, jewelry, sports memorabilia, stationery,
household cleaning products and other consumer goods and services.
Publishers Clearing House was established in 1953 to provide a
cooperative or ``car pool'' for by-mail magazine subscription
solicitations, allowing offers for many titles to be carried in a
single mailing envelope rather than in many separate mailings by each
publisher and title. We guarantee the best deal on magazines authorized
by publishers for new subscriptions offered to the general public and,
as a valuable source of new subscribers to the over 350 magazines we
serve, Publishers Clearing House provides a steady flow of new readers
to the foremost publishers in the United States and Canada. Additional
product categories were added over the years, and we now offer
consumers over 3,200 active items--comparable to the stock of an
average department store in similar merchandise categories, or to the
offerings in over 40 separate catalogs--in a wide variety of categories
that appeal to every age group.
The promotional sweepstakes was adopted by Publishers Clearing
House in 1967 as a way to draw attention to its mailings and offers.
Since then, over $135 million in prizes have been awarded by Publishers
Clearing House to thousands of winners all over the United States and
Canada. No purchase is ever necessary to enter and win a Publishers
Clearing House sweepstakes. Of the 29 people who have won a prize of $1
million or more, 22 won with an entry that was not accompanied by an
order.
Publishers Clearing House was founded in Port Washington by Harold
and LuEsther Mertz and their daughter Joyce, all of whom are now
deceased. The limited partnership interests in Publishers Clearing
House are held by or for the benefit of members of their families and
charitable trusts and organizations that are the beneficiaries of their
philanthropic generosity. Currently, over 40 percent of Publishers
Clearing House's profits go directly to benefit charities and
charitable interests.
Publishers Clearing House employs over 900 people full-time.
Publishers Clearing House's principal place of business is located at
382 Channel Drive, Port Washington, New York 11050. It maintains
additional offices and production facilities at 101 Winners Circle,
Port Washington, New York 11050 and at 6901 Jericho Turnpike, Syosset,
New York 11791.
Publishers Clearing House Solicitation Mailings
Publishers Clearing House mails solicitation materials with
magazine and product offers that include an invitation to enter our
free by-mail promotional sweepstakes many times throughout the year to
a wide variety of people across the United States. Mail volumes range
from the 100's of thousands to many millions. Typically, more than 70
percent of those persons receiving a package do not respond at all to a
Publishers Clearing House mailing. Of those that choose to respond, the
number of persons who enter without an order is equal to 2, 3 or even 4
times as many as the number who order, and (on average) about 65
percent of the responses to a mailing are non-order entries.
Through its promotional mailings, Publishers Clearing House offers
consumers in addition to magazine subscriptions a wide range of
attractive home entertainment products (principally book, audio and
video product), housewares, horticultural product, gift foods,
collectibles, coins, sports memorabilia, jewelry, stationery, household
cleaning products and other consumer goods and services.
Almost 83 percent of the people who ordered anything from us in
1997 ordered less than $100 worth of magazines and products, and 95
percent ordered less than $300, based on information on our billing
file as of 1997 year-end. Given the wide range of magazines and
products available through Publishers Clearing House mailings, these
levels are not unreasonable or inherently suspicious. From this we
calculate that the average individual annual order total in 1997 from
Publishers Clearing House promotional mailings including sweepstakes
entry opportunities was approximately $91.37.
Longstanding promotional principles govern the presentation of our
sweepstakes and product offerings in our promotional mailings:
All material terms of the offer are clearly set forth in
the mailing, in the context of an interesting and engaging creative
presentation.
Clear ``no purchase necessary'' messages always appear on
the entry-order form included in each and every mailing--always on the
back and now routinely on the front as well.
Each and every mailing contains a complete set of
Official Rules for the giveaways presented in the mailing, including
clear instructions on how to enter without ordering.
The Official Rules included in every mailing inform
consumers that they can enter current ongoing sweepstakes as often as
they like simply by writing to Publishers Clearing House and invite
consumers to write if they want to receive our mailings.
Our mailings prominently identify Publishers Clearing
House as the source of the mailing and provide an address to which
interested persons can write for additional information.
We guarantee that you will not find a better new
subscriber deal offered to the general public on any magazine you order
from Publishers Clearing House.
We offer a ``Free Inspection Privilege'' on everything we
sell. Customers may examine their purchases at home with 100 percent
satisfaction guaranteed. Customers may cancel any order and receive a
fall refund, no questions asked.
``Free credit.'' Customers are never required to send
money with their orders, and all orders are billed later. There is
never any interest charge on current accounts.
The Publishers Clearing House Sweepstakes
The ``Publishers Clearing House Sweepstakes'' is an umbrella term
for many sweepstakes or ``giveaways'' that operate continually and on a
staggered schedule throughout the year. Publishers Clearing House
extends to consumers an invitation to enter the Publishers Clearing
House sweepstakes in all or virtually all of its solicitation mailings.
Over $135 million in prizes have been awarded by Publishers Clearing
House to thousands of winners all over the United States and Canada. No
purchase is ever necessary to enter and win a Publishers Clearing House
sweepstakes.
Typically, one giveaway promotes a $10 million SuperPrize to be
awarded in January, while a different one promotes a $1 million
SuperPrize to be awarded midyear. Other giveaways might offer a single
$100,000 cash prize or a multitude of different cash and merchandise
prizes. Customer research has led us to introduce contests with a wide
range of smaller prizes, such as $1.00 or fashion jewelry, allowing
many more contest participants to win. The size and variety of a year's
giveaways are decided seasonally in concert with other marketing plans.
Sweepstakes winners are chosen by various random selection
methodologies, such as random drawings or matching winning numbers, at
giveaway end. Winner selection processes are such that the laws of
chance are applied fairly, and the placing of an order with an entry
has no impact whatsoever on the chances of winning.
Publishers Clearing House observes all Federal and State laws and
regulations and its contests are registered and bonded where required.
All registered prizes are awarded in accordance with the published
rules. Contest procedures are overseen by Giveaway Supervisors and a
team of auditors from the international firm of Pannell Kerr Forster
based in New York.
Prizes of $10,000 are delivered by the company's ``Prize Patrol,''
which makes unannounced visits and surprise awards at the winner's
doorstep. Each year, giant prize certificates, flowers, balloons and
champagne are presented to some thirty major winners whose stunned
reactions are seen by millions through the company's TV commercials.
Winners need not be home to receive their prizes.
``Good as Gold'' Awards
In recent years, Publishers Clearing House has recognized other
``winners,'' specifically unsung heroes across America who render
outstanding service to their communities. Ten deserving individuals are
selected annually by an impartial panel from among nominees submitted
by the media to receive our ``Good As Gold Award.'' Each honoree is
surprised in the Publishers Clearing House tradition, with an
unannounced visit from the Prize Patrol, plus a crystal and gold trophy
and $10,000 in cash.
Who Gets Publisher Clearing House Solicitation Mailings?
We select names to receive mailings from our own records on the
basis of transactional characteristics that are deemed to be reliable
predictors of whether or not a person will be sufficiently interested
in the offer to order from the mailing and pay for his or her
purchases. The most reliable predictors (for Publishers Clearing House
as for the direct marketing industry as a whole) are those applied in
the ``Recency-Frequency-Monetary Value'' (or ``RFM'') analysis
traditionally used by industry participants for this purpose. This
analysis depends on order recency (``R''), order frequency (``F'') and
cumulative sales or monetary value (``M'') for the person. In other
words, we act on the assumption that those customers who have ordered
most recently, order more frequently and are long-time customers with
significant cumulative order histories have most consistently
demonstrated interest in our offers and are therefore more likely to
order again than persons who do not share these characteristics.
Product line associations or ``affinity'' can also be important (for
example, persons who have recently purchased a collectible coin are
more likely to buy from another coin promotion than persons who have
not). Using ``RFM'' and product line affinity information in name
selection are common direct marketing industry practices.
We rent mailing lists from established businesses in order to
secure the names and addresses of potential new customers to whom
Publishers Clearing House's prospect mailings may be sent in its new
business program. The selection of outside mailing lists is based on an
historical analysis of similar lists in past Publishers Clearing House
mailings, and are not skewed to any particular demographic group. Those
lists that have the best results for Publishers Clearing House are
typically those that show some very recent direct mail activity (e.g.,
bought from a recent catalog) or affinity for a Publishers Clearing
House magazine or product offering (e.g., subscribers to a particular
magazine or buyers of a certain category of products) by the persons
whose names appear on the lists. This is a standard practice in the
direct marketing industry.
Moreover, interested consumers are invited to write to us to
receive our bulletins, and many do. The Official Rules in each and
every one of our solicitation mailings contains an invitation to
consumers to write to us for future sweepstakes entry opportunities,
and those who do write are for a year sent every magazine mailing we
mail and many merchandise mailings as well. At the same time, consumers
may also write to receive fewer mailings, should they so desire, and
all such requests are honored.
Publishers Clearing House Does Not Unfairly Target Seniors
Publishers Clearing House does not direct its promotional mailing
program to any particular age group, and the many different magazines
and products offered by Publishers Clearing House appeal to a broad
spectrum of people. While some magazines and products offered by
Publishers Clearing House in its promotional mailings no doubt appeal
to senior citizens, the same products are likely to appeal as well to
persons in other age groups and Publishers Clearing House offers
magazines and products in its mailings that are expected to appeal to
all age groups.
The Publishers Clearing House mailing program is not conducted on
the basis of the selection of persons to receive its promotional
mailings by age. Indeed, Publishers Clearing House does not maintain
comprehensive information on its customer files concerning the age of
its customers, and does not acquire or use age information for
commercial purposes.
