[Federal Register Volume 73, Number 81 (Friday, April 25, 2008)]
[Notices]
[Pages 22449-22451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-9210]


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POSTAL REGULATORY COMMISSION

[Docket No. PI2008-4; Order No. 72]


Study on Reduced Postal Rates

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission seeks comments from the public on a study of a 
postal rule that allows certain fundraising mailings to be sent at 
reduced rates. The comments will assist the Commission in preparing a 
statutorily-required report and recommendations.

DATES: Initial comments due June 24, 2008; reply comments due July 24, 
2008.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 and [email protected].

SUPPLEMENTARY INFORMATION: 

I. Introduction

    The Postal Accountability and Enhancement Act (PAEA), Public Law 
109-435, 120 Stat. 3218 (2006), directs the Commission to prepare 
several reports on special topics. One directive requires the 
Commission to examine an exception to the cooperative mail rule to 
determine whether this change in eligibility for reduced postage 
contains adequate safeguards to protect against abuses of rates for 
nonprofit mail and deception of consumers. The Commission is to report 
the results of this examination to the Postal Service, along with any 
recommendations it deems appropriate. If the Postal Service fails to 
act thereon, the Commission may take such action it deems necessary to 
prevent abuse of rates or deception of consumers. See section 711, 120 
Stat. 3248 (2006).\1\
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    \1\ Section 711 of the PAEA refers to section E670.5.3 of the 
Domestic Mail Manual (DMM). The text of this provision now appears 
at DMM Sec.  703.1.6.3 due to a reorganization of the DMM.
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    The Commission establishes Docket No. PI2008-4 to facilitate 
compliance with the directive in section 711 and seeks comments from 
the public on the scope and nature of the examination, report, and 
potential recommendations. 39 U.S.C. 505 requires the designation of an 
officer of the Commission in all public proceedings to represent the 
interests of the general public. The Commission designates Katja M. 
Eichinger to serve as the Public Representative. Pursuant to this 
designation, Ms. Eichinger will direct the activities of Commission 
personnel assigned to assist her and, upon request, will provide their 
names for the record. Neither she nor any of the assigned personnel 
will participate in or provide advice on any Commission decision in 
this proceeding.

II. The Cooperative Mail Rule

    The cooperative mail rule is a longstanding provision in the DMM. 
It traditionally has controlled access to reduced postage rates by 
limiting the ability of an entity that is eligible for reduced rates to 
``cooperate'' or partner with another entity in a mailing and still 
retain its reduced rate eligibility for the mailing in question. The 
rule generally accomplishes this, in brief, by requiring that each 
cooperating entity independently qualify for nonprofit rates at the 
post office of mailing; by requiring that the mail matter being sent be 
that of the eligible entity; and by prohibiting ``sharing'' a permit 
with an entity not authorized to mail at reduced rates. These 
restrictions effectively foreclose a nonprofit from cooperating with a 
for-profit entity if the mailing is to be sent at nonprofit rates, 
unless the cooperation involves a legitimate principal-agent 
relationship in a fee-for-service arrangement. See DMM Sec.  703.1.6.3.
    The traditional rationale for imposing limits on cooperative 
mailings has been that access to reduced rates is a privilege--
initially subsidized by taxpayers, but more recently by other mailers--
and that the limits help prevent abuse of this privilege. The extent of 
the benefit has varied in the years since its introduction, but 
eligible cooperative mailings currently pay 60 percent of the Regular 
Standard Mail rate.

III. The Emergence of the Fundraising Exception

    In 2003, the Postal Service initiated an administrative rulemaking 
to address a revision to the cooperative mail rule. The rulemaking 
resulted in a revision, effective November 13, 2003, widely referred to 
as the Fundraising Exception. In practical effect, this revision 
expands eligibility in a limited respect by exempting fundraising 
mailings seeking only monetary donations from application of the DMM's 
conditions for an eligible cooperative mailing. See 68 FR 23937 (May 6, 
2003) and 68 FR 58273 (October 9, 2003), setting out the proposed and 
final rule, respectively. The revision requires that the cooperating 
nonprofit entity either receive a detailed donor list (containing the 
name of donor, contact information, and the amount of donation) from 
its mailing partner or execute a written waiver of such receipt.

