[Senate Hearing 106-71]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 106-71


 
             DECEPTIVE MAILINGS AND SWEEPSTAKES PROMOTIONS

=======================================================================


                                HEARINGS

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION



                               ----------                              

                          MARCH 8 AND 9, 1999

                               ----------                              

      Printed for the use of the Committee on Governmental Affairs



                                


                      U.S. GOVERNMENT PRINTING OFFICE
 57-308CC                    WASHINGTON : 1999
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                   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

                                 ------                                
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

                              ----------                              


                         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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Carter appears in the Appendix on 
page 114.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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----
---------------------------------------------------------------------------
    \1\ See Exhibit No. 19 in the Appendix on page 209.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 10 in the Appendix on page 182.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 35 in the Appendix on page 319.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1 in the Appendix on page 155.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 6 in the Appendix on page 172.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Curran appears in the Appendix on 
page 116.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Tierney appears in the Appendix 
on page 117.
---------------------------------------------------------------------------
    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.''
---------------------------------------------------------------------------
    \1\ The letters referred to appears in the Appendix on page 120.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 10 in the Appendix on page 182.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 34 in the Appendix on page 318.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \2\ See Exhibit No. 16 in the Appendix on page 203.
---------------------------------------------------------------------------
    ``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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Holland appears in the Appendix 
on page 133.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Davenport appears in the Appendix 
on page 144.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Long appears in the Appendix on 
page 149.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 2 in the Appendix on page 157.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1 in the Appendix on page 155.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1 in the Appendix on page 155.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ Exhibit No. 20 is retained in the files of the PSI 
Subcommittee.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \3\ See Exhibit No. 14 in the Appendix on page 200.
---------------------------------------------------------------------------
    ``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.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 23.e. in the Appendix on page 233.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    ``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\
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    \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.
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    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\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 23.b. in the Appendix on page 219.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \2\ See Exhibits No. 25 and 26 in the Appendix on pages 237 and 
243.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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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