While Publishers Clearing House does not generally maintain age
information on its customers, the limited amount of market research
available suggests that 70 percent of Publishers Clearing House's
customers are under the age of 65.
Consumer Privacy
We respect the confidentiality of our relationship with customers.
We do not rent our customer list to others, and we will honor any
person's request to be removed from our active mailing list.
Publishers Clearing House participates in the Direct Marketing
Association's ``Mail Preference Service'' (MPS) which provides us with
a list of consumers who have informed the DMA that they want their
names removed before outside direct mail lists are used. Publishers
Clearing House honors all such requests.
Consumer Education and Protection Programs
Publishers Clearing House has established and maintains a
comprehensive consumer education and protection program, designed
around the two major elements of the repeated iteration of a ``No
Purchase Necessary'' message and the identification and suppression of
high activity customers who are ascertained to be unsuitable for
sweepstakes promotion. Publishers Clearing House supplements its
efforts in this area with other consumer education programs and with
proactive anti-scam programs to collect and provide information on
consumer frauds to law enforcement personnel.
Reiteration of the No Purchase Necessary Message
Through active propagation of the message that ``The Best Things in
Life Are Free,'' and that no purchase is ever necessary to enter a
legitimate sweepstakes, Publishers Clearing House continues to help
educate and protect consumers from illegal and fraudulent sweepstakes
scams that demand a product purchase or some other form of payment to
claim a bogus or non-existent prize.
Publishers Clearing House prominently features an ``Anti-Scam/No
Purchase Necessary'' message on its toll-free customer service line 24
hours a day. This recorded message, which warns consumers never to send
any money to claim a prize, has been particularly helpful in stopping
scams that occur after business hours when legitimate companies and
consumer protection authorities can generally not be reached to
substantiate an offer. There were more than 4 million iterations or
``impressions'' of this key message to consumers calling Publishers
Clearing House during 1998.
As a key member of the Federal Trade Commission's Partnership for
Consumer Education, Publishers Clearing House designed and produced an
educational flyer emphasizing the important sweepstakes rule that ``The
Best Things in Life are Free'' and that no purchase is ever necessary
to enter or collect a prize in a legitimate sweepstakes. This flyer has
been distributed by Publishers Clearing House to nearly 300 thousand
consumers in mailings, speaking engagements and through community
centers, senior centers and consumer gatherings. In 1997, a Spanish
language version of the flyer was produced for improved distribution in
Hispanic communities.
The ``Best Things In Life are Free'' flyer has recently been
reproduced on the Publishers Clearing House website (www.pch.com) for
all visitors to view. Additional information displayed on the website
provides a variety of consumer education information on sweepstakes and
useful tips on how to avoid becoming the victim of an illegal
sweepstakes scam.
In addition to these active programs, Publishers Clearing House has
for some time written on a regular basis to active customers with a
non-promotional letter reminding them that they never have to order to
enter or win or even to hear from us on a regular basis. Persons have
been selected to receive such a letter on different bases at different
times, and the number of persons to whom the letter has been mailed has
varied. The most recent version of this letter was sent in February
1998 to over 125,000 active customers who had ordered $1,000 or more
from Publishers Clearing House in the prior year and each included a
copy of the ``The Best Things in Life are Free'' flyer produced with
the Federal Trade Commission. Selection to receive such a letter is not
related to the future receipt of mailings.
Publishers Clearing House has, in addition, reached out with
consumer education messages in regular appearances before community
groups, senior citizen and consumer gatherings, and in radio,
television and print interviews.
Proactive Assistance for Consumers
In addition to its innovative consumer education and anti-scam
programs, Publishers Clearing House provides a different type of
assistance for those who need help with sweepstakes issues. As with any
promotion, there may be individuals who are confused and may respond
inappropriately. While these are isolated incidents, and make up a very
small proportion of Publishers Clearing House's consumer contacts, we
are concerned whenever we encounter such a situation and Publishers
Clearing House maintains a number of comprehensive programs and
policies to assist consumers and their family members, including:
Publishers Clearing House maintains a special ``Sweepstakes
Assistance Line'' at (800) 563-4724 available to family members or
friends who may need help or assistance about a loved one who may be
responding inappropriately to the promotions they are receiving. This
special service is publicized on inserts in Publishers Clearing House
product shipments, on the Publishers Clearing House website, in the
media and through public outreach programs.
Customer Service representatives are trained to spot customers who
may need special assistance, and to handle inquiries in a humane and
sympathetic manner backed by a liberal cancellation and refunds policy.
Whether identified by a Publishers Clearing House representative,
or through contact by a family member, friend or other interested
party, the situation is immediately transferred to a specially trained
group of senior representatives who will work to resolve any concerns
or problems.
Publishers Clearing House maintains a consumer-friendly policy
under which magazine subscriptions may be canceled for pro rata refunds
and merchandise may be returned for full refunds. Postage paid labels
are provided where appropriate to facilitate merchandise returns.
When such a situation becomes known to us, the customer's name will
be removed from the Publishers Clearing House mailing list and a
permanent block on incoming orders will be placed on the customer's
file.
In cases where it appears a consumer may have been victimized by or
lost money to criminal scam operations, Publishers Clearing House will
directly contact appropriate consumer affairs and law enforcement
agencies on behalf of the consumer.
Over 1,000,000 copies of a package insert that describes Publishers
Clearing House's consumer assistance programs, developed by our
Customer Relations Council and signed by Gina Passerino in the Consumer
Affairs Department, have been distributed to customers.
There are other situations in which consumers may require special
assistance--such as during floods or other natural disasters, or during
a personal crisis involving a medical condition, or temporary financial
difficulties--and Publishers Clearing House will put a hold on billing
to allow customers time to deal with other priorities first.
High Activity Detection and Suppression Program
Proactive Identification and Suppression of Confused Consumers
The Nature of the Problem. The overwhelming majority of consumers
understand fully the nature of the Publishers Clearing House
sweepstakes, and respond rationally to our promotional mailings.
No purchase is necessary to enter a Publishers Clearing House
sweepstakes, and all our promotional mailings carry a clear statement
to that effect in a form sanctioned by an agreement entered into by
Publishers Clearing House and a group of 14 States in 1994. Moreover,
in an effort to ``get the word out,'' Publishers Clearing House has
engaged in a number of entirely voluntary consumer education and
protection initiatives focusing on the key ``No Purchase Necessary''
message, including special letters and flyers, and messaging on our
toll-free customer service lines and in our website.
However, there are people who--for whatever reason--do not seem to
understand this key message and appear, in some cases, to have engaged
in inappropriate order activity. While they represent an extremely
small proportion of Publishers Clearing House's total customer base,
they are a source of real concern and pose an urgent issue for
responsible direct marketers.
As a direct marketer, Publishers Clearing House does not have
immediate contact with its customers, and hence does not have the
visual clues about its customers that would ordinarily be available to
a retail merchant. The nature of the business is such that in many
cases the only communication with the customer is through preprinted
order and entry forms. Moreover, Publishers Clearing House's order-
based customer records and fulfillment system were not designed to
aggregate customer orders over time and do not lend themselves to the
ready detection of irrational buying patterns. Nevertheless, when the
existence and nature of the problem came to Publishers Clearing House's
attention, the company took positive and creative steps to respond
responsibly to the phenomenon.
Publishers Clearing House's Response to the Problem. For consumers
who can read and comprehend simple messages, the frequent reiteration
of the ``No Purchase Necessary'' message should be enough to inform,
educate and dispel any lingering misunderstanding. However, education
alone may not by itself be enough for those consumers who, by reason of
confusion, mental disability, lack of education or experience or other
factors are unable to comprehend the basic message. Because we are
concerned about all consumers, Publishers Clearing House has innovated
and is now implementing a comprehensive program to identify such
individuals and stop sending sweepstakes promotional materials to them.
The proactive High Activity Suppress Program developed by
Publishers Clearing House is a real breakthrough in the direct
marketing industry. It constitutes an innovative and effective way to
``close the loop'' with those high activity consumers who are in need
of assistance, and to take effective steps to relieve their distress.
Fundamentals of the High Activity Suppress Program. The fundamental
idea of the High Activity Suppress Program is that highly active
customers should be identified, contacted and assessed for their
suitability for sweepstakes promotion, in a manner that respects the
privacy and dignity of the persons in question as well as their legal
and human rights. In administering the Program, it was recognized that
it would not be possible to contact every customer, and accordingly we
started with our most active customers.
In order to obtain the information needed to make a determination
as to whether a customer should be removed from the mailing list,
Publishers Clearing House contacted its most active customers by
telephone and, where that has not proven to be possible, a by-mail
survey. As a work in progress, we are developing techniques for the
Program to assess those persons who could not be reached by telephone
and have not responded by mail.
The High Activity Suppress program is supplemented by Customer
Service representatives who are directed to be on the look out for
individuals who may be in need of assistance, and who are empowered to
take prompt and meaningful action to assist them.
Contacting Customers
Telephone Survey. Publishers Clearing House conducted a telephone
survey based in part on questions taken from a survey conducted by the
AARP that was intended to gauge a person's ability to make reasoned
decisions, and in part on our own experiences in dealing one-on-one
with our customers. Survey questions were designed to assess:
1. Comprehension of No Purchase Necessary message
2. Satisfaction with and use of ordered items
3. Reasons for customer purchases
4. Financial situation of customer
A series of test calls using the survey questionnaire was conducted
initially in a pilot program to determine if the survey seemed to be
effective and workable in providing the information needed to assess
customers. Adjustments were made where deemed necessary to make the
survey questionnaire more effective. Then, a small group of senior
customer service representatives was chosen and trained to call
consumers and administer the survey.
