[Federal Register Volume 68, Number 196 (Thursday, October 9, 2003)]
[Rules and Regulations]
[Pages 58273-58276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25643]


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POSTAL SERVICE

39 CFR Part 111


Eligibility Requirements for Certain Nonprofit Standard Mail 
Matter

AGENCY: Postal Service.

ACTION: Final rule.

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SUMMARY: In this final rule, the Postal Service adopts an amendment to 
Domestic Mail Manual standards that expands eligibility for Nonprofit 
Standard Mail rates by exempting certain matter soliciting monetary 
donations from application of the cooperative mail rule.

EFFECTIVE DATE: November 13, 2003.

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

SUPPLEMENTARY INFORMATION: In a proposed rule published in the Federal 
Register on May 6, 2003 (68 FR 23937-23939), the Postal Service 
proposed to expand the eligibility for Nonprofit Standard Mail rates by 
exempting certain fundraising mailings from the application of the 
cooperative mail rule. For the reasons explained herein, the Postal 
Service adopts the proposal, with minor modifications.
    The proposal provided background concerning Nonprofit Standard Mail 
eligibility; the traditional role of Congress in expansion of 
eligibility for these rates; the history of the cooperative mail rule 
and its application to fundraising mailings; recent concerns

[[Page 58274]]

raised by nonprofit representatives concerning application of the 
cooperative mail rule on fundraising mail and potential effects on 
nonprofit organizations; and proposed legislation to exempt certain 
fundraising mail from application of the rule. The proposal also 
explained the Postal Service's reluctance to propose a rulemaking on 
these issues since expansion of eligibility for nonprofit rates has 
traditionally been accomplished through legislation. Nevertheless, as 
the proposal discussed, the Postal Service determined to embark upon 
this rulemaking with the understanding that it represented the 
consensus of parties with an interest in nonprofit issues, including 
bipartisan Congressional support, representatives of both nonprofit 
organizations and professional fundraisers, and the Postal Service; 
that it was needed to assist nonprofit organizations in obtaining 
support necessary to fund their programs; and that this result could be 
accomplished more quickly administratively than legislatively.
    The Postal Service received 67 comments concerning its proposal, 
including one that was received late but was considered. The commenters 
were diverse, including nonprofit organizations and organizations 
representing such organizations; professional fundraisers and 
organizations representing these commercial entities; Congressional 
representatives; private individuals; and an organization representing 
state officials that regulate charities. The comments also presented a 
broad range of views. A significant majority of the comments urged the 
Postal Service to adopt the rule as proposed. A small number of 
comments, concerned with potential abuses, recommended limitation of 
the proposed rule. Of these commenters, a small number recommended that 
the Postal Service withdraw the proposal, while the remainder 
recommended that it be adopted with additional restrictions. In 
contrast, a lesser number of comments recommended that the exemption 
from application of the cooperative mail rule be expanded even further. 
Additionally, several comments recommended that the rule should be 
retroactive.
    One of the comments that urged withdrawal of the rule argued that 
the rule would primarily benefit commercial fundraisers, rather than 
nonprofit organizations, while the other spoke more generally of 
potential abuse. If the former assertion were proven to be true, it 
would give the Postal Service reason to consider withdrawing the 
proposal. That is, the Postal Service understands that the primary 
concern of Congress and the nonprofit industry in seeking changes in 
this area was to benefit nonprofit organizations. Admittedly, the 
Postal Service does not have independent knowledge to verify the 
accuracy of the commenter's claims, since the Postal Service does not 
monitor or regulate the business relationships between nonprofit 
organizations and professional fundraisers. The comment did not provide 
evidence to substantiate its claim. Moreover, both nonprofit 
organizations and associations representing them, who obviously have an 