A. The Fundraising Exemption, as Initially Proposed

    The Postal Service notice of proposed rulemaking included a 
discussion of the history of the cooperative mail rule and its 
application to fundraising mailings; the traditional role of Congress 
with respect to eligibility for nonprofit Standard Mail rates; recent 
concerns about the impact of the cooperative mail rule on fundraising 
mailings; and proposed legislation to exempt certain fundraising mail 
from the rule. It noted, with respect to the impact of the rule on 
fundraising mailings, that over the last several years, some nonprofit 
organizations have made the Postal Service aware of concerns that the 
application of the cooperative mail rule

[[Page 22450]]

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 economic climate many in the 
nonprofit sector were facing. It noted that the organizations that 
seemed to be the focus of most of the concern included those that, due 
to being new, of small size, or for other reasons, have to seek the 
assistance of professional fundraising organizations in seeking 
donations, rather than conduct their fundraising campaigns in-house. 68 
FR 23938 (May 6, 2003). It added:

    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.

Id.
    The Postal Service said it was sensitive to the plight of these 
nonprofit organizations, but was reluctant to propose an administrative 
solution because expanding or reducing eligibility to mail at nonprofit 
or other preferred status traditionally has been a legislative 
function; discriminating between its customers is prohibited by 
statute, except where authorized by law; and expanding eligibility for 
nonprofit rates could create a significant competitive advantage for a 
newly-eligible mailer, relative to those still mailing at the 
commercial rate. Id. It also noted that some members of the nonprofit 
industry had raised a concern that if contractual terms between 
nonprofits and fundraisers were no longer a postal concern (given an 
exemption from application of the cooperative mail rule), some 
fundraisers might impose financial terms that could take advantage of 
unsophisticated nonprofits or even seek to create nonprofit 
organizations of their own to enrich themselves off of fundraising 
mailings, rather than to benefit the public. Id.
    The Postal Service acknowledged the seriousness of the issues 
raised by the nonprofits, but characterized them as appearing primarily 
to raise consumer protection concerns, rather than postal concerns. It 
therefore considered them a type of social policy concern best 
addressed elsewhere, such as through Federal legislation or the state 
officials who regulate the relationship between professional 
fundraisers and nonprofit organizations. Id. However, noting that 
Federal legislation addressing this topic had been introduced but had 
no guarantee of passage and reiterating its reluctance to tread in an 
area historically addressed through legislation, the Postal Service 
said it had decided to propose a rule to eliminate application of the 
cooperative mail rule on mailings by authorized nonprofit organizations 
seeking monetary donations. Id. As to the breadth of the proposal, the 
Postal Service raised six cautions. Three pertained to the scope of the 
exception. First, the Postal Service noted that the proposal:

    * * * 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.

    Id. at 23939. The rationale for this limitation, according to the 
Postal Service, was that exempting mailings that advertise 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. 
Id.
    Second, the Postal Service said the exemption was only from 
application of the cooperative mail rule, and that affected mailings 
would continue to be subject to all other applicable postal standards. 
Id. Third, it said the exemption would only apply to nonprofit 
organizations authorized to mail at nonprofit Standard Mail rates; 
other organizations so entitled, which are voter registration officials 
and certain qualified political committees, would not be exempt. Id.
    The next point was that the rule, if adopted, would be a change of 
postal policy rather than a clarification of existing standards, and 
thus would be prospective only, effective on the date of adoption. It 
would not form the basis for a request for a refund. Id. The Postal 
Service's fifth point was that the proposed rule ``would not establish 
safeguards to address the concern that some professional fundraisers 
may seek to take advantage of unsophisticated clients.'' Id. It added:

    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.

Id.
    The Postal Service's final point was that it would be alert to the 
consequences of the new standard, should it be adopted, and might 
revisit the exception and consider a further rulemaking or other 
appropriate administrative measures if it resulted in the types of 
abuses that had been discussed or any other unintended consequences. 
Id.

B. The Fundraising Exception as Adopted

    In the explanation accompanying the final rule, the Postal Service 
characterized the 67 comments it had received as diverse in terms of 
types of entities represented and broad as to the range of views.\2\ 
Its overall assessment was that a significant majority of the comments 
urged adoption of the rule as proposed. However, it acknowledged that a 
small number recommended the proposal be withdrawn or that it be 
adopted with additional restrictions, while ``a lesser number'' of 
commenters recommended that the exception be expanded. It also said 
that several commenters had recommended making the rule retroactive. 
Id.
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    \2\ Commenters included 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. 
68 FR 58274 (October 9, 2003).
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    In response to the comments, the Postal Service modified the 
proposed rule in several respects. It added a condition related to 
donor lists by providing that the fundraising exemption applies only 
where the nonprofit organization is either given a list of the donors, 
their contact information, and the amount of their donations, or 
waives, in writing, the receipt of such list. Id. at 58276. It extended 
eligibility for the exemption from authorized nonprofits to voter 
election officials and certain qualified political committees. Id. It 
also revised the rule to clarify two points: (1) The exception applies 
only where the monetary donations solicited are for the entity 
authorized to mail at nonprofit rates, and (2) operates prospectively 
only. Id.
    The Postal Service discussed, but did not accept, commenters' 
suggestions that would have resulted in a regulation that:

--Prohibited or restricted close ties between the cooperating entities;

[[Page 22451]]

--Required written approval of the contract by the cooperating 
nonprofit's board of directors; and
--Mandated inclusion of certain contractual terms related to numerous 
control or ownership issues, such as receipt and exclusive ownership of 
a donor list; direct deposit of funds into the nonprofit's bank 
account; and intellectual property in the mailing.