Three different ways of contacting customers by telephone were
implemented. First, for those customers having a home telephone number
that could be obtained from regular commercial sources, an outbound
telephone contact was attempted. If the customer could not be reached
initially, up to two callback attempts were made. If we were still
unsuccessful in reaching the customer, or if no phone number could be
obtained, the customer was mailed an invitation to call Publishers
Clearing House Customer Service on a special toll-free 800 line at
which point the survey would be conducted. Customers were offered a
free gift as in inducement to participate in the survey.
Mail Questionnaire. If the outbound calls and inbound invitation
elicited no response, after 30 days a mail questionnaire was sent to
the customer with an invitation to participate and return the survey to
Publishers Clearing House Customer Service. An additional follow-up
questionnaire was mailed to non-respondents.
Assessment of Customer
Telephone and mail versions of the survey were then reviewed and
customers assigned to one of two categories:
(1) OK to Promote. Customer would remain on the Publishers
Clearing House mailing list, but would receive additional
educational messages on the No Purchase Necessary message from
Publishers Clearing House in special mailings; and
(2) Do Not Promote. Customer is immediately removed from all
Publishers Clearing House active mailing lists and suppressed
from future mailing selections. All unpaid product shipments
are stopped.
Assessment of an individual's mental state and capacity for
rational behavior is, under any conditions, difficult, and we
recognized that our undertaking was inherently challenging. Some
persons were initially assigned to an ``undecided'' category, and only
assigned to one of the two main groups after further assessment and
consideration.
The criterion weighted most heavily in individual assessment was
whether or not the person demonstrated adequate comprehension of the no
purchase necessary message. Moreover, while we do not believe that it
is our province to make decisions for persons who are rational and
understand that they do not have to make a purchase in order to enter
the sweepstakes, nevertheless in cases where it appeared that a person
was in financial straits or had a serious health problem, they were
also put into the ``do not promote'' group.
There were some customers who did not respond to the survey--either
we could not contact them by telephone, or we did not receive a written
survey back, or they indicated to us by phone or mail they did not want
to participate. While we are still exploring alternatives for
assessment in the absence of customer-provided information, attempts at
assessment have been made on the basis of an analysis of their order
activity. Pending further resolution as future contacts are attempted,
these individuals have now been removed from the Publishers Clearing
House active mailing list. Moving forward, for those persons who are
not responsive to our attempts to contact them, reasonable steps, which
may include statistical or other modeling, are planned to assess the
suitability of such persons for further sweepstakes promotions.
Disposition of High Activity Names
The names of persons who are determined to be inappropriate for
further promotion are marked for suppression from all future mailing
selections, and a permanent ``block'' is instituted to prevent all
future orders. People may also be blocked from placing future orders by
reason of persistent non-payment, fraud, by request of a friend or
relative and the like.
Website Consumer Affairs Features
The Publishers Clearing House website also features its Customer
Service and Consumer Affairs services and messages, which include
consumer education and anti-scam advisories reminding consumers that no
purchase is ever necessary to enter or win a legitimate sweepstakes.
Services promoted through the website include a special toll free
``Sweepstakes Assistance Line'' for consumers to call if they believe a
family member or friend has questions or may need assistance regarding
sweepstakes mailings they received. Those who may have a consumer
inquiry or service issue can e-mail Publishers Clearing House directly
for prompt handling. Publishers Clearing House's website is a
participant in the BBBOnLine program and displays the BBBOnLine logo to
assure visitors that they are visiting the real Publishers Clearing
House and not a scam or borderline operation that may be using
Publishers Clearing House's name improperly or a sound-alike version in
an attempt to defraud.
The Publishers Clearing House Anti-Scam Database
Publishers Clearing House cooperates with law enforcement personnel
to identify, apprehend and prosecute perpetrators of sweepstakes fraud.
Through its unique anti-scam database, Publishers Clearing House
assists law enforcement personnel and consumer protection professionals
in identifying sweepstakes frauds and in helping consumers to avoid
sweepstakes scams. The information in this database, maintained in a
secure format, is used exclusively to identify and track illegal and
criminal scam operations.
Each consumer contact received by Publishers Clearing House that
reports a sweepstakes scam is recorded on the specially tailored
database. Full details of the scam are recorded and consumers are
advised to contact the National Fraud Information Center Hotline. The
anti-scam database now contains well over 30,000 entries and is
regularly shared with law enforcement and consumer protection
authorities to provide information on the location, identity and
activities of current scam operations.
With the direct assistance of information gathered by Publishers
Clearing House and provided to the authorities, over 34 arrests and
some 15 convictions have been realized by a variety of Federal law
enforcement officials. In addition, more than a dozen civil proceedings
have been initiated by various consumer protection officials in a
number of States and provinces acting, in part, on information provided
by Publishers Clearing House. The comprehensive information on the
database is available to all law enforcement and consumer protection
officials upon request.
Publishers Clearing House Mailings Comply with Applicable Law
Compliance with Law; Odds. We believe that Publishers Clearing
House mailings are conducted in full compliance with applicable law. We
are not aware of any applicable law that requires us to disclose the
odds of winning. However, we have recently moved to include a numerical
odds statement in our mailings, and we support new Federal legislation
that would impose this requirement on all sweepstakes marketers.
As you may know, Indiana has recently taken the position that its
statute requires us to include an odds statement in a particular
fashion in our mailings. While we disagree with their interpretation of
law, we are prepared to meet with them and discuss a prompt resolution
of the issue.
Favorable Court Rulings. Publishers Clearing House mailings have
been challenged in the courts, and in each instance have been found to
be lawful and not deceptive. In no case has a Publishers Clearing House
mailing been found to be deceptive or misleading, or otherwise to have
violated any law.
In a typical example, Judge Bertelsmann of the United States
District Court for the Eastern District of Kentucky, in dismissing the
cause in Mains vs. Publishers Clearing House (Civ. Act. 98-158), in a
brief opinion and order stated:
The court carefully reviewed the exhibits containing the
mailings to plaintiff, and finds no fraud or misrepresentation.
The exhibits are clear that the recipient has some chance to
win a large sum of money, but that most people will receive a
prize of jewelry worth $6.95.
In a similar vein, Magistrate Judge Cogburn, in the United States
District Court for the Western District of North Carolina, in
recommending dismissal of the cause in Rich vs. Publishers Clearing
House (4:98 CV 178-C), stated:
. . . a reasonable person could not have concluded that he had
won $10,000,000 based upon the mailings annexed to plaintiffs
complaint. . . . a mailing that informs a contest entrant that
he is a ``potential winner'' is neither unfair nor deceptive,
and it is not reasonable for a person to stay out of work or
make purchases based upon such representation.
Likewise, Judge Aiken of the United States District Court for the
District of Oregon, in granting summary judgment in favor of Publishers
Clearing House in Kiss vs. Publishers Clearing House (Civ. No. 97-542-
AA), stated:
Mr. Kiss contends that he believed entry of his name, and his
name alone, into the official minutes of an actual Publishers
Clearing House meeting meant that he had received the winning
number in the contest and needed only to submit a timely entry
to collect his prize. However, such an inference is not
reasonable, in view of both the express qualifying language
contained in the text of the documents and the ubiquitousness
of computer-personalized mass mailings. A bulk mailing
personalized with the recipient's name would not cause a
reasonable person to infer that the mailing was being sent to
him alone.
Compliance with the 1994 Assurance of Voluntary Compliance.
Publishers Clearing House entered into an agreement or ``assurance of
voluntary compliance'' with 14 States in 1994 that (among other things)
prescribed the placement of the key ``No Purchase Necessary'' message
in our mail, provided a protocol for the proper means of telling
consumers that those who do not order may not receive promotional
mailings in the future, and specified the circumstances under which an
odds statement would be appropriate. Publishers Clearing House has
lived up to its obligations under that agreement.
Customer Service
Consumers can reach Publishers Clearing House Customer Service by
writing to 101 Winners Circle, Port Washington, New York 11050, or by
telephoning toll-free in the United States and Canada: (800) 645-9242.
Our Customer Service Department consists of managers and over 200
well-trained Customer Service Representatives who are on-duty from 8:30
a.m. to 8:30 p.m. Eastern Time, Monday through Friday.
In relating to its customers, Publishers Clearing House adheres to
a set of guiding principles on which the company was founded:
1. Satisfaction with purchases is guaranteed.
Publishers Clearing House offers magazine subscriptions at
``unbeatable'' prices and ``good quality products at good value
prices.'' All offers are made on a free trial basis which gives the
customer the opportunity to read a magazine or try a product before
paying for it.
2. Satisfaction with Customer Service is guaranteed.
Our customer relations philosophy is that the ``Customer is always
right'' and that his or her wishes are followed as closely as possible.
``Free'' consumer credit has always been a benefit of dealing with
Publishers Clearing House. Customers--some of whom may not be able to
afford the full purchase price at one time--are encouraged to take
advantage of our installment billing without any interest charge.
Publishers Clearing House provides TDD (Telephone Device for the
Deaf) to make ourselves more easily available to customers who are
hearing-impaired.
3. Speed and Accuracy are crucial to Quality Service.
Speed is paramount--both in the delivery of magazines and
merchandise ordered and in the servicing of inquiries and adjustments.
The better we are able to accommodate consumers' desire for prompt and
courteous service, the greater the loyalty of our customers.
The Development, Production and Delivery of Publishers Clearing House
Mail
The company's staff of over one hundred writers, art directors and
purchasing/production experts develops all mailing materials, then
forwards them to vendor ``lettershops'' around the country for
carefully supervised production and delivery to the United States
Postal Service for integration into the postal stream and delivery to
consumers. All solicitation materials are reviewed by legal counsel.
