[Federal Register Volume 68, Number 87 (Tuesday, May 6, 2003)]
[Proposed Rules]
[Pages 23937-23939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11144]


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POSTAL SERVICE

39 CFR Part 111


Eligibility Requirements for Certain Nonprofit Standard Mail 
Matter

AGENCY: Postal Service.

[[Page 23938]]


ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the Domestic Mail Manual 
standards for mail matter eligible to be sent at the Nonprofit Standard 
Mail rates. Specifically, it would exempt certain matter soliciting 
monetary donations from application of the cooperative mail rule.

DATES: Written comments must be received on or before June 5, 2003.

ADDRESSES: Written comments should be mailed or delivered to the 
Manager, Mailing Standards, U.S. Postal Service, 1735 N. Lynn Street, 
Room 3025, Arlington, VA 22209-6038. Copies of all written comments 
will be available for inspection and photocopying at USPS Headquarters 
Library, 475 L'Enfant Plaza SW, 11th Floor N, Washington DC between 9 
a.m. and 4 p.m., Monday through Friday. Comments may not be submitted 
via fax or email.

FOR FURTHER INFORMATION CONTACT: Jerome M. Lease, Mailing Standards, 
United States Postal Service, at (703)292-4184.

SUPPLEMENTARY INFORMATION: Organizations authorized to mail at 
Nonprofit Standard Mail rates are entitled to mail at significantly 
lower rates than postal customers that use the commercial Standard Mail 
rates. In order to prevent the abuse of these privileges, there are 
certain eligibility restrictions on the use of the nonprofit rates. The 
oldest restriction is commonly known as the cooperative mail rule. This 
standard is set forth in the Postal Service's Domestic Mail Manual.
    The cooperative mail rule is based upon the principle that the 
nonprofit rates were solely intended for the benefit of organizations 
authorized to mail at nonprofit rates, and not for entities that have 
not been authorized to mail at those rates. The nonprofit rates may not 
be used for matter sent for or on behalf of unauthorized organizations, 
nor may the rates be used for mailings supporting a cooperative 
enterprise between nonprofit and unauthorized organizations. The 
cooperative mail rule does not prevent a nonprofit organization from 
retaining an agent to help it prepare mailings or assist with a venture 
that will be supported by mailings sent at the nonprofit rates. 
Nevertheless, if the parties' relationship exceeds a principal-agent 
arrangement, eligibility for nonprofit rates may be impacted.
    A number of federal courts have considered the cooperative mail 
rule. In each case, the validity of the rule and its application in the 
specific case have been upheld. This includes a recent case involving 
fundraising mailings produced pursuant to arrangements between a for-
profit professional fundraising organization and its nonprofit clients.
    Over the last several years, some nonprofit organizations have made 
the Postal Service aware of concerns that the application of the 
cooperative mail rule was having a serious effect on their ability to 
solicit donations and, in some cases, might threaten the existence of 
many nonprofit organizations, particularly given the current economic 
climate faced by many in the nonprofit sector. The organizations of 
most concern include those that, because they are new, of small size, 
or other reasons, have to seek the assistance of professional 
fundraising organizations in seeking donations, rather than conduct 
their fundraising campaigns in-house. In many cases, the arrangements 
between the professional fundraiser and the nonprofit are cooperative 
under the longstanding application of the cooperative mail rule. 
Indeed, the Postal Service understands that some states require 
contractual terms between nonprofits and some (but not all) types of 
professional fundraisers to contain elements that would cause the 
resultant fundraising mailings to violate the cooperative mail rule.
    Although the Postal Service is sensitive to the plight of these 
nonprofit organizations, it has been reluctant to propose an 
administrative solution.
    Traditionally, the expansion (or reduction) of eligibility to mail 
at nonprofit or other preferred rates has been a legislative function. 
By statute, the Postal Service is not permitted to discriminate between 
its customers, except where specifically authorized by law. 
Accordingly, it is not permitted to charge nonprofit rates to one 
customer while charging another the commercial rates for substantially 
similar material unless Congress has enacted laws directing that 
outcome. Moreover, since the postage on mail sent at the nonprofit 
rates does not bear the same share of postal overhead costs as mail 
sent at commercial rates, an expansion of nonprofit eligibility can 
transfer those overhead costs to other postal customers through higher 
rates. And finally, since there is a significant difference between the 
nonprofit and commercial rates, expansion of eligibility for the 
nonprofit rates can create a significant competitive advantage for the 
newly eligible nonprofit mailer, vis-[agrave]-vis those still mailing 
at the commercial rate.
    Some members of the nonprofit industry also made the Postal Service 
aware of a separate concern that might arise if fundraising mailings 
were exempted from application of the cooperative mail rule. 
Specifically, they were concerned that, if the contractual terms 
between nonprofits and fundraisers were no longer a postal concern, 
some fundraisers might impose financial terms that could take advantage 
of unsophisticated nonprofits. At the same time, these parties warned 
that some fundraisers might seek to create nonprofit organizations of 
their own, for the purpose of enriching themselves off fundraising 
mailings rather than to benefit the public. These are, of course, 
serious issues. Nevertheless, they appear primarily to raise consumer 
protection, rather than postal, concerns. In the Postal Service's view, 
these social policy concerns are best addressed elsewhere, such as 
through federal legislation or the state officials who regulate the 
relationship between professional fundraisers and nonprofit 
organizations.
    Bills to address concerns regarding application of the cooperative 
mail rule to fundraising mail were introduced last session in both 
houses of Congress. Although there appeared to be general agreement 
between Congressional members, the nonprofit sector, professional 
fundraisers, and the Postal Service concerning the utility of such 
legislation, issues regarding the precise wording and application of 
the legislation prevented its passage at that time. And, although a 
revised version of the bill has been proposed in the current session, 
the Postal Service also understands that, in view of the same questions 
as well as other pressing Congressional business, there is no guarantee 
that the legislation will be passed in the foreseeable future.
    Accordingly, although it is reluctant to tread in an area 
historically addressed through legislation, the Postal Service has 
determined to propose a rule to eliminate the application of the 
cooperative mail rule on mailings by authorized nonprofit organizations 
seeking monetary donations. There appears to be bipartisan 
Congressional agreement that this is a worthwhile goal and that it can 
be accomplished most efficiently through administrative action. 
Additionally, representatives of the nonprofit community and the 
professional fundraisers that serve them appear to concur on the urgent 
need for this relief. It will help ensure that nonprofit organizations, 
particularly those who cannot implement fundraising campaigns in-house, 
can obtain the professional assistance needed to obtain the donations 
necessary to fund their vital programs.