interest in this question, urge adoption of the proposal or a modified 
version of it. This suggests, and some of these comments specifically 
state, that the change will benefit at least some nonprofit 
organizations. Accordingly, the Postal Service does not find it 
appropriate to reject the proposal, as urged by this comment.
    The comments that urge the imposition of restrictions narrowing the 
proposed exemption from the cooperative mail rule do so for reasons 
related to those raised by comments seeking withdrawal of the proposal. 
That is, although they do not urge rejection of the new policy, these 
comments express concern that some professional fundraisers may use the 
new rules to take advantage of inexperienced or unsophisticated 
nonprofit organizations.
    At the outset, it should be noted that the proposed rule does not 
dictate the terms of the relationship between nonprofit organizations 
and fundraisers. If anything, it increases the options available to the 
parties. For instance, it does not prevent nonprofits from entering the 
type of principal-agent relationship with fundraisers contemplated by 
the cooperative mail rule. And, as urged by the numerous parties that 
sought the Postal Service rulemaking in this area, it allows the 
nonprofits to consider other relationships to retain the services of 
professional fundraisers.
    The Postal Service does not doubt that the proposed change in its 
standards will provide individual nonprofit organizations the freedom 
to enter agreements that, in hindsight, at least a few will conclude to 
have been unwise. However, the Postal Service does not believe that 
this provides the justification, at least at this time, to adopt the 
additional restrictions urged by some comments. Those proposals 
recommend that the Postal Service require nonprofits and fundraisers to 
adhere, and certify their compliance, to a variety of conditions 
concerning their relationship. The conditions suggested include: (1) A 
restriction against any officer, director, principal, or fiduciary of 
the party that is ineligible to mail at nonprofit rates (hereafter 
``ineligible participant'') or a corporate affiliate or close relative 
of the ineligible participant serving as an officer, director, or key 
employee of the nonprofit; (2) a requirement that the arrangement 
between the nonprofit and ineligible participant be governed by a 
written contract, and that this contract be signed by a board member or 
officer of the nonprofit; (3) a requirement that the donations be 
deposited in a bank account under the nonprofit's exclusive control; 
(4) a requirement that the ineligible participant have no ownership or 
control over the list of donors responding to the solicitation, beyond 
a limited contingent security interest; (5) a requirement that the 
ineligible participant not retain ownership rights to intellectual 
property in the fundraising package developed at the nonprofit's 
expense; (6) a requirement that, in instances where the ineligible 
participant extends credit to the nonprofit, the credit terms are not 
conditioned upon the continued employment of the ineligible 
participant; and (7) a requirement that the mailing not constitute an 
excess benefit transaction as defined by the Internal Revenue Service. 
As explained, the Postal Service has determined to adopt the fourth 
suggestion, in part. Other than that item, for the reasons discussed 
below, the Postal Service has determined not to adopt the restrictions 
suggested by these commenters.
    First, based on comments received by the Postal Service, it is 
clear there is significant disagreement as to whether any, much less 
these, additional restrictions should be adopted. As discussed above, 
and in the earlier Federal Register notice, the Postal Service proposed 
its rule change reluctantly, based on an understanding there was a 
broad consensus among interested parties supporting it. Although there 
appears to remain a general consensus in support of the proposal, there 
is no consensus supporting any of the suggested additional 
restrictions.
    Second, even if the Postal Service found it appropriate to consider 
additional postal standards in this area, it is not convinced that the 
standards suggested are necessarily appropriate. The Postal Service 
understands the nonprofit universe to be diverse. For example, 
nonprofits may be large or small, well-established or relatively new, 
relatively well-funded or not well-funded, run by a permanent paid 
staff