The computer assignment of prize numbers to persons on merged mailing
lists is performed according to specified procedures approved and
supervised by the team of outside auditors.
To the degree practical within production and cost considerations--
the company uses recycled paper in outgoing mail.
Handling of Contest Mail and Order Fulfillment
Every year millions of responses--sweepstakes entries with and
without orders--are returned to Publishers Clearing House. Entries
accompanied by an order are not in any way given a special priority or
otherwise favored in the winner selection process over entries not
accompanied by an order, and non-order entries have just as good a
chance to win. Entries received after the applicable deadline date,
regardless of whether accompanied by an order or not, are not eligible
to win.
Response mail is delivered by the USPS to Publishers Clearing House
document processing facilities. Internal control of every piece of mail
begins at the moment of delivery. All mail is processed in a secure
environment, to assure the timely, accurate and cost-effective
processing of entries accompanied by an order and non-order entries
alike, and to promptly transmit magazine and merchandise order
information to appropriate publishers or fulfillment houses.
High speed mail sorting equipment is used to separate orders from
non-order contest entries, and to slit reply envelopes open so that the
contents can be efficiently extracted. Response mail that cannot be
processed on the mail sorting machinery is then processed manually by
the clerical staff.
The majority of entries (orders and non-orders alike) are then
electronically read using technologically-advanced high-speed document
scanning equipment. The use of these computerized scanners helps to
ensure that all responses are accurately processed for orders and for
entry into Publishers Clearing House contests, regardless of whether or
not they are accompanied by an order. Those order and non-order
documents that cannot be scanned are key entered manually to fulfill
the orders and enter the entries into the contests.
Magazine orders are transmitted to publishers twice a week so that
subscribers can expect to receive their first issues quickly (3-4 weeks
in the case of weekly magazines, somewhat longer in the case of
monthlies). Non-magazine orders are transmitted via telephone lines to
our fulfillment facilities so that customers can easily receive their
merchandise in about 2 weeks from when it was ordered.
Once all data have been collected from return mail, discardable
materials are sent to recycling facilities.
Publishers Clearing House Billing Procedures
Bill Sequence and Timing. Within a week of when an order is
processed at Publishers Clearing House, an order acknowledgment
(including an initial invoice) is sent to the customer.
The first regular bill (Bill #1) is sent 6 weeks later for magazine
and mixed (i.e., magazines and merchandise) orders, 7 weeks later for
main line merchandise orders, and 6 weeks later for continuity
merchandise orders.
The next regular bill in the series (Bill #2) is sent out 5 weeks
after Bill #1 (with the exception of Continuity Bill #2, which is sent
4 weeks later). After that, bills are sent out every 4 weeks if the
order remains unpaid. A customer with 3 or more main line orders
delinquent at or beyond Bill #3 may be sent a quarterly consolidated
statement (listing the unpaid main line orders).
After the internal billing cycle is completed (normally 9 months to
a year), unpaid accounts are referred to outside collection agencies.
Detection of Duplicate Bills. Invoices and order based bills have a
scanline on the return document that includes the order number plus the
amount due for each order. Payment return mail is mailed to outside
vendors or ``lockboxes'' for processing and deposit of remittances. The
lockboxes scan that information and pass the customer payment data by
order number to our billing system. Publishers Clearing House posts
these payments by order number. Accordingly, at that point, we can
determine whether or not the payment is a duplicate.
Application of Duplicate and Over-Payments. If a duplicate payment
from an order-based bill is received on a magazine order, the customer
is promptly notified in writing of the fact of the duplicate payment
and provided with an opportunity to obtain a full refund or accept an
extension of the term of the magazine subscription. (Note that the
magazine subscription would not be extended if the original order
included merchandise line items, if the customer had accepted a
previous extension offer, or if the order had a cancel or adjustment
transaction applied.)
Merchandise overpayments and overpayments on magazine orders other
than duplicate payments (i.e., those that do not correspond exactly to
the initial amount due) between $1.01 and $5.00 are automatically
refunded. If an overpayment greater than $5 and less than $500 is
received, the overpayment is applied to other unpaid orders (oldest to
newest) if any exists. If all orders are paid, the overpayment is
refunded. If only part of the overpayment can be applied, the balance
is refunded. Whenever an overpayment is applied to another order, a
customer service letter is sent to the customer, notifying the customer
and explaining how the overpayment was applied.
It is possible for an encoding error to occur and result in the
recording of a payment as having been larger than the actual check
received. Hence, in cases of larger overpayments, a special overpayment
letter is sent advising the customer that they may be entitled to a
refund and asking them to provide us with a copy of their canceled
check for verification. A customer service 800# is included in the
letter to encourage customers to call for additional information and
assistance. Customer Service also requests a copy of the remittance
check from our lockbox facility in order to make sure that an encoding
error has not occurred. If an encoding error had not occurred and the
customer did not ask for the payment back, the overpayment amount is
either applied to unpaid orders or refunded within 60 days.
Availability of Toll-Free Customer Service Lines. All bills
starting with Bill #4 include a toll-free Customer Service telephone
number that customers may use to call for additional information or
assistance with billing questions. Toll-free Customer Service telephone
numbers are also included on the cover letter for any consolidated
bill, in the letter text of any duplicate or over-payment notice, on
merchandise return forms (included in the package with the original
merchandise shipment), on the back of merchandise invoices (presently
being phased in) and on all continuity Bills, as well as, as noted
above, on main line Bills #4, #5, #7, #8 and #9 (and their Part Pay
counterparts), and in all Customer Service correspondence.
Billing Questions. If a customer claims that he or she has already
paid for an order, we automatically adjust their account if the claim
is for $9.97 or less to remove the charge. If the charge is more than
that, we ask for proof of payment (such as a canceled check or money
order receipt), and suspend billing for that particular order for a
month to allow time to resolve the matter. If the customer is unable to
provide proof of payment, ordinarily we will still credit the account
if the customer maintains that the order was paid in the absence of
indications to the contrary. If a customer claims that he or she never
received the product, or claims the product was returned or damaged, we
either offer to send a replacement or accept the customer's word on the
matter and adjust the account to remove the charge.
Refund Policies. All magazines and merchandise are offered and sold
on the basis of a 100 percent satisfaction guaranteed, money back with
no questions asked policy. Magazine customers are permitted to inspect
the first issue of any magazine subscription ordered, and cancel for a
full refund if not completely satisfied. Magazine customers may cancel
any magazine subscription at any time thereafter, and obtain a full
refund on all unserved issues. Merchandise customers may cancel any
order and obtain a full refund upon the return of the item in question.
Customer Service representatives have the authority to waive return of
unsatisfactory or unwanted merchandise, and to remove charges and issue
refunds in other appropriate cases upon the request of the customer.
Publishers Clearing House provides cash refunds to its customers,
and does not require them to accept merchandise credits in lieu of cash
refunds.
Conclusion
Once again, thank you Chairman Collins, Senator Levin, and other
Members of the Subcommittee for the opportunity to address these
important matters.
We are proud of our company and its programs, and believe that we
have behaved ethically and honorably in dealing with our customers and
the general public. We think that more can be done to educate and
protect consumers, and wish to reiterate that we support a three-
pronged program to address the concerns raised by the Subcommittee,
consisting of:
1. LFederal legislation that would provide business with
clear objective standards for sweepstakes mailings.
2. LA comprehensive program of consumer education and
protection, arising from a public-private partnership between
government and industry self regulatory organs.
3. LInnovative and effective outreach and protection programs
for those consumers who, for whatever reason, are not able to
understand sweepstakes promotions, including suppression
programs to get them off of active sweepstakes promotion
mailing lists.
Thank you.
PREPARED STATEMENT OF PETER DAVENPORT, SENIOR VICE PRESIDENT, GLOBAL
MARKETING, THE READER'S DIGEST ASSOCIATION, INC.
I. INTRODUCTION
The Reader's Digest Association, Inc. (``RDA'') is pleased to
participate in the investigation being conducted by Senator Collins and
the Permanent Subcommittee on Investigations (``the Subcommittee'')
into the utilization of sweepstakes as a promotional marketing tool by
American businesses. Through our testimony here today, and our
continued voluntary participation in this investigation, we hope to
demonstrate that RDA utilizes sweepstakes honestly and fairly, as a
legitimate and effective marketing vehicle to promote the wide variety
of its products to a vast segment of the American population. RDA
shares the concerns expressed by Congress concerning the use of
sweepstakes by fraudulent operators. Unscrupulous business practices
undermine consumer confidence in sweepstakes as an effective marketing
tool and hurt businesses like RDA who use sweepstakes to legitimately
promote their products and services. RDA supports tough laws and
enforcement of laws already in existence to combat the activities of
such fraudulent operators. RDA also recognizes that a small number of
consumers who respond to promotional mailings may be confused. RDA is
sympathetic to the needs posed by this small group of individuals and
is committed to developing solutions to address the special needs of
this small segment of the population. RDA looks forward to working
cooperatively with Congress on appropriate measures, including
legislation embodying many of the principles contained in Senator
Collins bill, which will provide the level of consumer protection
necessary, while not unduly restricting the use of sweepstakes by
legitimate sectors of the industry, and depriving the millions of
Americans who enjoy sweepstakes of the opportunity to continue doing
so.