[[Page 23939]]

It will also ensure that those parties do not unintentionally violate 
the laws of those states that regulate the financial arrangements 
between nonprofits and certain types of professional fundraisers.
    We have several cautions regarding the breadth of this proposal. 
First, it only exempts fundraising mailings seeking monetary donations. 
Mailings that include solicitations for products or services, whether 
through sale, lease, or other arrangements, will not be exempt from 
application of the cooperative mail rule. If there is a cooperative 
arrangement involving such goods or services, the mailpiece will not be 
eligible for Nonprofit Standard mail rates. Exempting mailings 
advertising goods or services from application of the cooperative mail 
rule would create significant potential for abuse by commercial 
organizations and may also place small businesses and other for-profit 
organizations who sell similar goods and services at a significant 
competitive disadvantage.
    Second, the only exemption is from application of the cooperative 
mail rule. The mailings affected will continue to be subject to all 
other applicable postal standards.
    Third, the exemption only applies to nonprofit organizations 
authorized to mail at Nonprofit Standard Mail rates. Other 
organizations authorized to mail at those rates, currently voter 
registration officials and certain qualified political committees, will 
not be exempt from application of the cooperative mail rule on 
fundraising mail.
    Fourth, the rule, if adopted, will be a change in postal policy 
rather than a clarification of existing standards. Accordingly, it 
would be prospective only, effective on the date of adoption. It will 
not provide the basis for a refund claim on mail previously entered and 
paid at the commercial rates nor will it provide a defense for any 
action, whether under the False Claims Act or otherwise, based on 
previous entry of ineligible material at the nonprofit rate.
    Fifth, the proposed rule would not establish safeguards to address 
the concern that some professional fundraisers may seek to take 
advantage of unsophisticated clients. In our discussions with nonprofit 
representatives and Congressional representatives, no consensus was 
reached on an effective and administratively feasible method to 
accomplish this goal. However, this rulemaking does not prevent other 
interested federal or state agencies from regulating such practices. 
Moreover, it is also hoped that the nonprofit sector may undertake 
educational efforts to inform potential targets of such practices.
    Finally, the Postal Service will be alert to the consequences of 
this new standard, should it be adopted. If it results in the types of 
abuses discussed here or any other unintended consequences, the Postal 
Service may revisit the exception and consider a further rulemaking or 
other appropriate administrative measures.
    Although exempt from the notice and comment requirements of the 
Administrative Procedure Act [5 U.S.C. 553(b), (c)] regarding proposed 
rulemaking by 39 U.S.C 410(a), the Postal Service invites comments on 
the following proposed revisions to the Domestic Mail Manual, which is 
incorporated by reference in the Code of Federal Regulations. See 39 
CFR 111.

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.

PART 111--[AMENDED]

    1. The authority citation for 39 CFR part 111 continues to read as 
follows:

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 414, 
3001-3011, 3201-3219, 3403-3406, 3621, 3626, 5001.

    2. Add the following to Domestic Mail Manual section E670.5.3: 
``Exception: this standard does not apply to mailings by a nonprofit 
organization authorized to mail at Nonprofit Standard Mail rates 
soliciting monetary donations and not promoting or otherwise 
facilitating the sale or lease of any goods or service.''
    An appropriate amendment to 39 CFR part 111 will be published if 
the proposal is adopted.

Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 03-11144 Filed 5-5-03; 8:45 am]
BILLING CODE 7710-12-P