[[Page 58275]]

or all-volunteer. It seems to us difficult to impose a set of 
restrictions that should be universally applied to all of these 
organizations. However, that is what the comments suggest.
    Third, even if the terms suggested by the commenters are 
reasonable, the need to impose them by regulation is not clear to the 
Postal Service. That is, although the need to ensure that nonprofit 
organizations are not subject to abuses by commercial entities is a 
laudable objective, it might be accomplished, or at least attempted, 
through alternatives to regulation. For example, education or training 
of nonprofits may prove to be sufficient, particularly if it is true 
that adherence to the suggestions is financially beneficial for the 
nonprofit. There are a number of interested entities that might provide 
this education and training: associations representing nonprofit 
organizations; associations representing fundraisers; and government 
entities that regulate professional fundraisers and nonprofits. The 
Postal Service encourages these associations and government agencies to 
undertake efforts to educate nonprofit organizations and to take other 
appropriate measures to protect nonprofits from potential abuses. We 
also encourage nonprofit organizations to utilize these resources and 
to review their existing and proposed fundraising arrangements and 
consider whether the terms of those arrangements are in their best 
interests. The Postal Service will be happy to assist, as appropriate, 
in these efforts.
    Fourth, the Postal Service also has doubts that the procedures 
suggested by some of the comments are administratively feasible. The 
comments did not appear to suggest that the Postal Service undertake 
the difficult task of independently verifying mailers' compliance with 
the proposed conditions. Rather, they suggested that the parties each 
sign the postage statements certifying compliance with the new 
standards and that the Postal Service rely upon these statements. 
However, the Postal Service does not require all parties to sign the 
postage statement at this time and, when analogous proposals have been 
raised in the past, mailers have pointed out the logistical problems 
they would face if required to sign postage statements for mail 
prepared and entered by their agents. Moreover, even if it is not 
contemplated by the commenters that the Postal Service will seek to 
enforce the suggested conditions beyond ensuring that the parties sign 
the postage statement, it is unlikely that the Postal Service can avoid 
all other enforcement activity. For instance, if it is alleged that 
parties are not in compliance, despite mailing at the nonprofit rates 
while certifying they did comply, it is likely that the Postal Service 
would be expected to investigate the assertions. Unlike violations of 
the current cooperative mail rule, which often can be determined by 
examination of the parties' contractual arrangements, some of the 
proposed conditions would likely require a more extensive 
investigation. For example, the restriction against officers and others 
with close ties to the ineligible participant (including the close 
relatives of these individuals) serving as officers, directors, or key 
employees of the nonprofit would require an exhaustive examination of 
the organization charts and employment rolls of each organization. 
Determining whether there is a violation of the IRS excess benefit 
transaction standard would require Postal Service employees to develop 
expertise in these standards and to obtain the information needed to 
apply them. Given the possibility of IRS investigations of the parties 
under the same standard, this requirement would create the risk of 
duplicative government efforts.
    There is also the likelihood that the proposed conditions will 
create practical, administrative hardships for some nonprofits. For 
example, the requirement that the donated funds be deposited in a bank 
account controlled exclusively by the nonprofit could prove difficult 
for nonprofits that, because of size or other concerns, are ill-
equipped to handle such accounts. Similarly, the requirement that the 
board members or officers sign fundraising agreements could create 
difficulties for organizations that delegate these responsibilities to 
other parties. As the Postal Service is aware from its own purchasing 
procedures, it is not unusual for employees that are not officers to be 
given authority to sign contracts.
    Adoption of the proposed conditions also could work to the 
financial detriment of some nonprofits. The proposed rule provides 
additional options for nonprofits, thereby giving them additional 
choices in their efforts to find the arrangement that will maximize the 
benefit to the nonprofit. For instance, it may be beneficial for some 
nonprofits to consider arrangements concerning donor lists, 
intellectual property rights, and credit terms beyond those that would 
be permitted under the proposed conditions. Limiting the choices 
available to nonprofits might, in some instances, take away the option 
that would be best for some organizations. Of course, it could be 
argued that increasing the options available to nonprofits will 
increase the likelihood that some, particularly the least 
sophisticated, will make the wrong choice. However, as observed above, 
the appropriate safeguard against this possibility would seem to be the 
education of nonprofits to make the best choices in their particular 
circumstances, rather than eliminating options that might be prove to 
be the best choice for some of them.
    Finally, the Postal Service is concerned that adoption of the 
proposed conditions may create conflicts with state or federal statutes 
and that, if such conflicts occur, mailers would be placed in the 
untenable position of determining whether to comply with the statutes 
or with postal regulations. Indeed, as discussed in the notice 
announcing the proposed rule in 65 FR 23939 , ensuring that our 
customers ``do not unintentionally violate the laws of those states 
that regulate the financial arrangements between nonprofits and certain 
types of professional fundraisers'' was one of the motives underlying 
the rulemaking. The Postal Service is aware that all states have 
agencies with oversight over charitable solicitations, including state 
Attorney Generals; Secretaries of State; and Departments of Consumer 
Protection, Consumer and Regulatory Affairs, Agriculture and Consumer 
Services, Commerce, Commerce and Consumer Protection, Professional and 
Financial Regulation, Business Regulation, or Regulation and Licensing, 
or a combination of such state agencies. The Postal Service is aware 
also that most states have laws regulating the relationship between 
professional fundraisers and their nonprofit clients. At the present 
time, it appears that at least 28 states have enacted some type of 
financial distribution requirement on charitable fundraisers and, if 
anything, we understand that the trend toward such state oversight is 
increasing. Additionally, there are a number of federal agencies with 
the authority and expertise to enact and enforce standards concerning 
these relationships, such as the Federal Trade Commission, Internal 
Revenue Service, and Department of Justice. Under an exemption of 
fundraising mailings from the cooperative mail rule, the states and 
federal agencies will be able to adopt and enforce their standards 
without concern that such action might be in conflict with postal 
rules.
    As alluded to above, the Postal Service has determined to adopt a 
condition concerning donor lists (i.e.,