II. RDA IS A GLOBAL PUBLISHER WHICH UTILIZES SWEEPSTAKES AS A
LEGITIMATE AND EFFECTIVE MARKETING TOOL
RDA is not a sweepstakes company. Rather, it is a global publisher
of a vast array of magazines, books, music and video products. RDA's
flagship magazine is read by more people than any other paid
publication on the planet--over 100 million people, in 19 languages, in
49 countries. Nor is RDA simply a magazine company. RDA creates
products in many different interest categories, such as health,
history, do it yourself projects, religion, nature, travel, gardening
and cooking. RDA researches its products extensively and is world
renown for its editorial quality. RDA is committed to developing
products that fit its customers needs and tastes, which are varied and
diverse. In fact, for RDA's 1998 fiscal year, 63.5 percent of RDA
revenues came from the sale of products other than magazines.
RDA's plans for the future are to develop an even more varied range
of meaningful products and services to offer to a broader portfolio of
customers. Specifically, the company has formally announced its
intention to expand the Reader's Digest brand to other non-publishing
product and service offerings, to continue its successful global
expansion and to pursue new marketing channels in addition to its
traditional sweepstakes connected direct mail businesses.
The diversity of RDA's current product offerings and its marketing
strategies for the future all reflect RDA's core philosophy and stated
corporate mission which is pure product driven--to create products that
inform, enrich, entertain and inspire people of all ages and cultures
around the world. While sweepstakes are an effective marketing tool
that RDA utilizes to promote its products offers to existing and
potential customers, the sweepstakes are always secondary and ancillary
to the product offer. They are used by RDA much the same way as
retailers or package goods marketers use sweepstakes, or any other form
of advertising--to entice the customer to come into the store, or in
the case of a direct mail marketer, to open the envelope. Still, it is
the strength and quality of RDA's products and the company's ability to
cultivate and sustain long-term customer relationships that determines
the success of the business. RDA could ill afford to jeopardize its
strong brand equity or the unique trust it enjoys with its current
customer base of approximately 42 million people by resorting to any
deceptive marketing techniques whether through the use of sweepstakes
or any other marketing tools.
RDA utilizes sweepstakes honestly and legitimately as one of the
many promotional techniques it employs because it is a proven effective
marketing tool. Sweepstakes are effective, not because they deceive or
mislead, but because they generate interest and excitement and help
draw attention to product offers. When used in the context of direct
mail, they help differentiate the mailing from others in the consumer's
mail box thereby increasing the likelihood that the consumer will open
the envelope and see the product offer. Once the consumer is exposed to
the product offer, however, it is the strength of the offer, the
quality of the product and the value of the product for the price which
will determine whether the consumer will actually respond with a
purchase. For example, as will be discussed more fully later in this
testimony, responses to RDA mailings with a purchase vary widely by
product offer. The sweepstakes may get the consumer ``into the store''
so to speak, but once there, the consumer's decision to purchase or
not, is product, rather than sweepstakes driven. Those who have no
interest in the product can freely participate in the sweepstakes,
without a purchase, which the vast majority of RDA customers understand
and do.
III. RDA'S MAILINGS ARE TRUTHFUL AND HONEST, DISCLOSE ALL MATERIAL
TERMS AND CONDITIONS OF THE SWEEPSTAKES OFFER AND ARE
UNDERSTOOD BY CONSUMERS
Since RDA's sweepstakes are simply a marketing tool ancillary to
its core business, RDA is careful to insure that its sweepstakes are
not presented in any manner which would damage or denigrate its
corporate brand image or reputation. For this reason, RDA has, as a
matter of corporate policy, adopted certain marketing practices, and
adhered to certain guidelines to insure that its sweepstakes are
honestly and fairly presented and properly understood by consumers.
RDA takes several steps to ensure that recipients of its product
offerings fully understand that no purchase or payment is necessary to
enter or to win the sweepstakes, and that responding with a purchase
will not increase or in any way enhance one's chances of winning.
First, all of RDA's mailings convey the ``no purchase necessary''
message clearly and prominently in language that is easy to find, easy
to read and easy to understand. Specifically, RDA's message goes beyond
merely stating that ``no purchase is necessary.'' RDA's mailings
expressly state that ``no purchase or payment is necessary to enter or
win'' in order to more precisely convey the fact not only that no
purchase is necessary to enter, but that responding without a purchase
will not disadvantage the entry in any way or reduce the entrant's
chances of winning. RDA's product mailings also provide explicit
instructions on how to enter without a purchase, at least twice in the
main text of its mailings, and sometimes as often as three times. The
complete instructions on how to enter without ordering are easy to
locate, and presented in a single concise location so that the consumer
does not have to navigate through the mailing in order to piece
together all of the instructions necessary to follow to enter without
ordering. The instructions on how to enter are also presented in clear,
easy to understand language.
RDA also provides an equivalent means of responding for those who
enter with and without an order--either a Yes or No envelope or a
single response envelope. RDA, as a matter of policy, does this so that
those who respond without an order need not furnish their own envelope,
as a response envelope is being furnished to those who respond with an
order. Furthermore, RDA directs all responses to the same processing
facility, irrespective of whether the response is accompanied by an
order or not. While RDA may employ different PO box numbers in order to
more expeditiously handle the processing of orders and satisfy the
requirements of the Federal Trade Commission's Mail and Telephone Order
Rule, all responses are directed to the same physical location. In
addition, once entries arrive at RDA's fulfillment center, RDA's policy
is to process orders and non orders equally to ensure that every
response, whether accompanied by an order or not has an equal chance of
winning.
RDA believes that all of the above measures combine to insure that
consumers fully understand that they do not have to purchase any RDA
product in order to enter or win the sweepstakes, and that if they do
respond without an order, their entry will not be disadvantaged in any
way.
In order to avoid any misleading impression that a recipient of an
RDA product mailing has won or is likely to win the sweepstakes, RDA
provides the numeric odds of winning each prize offered. The numeric
statement of odds is designed to more precisely convey to the consumer
the universe of participants in the sweepstakes, and the consumer's
actual chances of winning.
RDA is aware of the fact that some members of Congress have
expressed concern over solicitations that appear to emanate from the
government or from some other regulatory agency. As noted above, RDA is
proud of its corporate identity and brand image and seeks to leverage
and exploit its brand name in all of its product offerings.
Accordingly, every RDA envelope clearly identifies RDA as the sender.
Furthermore, the complete details of any sweepstakes contained in an
RDA product mailing are fully disclosed in the official rules of the
sweepstakes included in any mailing containing sweepstakes entry
materials. The official rules are always clearly printed in an easy to
find location.
Finally, RDA's policy is to award all prizes offered. The majority
of sweepstakes conducted by RDA are in the form of a random drawing. If
a selected winner is deemed ineligible for any reason, the prize is
always awarded to an alternate. In the instances in which RDA conducts
a preselected winning number sweepstakes, a preselected winning number
is always distributed, and if the winning number is not returned, the
prize is awarded in a second chance drawing, even though such a drawing
is not required by law. In fact, RDA has awarded more than 167 million
dollars to more than 2 million winners, and expects to award over 8\1/
2\ million dollars in 1999 alone. All of RDA's sweepstakes are
administered by an independent judging agency in order to ensure the
integrity of the winner selection process.
RDA's effectiveness in communicating the no purchase necessary
message and the other material terms and conditions of its sweepstakes
is strongly reflected by its own customer data. In all cases, across
all product lines, the vast majority of consumers who respond to RDA
mailings, respond without a purchase. In fact, on average between 75
and 80 percent of consumers who respond to a mailing, respond without
making a purchase. Stated differently, more than four times as many
consumers respond without making a purchase as those who respond with
an order. For example, during fiscal year 1998, RDA received
approximately 112 million entries without an order. This pattern is
similarly reflected among RDA winners. Again, on average, 80 percent of
RDA prize winners have entered without an order. This evidence clearly
and empirically demonstrates that RDA mailings, clearly, conspicuously
and effectively communicate the message that no purchase is necessary
to enter and that entering without a purchase does not enhance one's
chances of winning. Those consumers who respond by ordering an RDA
product, thus cannot and should not be characterized as ``victims'' of
deceptive mailings, but rather should more properly be characterized
and viewed as intelligent, informed consumers who have elected to
purchase a product based on the strength of the product offer, and the
value and quality of the product itself.
IV. RDA DOES NOT TARGET THE ELDERLY OR ANY DEMOGRAPHIC GROUP
RDA states emphatically that it does not target the elderly or any
other demographic group. Again, RDA offers a wide variety of products
covering a wide range of interests. Given the breadth and variety of
the products RDA markets, its product offer mailings by their very
nature are likely to appeal to different target audiences. The criteria
used to select the persons who receive any particular product offer
mailings are, therefore, based on the specific product being offered
and vary by product line. RDA attempts to mail each product offering
only to those persons who are likely to have an interest in or affinity
for the particular product being promoted. RDA's success as a direct
mail marketer depends on its ability to properly identify the proper
target audience for each of its particular product mailings, and that,
by necessity, will vary by product. Neither age, nor any other single
demographic criterion is ever a factor in and of itself in determining
whether a particular name will be selected. Demographic data may be
given some consideration as indicative of a likelihood of interest in a
particular type of product, where the product is likely to have an
appeal to a particular age group. For example, being over a certain age
would be a negative factor for a contemporary music offer, but may be a
positive factor for a compilation of music from the 1940s. Even in
those instances, however, where the product is likely to have an appeal
to a particular age segment, age is still only one of several factors,
and is never one of the key factors to be considered in determining to
whom the product offer will be mailed. Other characteristics indicative
of potential interest in the product will also be considered and will
of course, vary by product. We would respectfully refer the
Subcommittee to the Response provided by RDA to Request 3(d) for a
detailed description of the many criteria RDA utilizes to determine who
will receive a product mailing. While confidentiality concerns preclude
us from specifying those criteria here, we are certain the Subcommittee
will agree that age is not among the criteria used to determine who
will receive a product mailing. Many of RDA's products are targeted to
a particular interest, which can and is likely to span across multiple
age groups. For example, Reader's Digest Magazine is read by more PC
users than the four leading PC magazines and by more rock fans than
Rolling Stone Magazine.