Id. at 58274-76.

IV. Invitation to Comment

    The preceding summary makes clear that the Fundraising Exception 
expands eligibility for nonprofit Standard Mail rates for certain types 
of mailings, but does so in a relatively limited way. It also makes 
clear that the Fundraising Exception, as adopted, did not include many 
of the checks, or safeguards, some commenters believed should be 
included to ward off abuse of nonprofit rates and consumer deception. 
The Commission invites comments from the general public to facilitate 
its examination of whether the Fundraising Exception contains adequate 
safeguards to protect against abuse of nonprofit rates and consumer 
protection, and preparation of the related report and recommendations. 
Comments may address any relevant topic; however, the Commission also 
presents the following questions to help focus the discussion.

A. Abuse of Nonprofit Rates

    The directive in section 711 speaks to abuse of nonprofit rates, 
rather than fraud. In connection with the scope and extent of abuse 
that may occur under the Fundraising Exemption, the Commission is 
especially interested in the following matters:
    1. The 2003 rulemaking acknowledged that commenters had raised 
concerns about several types of abusive fundraising practices, 
including predatory credit arrangements. To what extent have these 
practices occurred, since the 2003 revision, in connection with 
mailings sent under the Fundraising Exemption?
    2. Have there been any material changes in fundraising practices 
since the Postal Service's 2003 rulemaking that give rise to new 
concerns about abuse in connection with the Fundraising Exception?
    3. To what extent has the nonprofit sector engaged in education 
efforts designed to inform nonprofits, especially those considered 
especially vulnerable to overreaching or predatory partners, about the 
scope of the Fundraising Exception and potential abuses? Also, are 
there reliable means of measuring or assessing the success of these 
efforts?
    4. To what extent has the Postal Service (including any 
organizational division) engaged in education efforts specifically 
directed at the Fundraising Exception and potential abuses? Are there 
reliable means of measuring or assessing the success of these efforts?
    5. What information and data are available about the extent to 
which the Fundraising Exception has been used by mailers eligible for 
nonprofit rates since adoption in 2003, in terms of features such as 
number and type of entities using the Fundraising Exception, volume, 
and total postage involved?

B. Deception of Consumers

    The directive in section 711 also extends to deception of 
consumers. The Commission is interested in commenters' views on all 
relevant aspects of consumer deception, including:
    1. The 2003 rulemaking mentioned that there were a growing number 
of State laws on charitable fundraising that created a potential for 
conflict with cooperative mail as then formulated. Has there been an 
increase in the number of States proposing or adopting such laws? What 
safeguards or protections are included in these laws? Do these laws 
pose any conflicts with the 2003 Fundraising Exception or did this 
Exception satisfactorily resolve relevant concerns?
    2. To what extent has the Postal Service undertaken efforts to 
educate consumers (in the capacity of a donor or potential donor 
responding to a mailed solicitation) about abuses or potential 
fundraising abuses?
    3. To what extent have individual States engaged in efforts to 
educate consumers (in the capacity of a donor or potential donor 
responding to a mailed solicitation) about abuses or potential 
fundraising abuses?
    4. To what extent has deception of potential donors been reported 
or documented by the Postal Service, nonprofit mailer organizations, 
State or local consumer protection agencies, or others?

V. Ordering Paragraphs

It is ordered:
    1. The Commission establishes Docket No. PI2008-4, Inquiry into 
Cooperative Mail Rule Exception, to facilitate compliance with section 
711 of the Postal Accountability and Enhancement Act.
    2. The Commission designates Katja M. Eichinger as the Public 
Representative representing the interests of the general public in this 
proceeding.
    3. Comments on issues related to the directive in section 711 of 
the PAEA are due June 24, 2008.
    4. Reply comments are due July 24, 2008.
    5. The Secretary shall arrange for publication of this Notice in 
the Federal Register.

    By the Commission.
Steven W. Williams,
Secretary.
 [FR Doc. E8-9210 Filed 4-24-08; 8:45 am]
BILLING CODE 7710-FW-P