[[Page 58276]]

the lists of persons contributing donations in response to the 
solicitation). Under this condition, the exemption from application of 
the cooperative mail rule will apply only where the nonprofit 
organization is given a list of the donors, contact information for 
those persons, and the amount of their donations. Based on past reviews 
of fundraising agreements, the Postal Service believes that this 
condition is already generally followed in the fundraising industry. 
Moreover, compliance with this condition generally can be determined by 
postal officials from review of the agreement between the fundraiser 
and the nonprofit. Finally, to guard against the possibility that some 
nonprofits will be better served financially if not subject to this 
condition, postal standards will allow them to waive the receipt of 
this listing, as long as that is done in writing.
    Based on these considerations, the Postal Service has determined 
not to adopt at this time the remaining restrictions suggested by some 
comments. Nevertheless, they do raise significant concerns and the 
Postal Service's Consumer Advocate will monitor implementation of the 
rule to determine whether abuses are occurring. As promised in the 
proposal, if such abuses or other unintended consequences occur after 
the rulemaking, the Postal Service will consider a further rulemaking 
or other administrative actions.
    Several commenters, although in favor of the proposal, assert that 
the rulemaking did not go far enough. They assert that the exemption 
from the cooperative mail rule should also cover the sale of products 
and services, at least those of nominal value, as well as a variety of 
documents including brochures, thank you letters, letters confirming 
the amount of donations, newsletters, and ``chase'' letters. The Postal 
Service understands the latter to refer to letters that follow up on 
telemarketing fundraising campaigns and remind donors that their 
pledges have not been paid. Assuming that understanding of ``chase'' 
letters is correct, the Postal Service considers them to be a 
solicitation for monetary donations within the proposal. Accordingly, 
as long as they do not contain other disqualifying material, such 
letters would be exempt from application of the cooperative mail rule.
    The Postal Service has determined not to expand the proposal to 
provide that pieces promoting the sale of products and services also be 
exempted from application of the cooperative mail rule. As explained in 
the proposal, the exemption is strictly limited to fundraising mailings 
seeking monetary donations and does not apply to mailings promoting any 
goods or services. The suggestion goes beyond the consensus agreement 
that led to the rulemaking. Moreover, as the Postal Service explained 
in the notice discussing the proposal, adoption of the suggestion would 
create significant potential for abuse by commercial organizations and 
may place small businesses and other for-profit organizations who sell 
similar goods and services at a competitive disadvantage. The 
suggestion that the proposal be expanded to cover only products and 
services of nominal value does not alter these considerations; if 
anything, it could create concerns in administering what is included 
within that standard.
    The Postal Service also has determined not to expand this 
rulemaking to cover the other documents (e.g., thank you letters, 
newsletters, confirmations of donations) identified in the comments. 
These suggestions are beyond the scope of the rulemaking as well as the 
consensus favoring the exemption of certain fundraising mailings from 
application of the cooperative mail rule. Moreover, the need for a 
rulemaking to address these documents is unclear. The Postal Service is 
not aware of any general concern regarding its policies involving these 
documents. Some of them may, in fact, be generally sent as First-Class 
Mail, and thereby they are not eligible for Nonprofit Standard Mail 
rates in any case.
    Finally, several commenters suggest that the proposed policy be 
made retroactive. The Postal Service has determined not to do so and, 
as explained in its proposal, the change in policy is prospective only, 
effective on the date of enactment. A retroactive change could open the 
Postal Service to an undetermined number of refund claims.
    For these reasons, the Postal Service adopts the rule as proposed 
but, in addition to the condition described above, makes three minor 
changes. First, the proposed revision was to apply only to nonprofit 
organizations authorized to mail at the nonprofit rates. The rule is 
changed to apply to all customers authorized to mail at Nonprofit 
Standard Mail rates. Second, the proposed rule is revised to make clear 
that the exception from application of the cooperative mail rule 
applies only where the monetary donations solicited are for the entity 
authorized to mail at nonprofit rates. Finally, the language is revised 
to make clear that the exception is prospective only.

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.

PART 111--[AMENDED]

0
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.


0
2. Add the following to Domestic Mail Manual section E670.5.3: 
``Exception: effective November 13, 2003, this standard no longer 
applies to mailings by an organization authorized to mail at Nonprofit 
Standard Mail rates soliciting monetary donations to the authorized 
mailer and not promoting or otherwise facilitating the sale or lease of 
any goods or service. This exception applies only where the 
organization authorized to mail at Nonprofit Standard Mail rates is 
given a list of each donor, contact information (e.g., address, 
telephone number) for each, and the amount of the donation or waives in 
writing the receipt of this list.''
    An appropriate amendment to 39 CFR part 111 to reflect these 
changes will be published.

Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 03-25643 Filed 10-8-03; 8:45 am]
BILLING CODE 7710-12-P