It is true that a significant segment of RDA's customer base is
above the age of 65. This, however, is purely a function of the fact
that RDA is an established company, indeed a part of our American
tradition, and has been offering quality products for over 75 years.
The fact that a significant segment of RDA's customer base is comprised
of mature citizens, is a tribute to RDA's ability to maintain long term
customer relationships and to build long-term brand loyalty. This, in
and of itself, is perhaps the best empirical evidence of the fact that
RDA's mailings have been consistently fair and honest, as no company
could succeed in maintaining such a loyal and established customer base
if it engaged in misleading tactics.
V. RDA'S BUSINESS PRACTICES ENCOURAGE APPROPRIATE RESPONSIBLE
PURCHASING BEHAVIOR
In addition to the strong guidelines adhered to by RDA in
communicating its sweepstakes offers to consumers, RDA employs a number
of business practices designed to ensure that its products are
purchased only by those who want and need them and to detect and
discourage inappropriate purchasing behavior. These policies reflect
the high ethical business standards RDA applies to all aspects of its
business. First, all of RDA's products are backed by a 100 percent
satisfaction guarantee. Any magazine subscriber who is dissatisfied can
cancel the subscription at any time and receive a full refund for all
unserved issues. In addition, any purchaser of any of RDA's other
products can return the product at any time for a refund. Moreover, RDA
does not require payment in advance of product shipment, so that the
consumer can examine the product before paying.
Second, all names on RDA's customer list are subject to mail plan
elimination criteria. These criteria prevent customers from receiving
an offer for something they have already purchased. For example, a
current subscriber to Reader's Digest Magazine will not be sent any
further mailings (other than renewal efforts) soliciting a subscription
to the magazine.
Third, all names are matched against Reader's Digest's do not mail
file and the Direct Marketing Association's Mail Preference Service to
prevent RDA from sending mailings to those persons who have indicated
that they do not want to receive further mailings from RDA. RDA also
honors do not mail requests received from legal guardians.
Fourth, RDA has instituted a program to identify high volume
purchasers and remind them that no purchase is necessary to enter or
win the sweepstakes.
Because RDA markets such a large number and wide variety of
products, it is to be expected that RDA's customers will be sent a
variety of product offerings and may, in fact, purchase multiple items.
There is no indication, however, that RDA's customers are being
promoted excessively, nor is there any indication that RDA's customers
are engaging in inappropriate or excessive purchasing behavior. We must
be careful not to equate a loyal satisfied customer who may have a
variety of interests that RDA's diverse product offerings appeal to,
with a confused or uninformed customer. Such a conclusion runs counter
to the whole notion of efficient direct marketing. As a company, RDA
prides itself on its ability to develop products that appeal to its
customer's interests. Indeed, much of the research for new RDA product
development is conducted among RDA's existing customers. RDA has a
strong business dedication to developing products that appeal to its
existing customers' interests and desires, and its ability to
successfully market new and multiple products to its existing customers
base is a tribute to its success in achieving that corporate goal.
RDA's own customer data suggests that RDA's customers are not being
promoted excessively and are not purchasing at an inappropriate level.
For example, while the media has highlighted reports of consumers who
have received 30-40 mailings per year from the same company, the
average number of mailings received by RDA customers was 6 during
fiscal year 1997, and 7 during fiscal year 1998. In addition, the
average number of dollars spent by a RDA customer during fiscal years
1997 and 1998 was $76.00 and $71.00 respectively. Given the wide range
of RDA product offerings available to choose from, we would
respectfully suggest that these are indeed modest numbers.
VI. RDA RECOGNIZES THAT A VERY SMALL NUMBER OF CONSUMERS WHO RESPOND TO
PROMOTIONAL MAILINGS MAY BE CONFUSED BUT IS COMMITTED TO STRONG
INDUSTRY SELF REGULATION TO ADDRESS THE SPECIAL NEEDS OF THIS
GROUP
While RDA recognizes that some consumers who respond to promotional
mailings may be confused, RDA believes that this represents a very
small segment of the population as a whole. The information presented
earlier in this testimony concerning relative response rates with and
without purchase and average purchasing levels, strongly indicates that
the vast majority of RDA's customers understand how RDA's sweepstakes
operate, and that no purchase is necessary to enter. Nonetheless, to
the extent that there may be a small segment of the population
responding to RDA's mailings that is confused, RDA is sympathetic to
the special needs of that group and is committed to developing a
solution to address this problem.
RDA believes, however, that the needs of this small segment of the
population can best be addressed through responsible corporate
practices and industry self regulatory measures designed to identify
these individuals and provide whatever special assistance may be
required, rather than through burdensome regulations which will impose
onerous disclosure requirements on sweepstakes operators, which are
just as likely to be misunderstood by this segment of the population.
Throughout its 75 year history, RDA has been an avid supporter and
advocate of strong industry self-regulation as a member of the Direct
Marketing Association Ethics Committee and through other voluntary
measures. RDA has taken a proactive role in working with the regulatory
community towards establishing and maintaining proper standards of
conduct for the direct mail community.
RDA has also conducted an extensive consumer education program
designed to assist consumers in distinguishing fraudulent sweepstakes
from legitimate ones. Specifically, RDA has produced television and
radio announcements, provided consumer education information on its
website, and distributed a sweepstakes Fraud Prevention Tips pamphlet
free to customers.
As a further example of RDA's proactive approach, upon learning
that the issue of high volume purchasers was of concern to the
legislative and regulatory community, RDA undertook on its own
initiative, to conduct a representative survey of customers who had
spent $3,000 or more during fiscal year 1998 to ascertain their level
of satisfaction with RDA's products and awareness of the fact that no
purchase is necessary to enter the sweepstakes. RDA also sent letters
to all customers who had spent $2,000 or more during fiscal year 1998
to reiterate to such persons that no purchase is necessary to enter
RDA's sweepstakes. As detailed in RDA's initial and supplemental
responses to Request 8, the consumer response to these communications
indicates a high level of consumer satisfaction with RDA's products and
awareness of the no purchase necessary policy. RDA intends to
incorporate this type of program into its standard operating procedures
and has also begun working through industry associations towards the
adoption of this type of monitoring program on an industry wide basis.
As a member of the Magazine Publishers of America (MPA), RDA will also
be adhering to the Best Practices Guidelines recently adopted by the
MPA, including those policies designed to detect and prevent consumers
from entering into excessively long subscription terms. RDA believes
that these types of self regulatory initiatives will prove to be highly
effective in addressing the special needs of the small segment of the
population that may be engaged in excessive or inappropriate purchasing
behavior.
VII. RDA SUPPORTS THE EFFORTS OF CONGRESS TO ADOPT MEASURES INCLUDING
LEGISLATION WHICH WILL PROTECT CONSUMERS FROM FRAUD AND
DECEPTION WHILE NOT UNDULY BURDENING THE OPERATION OF
LEGITIMATE SWEEPSTAKES
RDA is fully committed to working with Congress on appropriate,
effective measures including legislation that will provide added
protection to consumers while not unduly restricting the legitimate use
of sweepstakes as an effective marketing tool.
Indeed, RDA supports and endorses many of the principles embodied
in the most recent version of Senator Collins Bill (S. 335) including:
Clear and prominent disclosure of the no purchase
necessary message.
A prohibition on representing that those who enter
with a purchase will have an increased chance of winning or
receive priority in the sweepstakes.
Disclosure of all material terms and conditions of
the offer, including odds, nature and value of prizes and any
fees, charges, or other conditions that must be met in order to
receive a prize.
A prohibition on false representations that the
recipient of the mailing is a winner.
A prohibition on inconsistent or contradictory
disclaimer language.
Clear and prominent disclosure of the identity of the
sponsor of the sweepstakes.
Clear and prominent disclosure that facsimile checks
are non-negotiable.
A requirement that all mailers adopt reasonable
procedures to prevent mailings to persons who have indicated
that they do not want to receive further mail from the sponsor.
While further discussion concerning certain elements of the bill
and the precise language of certain provisions is still necessary, we
believe that Senator Collins has identified the appropriate areas to be
covered and we pledge our commitment to continue to work with Senator
Collins and other members of Congress towards Federal legislation. We
believe that properly balanced legislation which provides uniform
national standards would be an improvement over the current framework
which consists of many inconsistent State laws and heartily support
such an approach.
VIII. CONCLUSION
RDA is extremely proud of the consumer trust it has established
over many years and is committed to honoring that trust. RDA shares the
concerns of the Congress and other regulators over the fraudulent use
of sweepstakes as such practices undermine consumer confidence in
sweepstakes and hurt businesses like RDA who seek to use sweepstakes as
a legitimate and effective marketing tool. RDA believes that
sweepstakes can continue to be used as a legitimate and effective
marketing tool if the companies who employ sweepstakes adhere to firm
ethical guidelines that promote consumer confidence. We are eager to
work with other companies who use sweepstakes, with industry
associations, with Congress, with the Postal Inspection Service and
with other Federal and State regulators to achieve that goal.
PREPARED STATEMENT OF ELIZABETH VALK LONG, EXECUTIVE VICE PRESIDENT,
TIME INC.
Good morning, Madame Chairman, and thank you for the opportunity to
testify today. My name is Elizabeth Long, and I have been in magazine
publishing and at Time Incorporated for the last 20 years. I am
currently Executive Vice President at Time Inc., and my
responsibilities include several divisions directly related to the
circulation of our magazines.
I. Background Concerning Time Inc. And Its Use Of Sweepstakes
Solicitations
Time Inc., a wholly-owned subsidiary of Time Warner, is the world's
largest magazine publisher. It publishes many of this nation's leading
magazines, including Time, Fortune, Sports Illustrated, Life, People,
Teen People, Money, In Style, Entertainment Weekly, Parenting, Health,
and Southern Living. The company's flagship publication--Time
magazine--celebrated its 75th anniversary last year. All told, 32
magazines are part of the Time Inc. family; most are the market leader.
In the magazine industry, there are two principal and related
revenue streams: advertising and circulation. Prices charged to
advertisers are determined largely by a magazine's rate base--the
amount of paid circulation a magazine guarantees it will deliver for
each issue. Making the rate base that we promise to an advertiser is of
critical importance. If paid circulation dips below the guaranteed rate
base, an advertiser is entitled to compensation for the shortfall.
Circulation revenue is derived from two sources: subscriptions and
newsstand sales. Like all other major magazine publishing companies,
Time Inc. uses a variety of media to sell subscriptions and maintain
its rate base: direct mail, television advertising, and insert cards
among others. Our direct mail efforts involve premiums, discounts, free
trial issues, as well as sweepstakes mailings. (We do not use other
contests or games of skill). The goal of our circulation efforts is not
to attract one-time purchasers. Time's rate base of 4 million, and
Sports Illustrated and People's rate base of 3 million were not built
by attracting a series of one-time subscribers. Our success is based on
a 75-year history of satisfied customers. Readers who try our
publications appreciate the quality and credibility of our
publications, and renew their subscriptions for those reasons. Our goal
is to encourage people to try our magazines. Premiums, discounts, free
trial issues, and sweepstakes mailings are all used to make a trial
purchase easy and attractive.
Sweepstakes mailings have been a part of Time Inc.'s circulation
efforts for more than 20 years. Time Inc. magazines use sweepstakes in
their own promotional efforts, which we will discuss below. Also, like
other major magazine companies, such as Hearst, Conde Nast, and
Reader's Digest, subscriptions to Time Inc. publications have been sold
through the ``stamp sheet'' companies: Publishers Clearing House
(``PCH'') and American Family Publishers (``AFP'').\1\ In the early
1980's, a number of Time Inc. magazines began using sweepstakes
mailings as part of their own direct marketing efforts.
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\1\ A wholly-owned subsidiary of Time Inc. owns a 50 percent
interest in American Family Enterprises, the parent of AFP.
---------------------------------------------------------------------------
PCH and AFP provide an important service not only to Time Inc. but
to all major magazine publishers. Because of the huge scope of their
mailings, the wide variety of magazines that they offer, their mailing
lists, and their historical knowledge of this business, PCH and AFP are
able to efficiently provide publishers with a significant volume of new
subscriptions. Time Inc. and other publishers acting individually could
not economically mail to as broad a population as AFP and PCH do. These
agents permit publishers to attain their circulation base guarantees to
advertisers. If the stamp sheet companies were driven out of business,
publishers' ability to sustain their circulation levels would be
seriously eroded. Many magazines would be adversely affected, and some
would fail.
Sweepstakes are commonplace in today's business world. They are
used as a marketing and promotion tool by automobile manufacturers,
fast food chains, the soft drink industry, the snack and candy
industry, the credit card/banking industry, cereal manufacturers, and
even charities--including the Easter Seal organization. Magazine
publishers employ sweepstakes for the same reason that all these other
businesses do. They are attention-grabbers--like a ``SALE'' sign in a
department store window. They may encourage a potential customer to
open a mailing that they otherwise would throw in the trash. The point
of these mailings is not to convince people that they have won a prize.
That serves no business purpose, and would only alienate and anger
potential customers. Instead, the point of these mailings--like all
advertising and promotional efforts--is to attract attention and
interest.
II. Time Inc.'s Sweepstakes Mailings
About half of Time Inc.'s publications--including Time, Sports
Illustrated, People, and Life--use sweepstakes promotions. Many of our
customers enjoy participating in the sweepstakes, and very few have
difficulty understanding them. Statistics which we discuss below bear
this out.
Time Inc. sweepstakes mailings contain a number of standard terms
designed to eliminate consumer confusion. We repeat at several points
in our mailings--in our letter to consumers, on our order forms or
reply envelopes, and in our sweepstakes rules--that no purchase is
necessary. Indeed the ``no purchase necessary'' notice is printed in
bold type as the first three words in our rules; the rules themselves
are set apart and easily located, often on the outside of our
sweepstakes mailer or on our sweepstakes entry form. Unlike the lottery
tickets sold by many of our State governments, our sweepstakes mailings
do set forth the odds of winning.
Our sweepstakes are run fairly and honestly, and are administered
by an independent judging organization. Since December of 1986, Time
Inc. has paid out more than $13 million in cash prizes to more than
66,000 sweepstakes entrants. We determine our prizes at the beginning
of a sweepstakes period, and set a date by which time our prizes will
be awarded, without any contingencies. We award our major cash prizes
once a year. Orderers and non-orderers have the same chance of winning,
and we make it as easy for non-orderers to enter as for those who order
magazines. Indeed, our magazine promotions explicitly explain to
consumers how to enter the sweepstakes without ordering.
Our sweepstakes promotion program is not designed to, and does not,
induce consumers to buy an inappropriate number of magazines.\2\ As the
statistics previously provided to the Subcommittee demonstrate, 85.6
percent of the individuals who subscribe through our sweepstakes
promotions bought from us only once in 1998. 98.4 percent of these
subscribers ordered between one and three times in 1998--many of these
were renewals of the same magazine. Since a large proportion of brand
new subscriptions are for 6 months, the first order and subsequent
renewal often occur in the same year. The data from 1997, also
previously presented to this Subcommittee, are nearly identical: 85
percent and 98.3 percent respectively. These data demonstrate that our
sweepstakes customers are not obsessed with buying our magazines to
enter our sweepstakes.
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\2\ Although many direct marketing companies pursue a strategy of
remailing customers a succession of promotions for various products,
Time Inc. is not one of them. We are a highly decentralized company,
and our individual magazines employ independent marketing strategies
which focus on attracting and retaining customers for each individual
publication. Delivering a magazine's circulation guarantee for
advertisers is the foremost goal of consumer marketers in the company,
and renewing current subscribers is the best way to ensure that that
objective is met. In other words, renewing a Sports Illustrated
subscriber is more important to management than selling that subscriber
another Time Inc. product.
---------------------------------------------------------------------------
Anyone who analyzes our sweepstakes customers' buying habits can
readily see that they are not compulsive buyers of our magazines. The
average total amount spent by our sweepstakes customers in 1998 was
$56.01. And, 93 percent of our sweepstakes subscribers spent between $1
and $99 on our magazines. 99 percent of our sweepstakes subscribers
spent less than $200 on our magazines in that year. (The figures for
1997 are virtually the same.) Nothing here suggests that people are
buying ``too many'' of our magazines, or that consumers are buying our
magazines merely to participate in the sweepstakes. These figures are
particularly striking given the relatively high cost of annual
subscriptions to our magazines--$103.48 for People, $81.95 for Sports
Illustrated, and $59.95 for Time and Fortune. In light of these
subscription prices, the annual cost of two or three magazines quickly
exceeds $100.
Our sweepstakes mailings have never targeted the elderly, or any
other discrete segment of the population. We mail sweepstakes
promotions to all demographic segments of the population, and the
sweepstakes copy used in these mailings is identical. The statistics
previously submitted to this Subcommittee show two very important
things: first, sweepstakes have wide appeal across generations; and
second, that our elderly sweepstakes customers do not spend
significantly more money, or order significantly more often, than do
our younger sweepstakes customers.\3\ In 1998, 99.5 percent of our
sweepstakes customers under the age of 55 spent less than $200 on our
magazines; 99.1 percent of those aged 56 to 64 spent less than $200;
98.9 percent of those aged 65 to 69 spent less than $200; and 97.6
percent of those aged 70+ spent less than $200. (Once again, the
statistics for 1997 are nearly identical).
---------------------------------------------------------------------------
\3\ Of our 32 magazines, only Time Magazine pursues an editorial
and/or marketing strategy tailored to different demographic market
segments: professionals, mature readers (50+), families, and youth. The
sweepstakes copy sent to these four core groups is identical.
---------------------------------------------------------------------------
Similarly, in 1998, 99.3 percent of our sweepstakes customers under
age 55 made between 1 and 3 purchases; 98.3 percent of those aged 56 to
64 made between 1 and 3 purchases; 97.8 percent of those aged 65 to 69
made between 1 and 3 purchases; and 95.5 percent of those aged 70+ made
between 1 and 3 purchases. (The figures for 1997 are nearly identical).
It is very clear that the vast majority of our sweepstakes
customers are neither ordering nor spending at what might be considered
to be an unusually high level. Given the volume of Time Inc.
sweepstakes mailings sent to consumers--nearly 500 million mailings
sent from October of 1995 through February of 1998--there will
inevitably be a very small number of consumers who may not read our
copy, or correctly comprehend it. Time Inc. is prepared to work with
this Subcommittee and representatives of the magazine publishing and
direct marketing industries to devise remedies for whatever problems
this very small percentage of our customers are experiencing with our
mailings. Our concern is that the remedy that is devised be responsive
to the problem, and not indiscriminately and unnecessarily damage a
business that consumers enjoy and that is an effective marketing tool,
not just for magazines publishers, but for a wide array of other
businesses and charities. Although there has been a great deal of
attention focused on this issue of late, including in the media, we
believe that the problem has been substantially, perhaps even
dramatically, overstated. We welcome this Subcommittee's efforts to
quantify and define the extent and nature of any problem caused by
sweepstakes and will assist this Subcommittee in any way we can to
gauge and correct the problem. We are concerned, however, that the
perceived problem may have cast a shadow which is much larger than the
reality.
III. Proposed Legislation
With respect to the legislation introduced by Chairman Collins and
Senators Cochran, Levin, and Durbin, S. 335, we have been able to
review in depth the provisions that would prohibit certain practices in
sweepstakes mailings and mandate certain disclosures. We are still
analyzing the balance of the bill, although we have certain preliminary
concerns about it.
A number of the practices which S. 335 would bar are not engaged in
by Time Inc., and a number of the disclosures which S. 335 would
require, Time Inc. mailings already make. We consider the proposed
restrictions and disclosures in the order that they appear in the
proposed bill (at Section 3001(k)(2)(B) (i)-(xiii).
(i) No purchase is necessary notice
Time Inc. sweepstakes mailings already include such a notice, in at
least three locations.
(ii) Threat that further mailings will not be sent absent a purchase
Time Inc. does not use this technique in its mailings. This concept
is acceptable to us.
(iii) Linkage between sweepstakes entry and payment
Time Inc. does not use this technique in its mailings. This concept
is acceptable to us.
(iv) Suggestion that odds of winning will increase if purchase is made
This concept is acceptable, but the provision should use the term
``represents'' rather than ``suggests.''
(v) Representation that a consumer is a winner when they have not won a
prize
This concept is acceptable.
(vi) Clear presentation of rules
This concept is acceptable.
(vii) Clear identification of party mailing sweepstakes material and
its principal place of business
This proposed provision should refer to the sponsor of the
sweepstakes, not the vendor responsible for sending out the packages.
Otherwise, it is acceptable.
(viii) Prohibition of statements that are inconsistent with contest
rules
In concept this is acceptable, although it is unclear what
statements might be viewed as ``qualifying, limiting, or explaining
[the] rules in a manner inconsistent with [the] rules.''
(ix) Notice in rules of odds of winning, quantity, value and nature of
prizes, and schedule of payments
Time Inc. sweepstakes mailings already include this information.
(x) Suggestion that purchase will give sweepstakes entry priority, or
make customer eligible for additional prizes or special
treatment in future contests
This concept is acceptable.
(xi) Disclosure of fees associated with claiming free prizes or awards
There are no fees or charges associated with Time Inc. sweepstakes
prizes.
This concept is acceptable.
(xii) Facsimile checks must contain ``non-negotiable, no cash value''
notice
This concept is acceptable.
IV. Headline Copy
Many Time Inc. sweepstakes mailings make use of what is known as
``headline copy.'' In a February 3, 1999 press release, the
Subcommittee expressed concern about this sweepstakes technique:
Another mailing used large type that read: ``You Were
Declared One of Our Latest Sweepstakes Winners And You're About
to Be Paid $833,337 in Cash!'' Of course the recipient wasn't
really a winner. As the fine print explained, the money would
be won only if the recipient held the grand prize winning
number and returned it ``in time.''
Headline copy has been used for more than 10 years by Time Inc. and
other major sweepstakes mailers. Like the sweepstakes mailings as a
whole, headline copy is an attention-grabber. Language referring to the
sweepstakes' $833,337.00 grand prize--that the recipient has won the
prize; that ``we are now authorized to pay'' the prize; that a bank
check is on its way to the recipient's address; or that the prize will
be forfeited absent a response--is in large, bold type, while
explanatory copy--e.g., ``if you have and return the grand prize
winning entry in time, we will officially announce. . . .''--is in
smaller, albeit very legible type, usually 12 point.
Is the headline copy designed to capture the recipient's attention
and encourage him or her to read further? Of course. This is no
different than any headline whether it be in a newspaper, magazine or
press release. Headline copy is always designed to get the reader's
attention, not tell the whole story. You must always read further to
get to the meat of the matter. Could any reasonable person who reads
the package come away believing that they have won the grand prize? No.
At every instance in which headline copy concerning the grand prize is
found, explanatory copy directly adjacent to the headline copy makes
clear that winning the prize is contingent upon having and returning
the grand prize winning entry. The explanatory copy is clearly legible
and is clearly set off in open areas of the promotion where it cannot
be missed. And the explanatory copy is not in ``fine print.'' Instead,
it is generally in 12-point type--the same size type as that used in
the Subcommittee's press release ``Section-by-Section Summary'' of the
proposed sweepstakes legislation.
While our business practices are not determined merely by what is
legally permissible, it is worth pointing out that courts have
repeatedly rejected the argument that Time Inc.'s headline copy is
deceptive. In Haskell v. Time Inc., 857 F. Supp. 1392, 1403 (E.D. Ca.
1994), for example, the Court reviewed sweepstakes language stating:
``If you return the grand prize winning entry, we'll say you're the
winner.'' In considering this statement, and others in the mailing, the
Court stated:
These statements, in context, are not misleading. It is clear
from the exemplar that no reasonable addressee could believe
that the mailing announced that the addressee was already the
winner. . . . The statement ``you're the winner'' is preceded
by ``if you return the grand prize winning entry, we'll say.''
These allegations are dismissed.
Haskell v. Time Inc., 857 F. Supp. at 1403.
Similarly, in Freeman v. The Time Inc. Magazine Co., 68 F.3d 285
(9th Cir. 1995), the Court rejected plaintiffs argument that Time
Inc.'s headline copy was deceptive:
The promotions expressly and repeatedly state the conditions
which must be met in order to win. None of the qualifying
language is hidden or unreadably small. The qualifying language
appears immediately next to the representations it qualifies
and no reasonable reader could ignore it. Any persons who
thought that they had won the sweepstakes would be put on
notice that this was not guaranteed simply by sufficient
reading to comply with the instructions for entering the
sweepstakes.
Freeman further contends that the qualifying language in the
promotion, even if read by the recipient, is ambiguous. He
argues, for example, that the statement ``If you return the
grand prize winning number we'll officially announce that [you
have won]'' leaves room for the reader to draw the inference
that he or she has the winning number. Such an inference is
unreasonable in the context of the entire document. In
dismissing the complaint against Time in Haskell, the court
noted that such ``statements, in context, are not misleading.
It is clear from the exemplar that no reasonable addressee
could believe that the mailing announced that the addressee was
already the winner. . . .'' We agree. Any ambiguity that
Freeman would read into any particular statement is dispelled
by the promotion as a whole.
Freeman, 68 F.3d at 289-90 (emphasis added).
In short, the courts have repeatedly confirmed that no reasonable
person reading our mailings would believe that he or she has won the
grand prize. The courts' conclusions simply reflect common sense. No
reasonable person would take action based on a headline that he or she
read in a newspaper or magazine, without reading the underlying
article. The headline is a tried, true and accepted literary device to
get a reader to read the whole story, not just the headline.
V. The Future
We firmly believe--and all relevant statistics confirm--that the
vast majority of our customers (i) understand our mailings, and (ii)
buy our magazines on their own merits, not merely to participate in the
sweepstakes. However, we recognize that a very small percentage of the
population may have difficulty with sweepstakes promotions. This is a
significant concern to this Subcommittee, to various Attorneys General,
and to us. We at Time Inc. have as much interest in solving these
difficulties as this Subcommittee and the various Attorneys General do.
None of these problems or regulatory concerns are good for our
business, and we sincerely want to work out appropriate solutions to
them.
Among other things that we are voluntarily undertaking to address
these concerns is the development of an internal program to identify
any customers whose unusual buying patterns suggest a misunderstanding
of our sweepstakes promotions. Such individuals will be reminded that
there is never any requirement to purchase our products in order to
participate in our sweepstakes. If these customers' unusual buying
patterns continue, one option may be to place them on ``do not
promote'' lists. However, the issue is a complicated one, involving
privacy principles and the fact that we cannot simply make assumptions
about individuals or, worse, classes of individuals. Further, we
believe that the remedy for this problem must be industry-wide in order
to be fully effective. We strongly support industry efforts to identify
and craft appropriate assistance to individuals whose conduct indicates
difficulty understanding sweepstakes promotions. Of course, this will
have to be within the bounds of pertinent antitrust law, if any.
We are also undertaking several additional voluntary initiatives to
further ensure the clarity and straightforwardness of our sweepstakes
promotions. We are taking steps to further increase the clarity and
prominence of explanatory copy associated with any headline or winners
list copy. Also, most of our promotions include a statement on the
entry or order form telling the reader how to enter without ordering.
We will make this a general policy for all of our sweepstakes
promotions. Finally, we will ensure that the sweepstakes rules in all
of our packages will be printed in at least 8 point type (the same type
size used in the Wall Street Journal). In this regard, note also that
in our latest sweepstakes, Guaranteed & Bonded IV, the statement of the
numerical odds of winning each prize in the rules has been highlighted
in bold type.
In closing, Madam Chairman, we want to thank the Subcommittee for
its invitation to appear at this hearing. We recognize that there is a
problem and a basis for legitimate regulatory concerns, and we want to
develop appropriate solutions. The Subcommittee is performing an
important service in helping the sweepstakes and direct marketing
industries and the regulators define the scope of the problem and
develop solutions which address those problems. These solutions should
be tailored to the real issues, avoid unnecessary damage to the
vitality of our magazine industry, and not run afoul of the protections
afforded commercial speech under the First Amendment.
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