Proposed Legislation: Issues Related to Honesty in Sweepstakes Act of
1998 (S. 2141) (Statement/Record, 09/01/98, GAO/T-GGD-98-198).

GAO discussed the issues related to the Honesty in Sweepstakes Act of
1998, introduced on June 5, 1998, by Senator Ben Nighthorse Campbell,
focusing on: (1) the extent and nature of problems that consumers may
have experienced with various sweepstakes mailings; and (2) information
related to the mailing of documents that resembled cashier's checks,
which are not the negotiable instruments that they appear to be.

GAO noted that: (1) it found that comprehensive data that could indicate
the full extent of the problems that consumers experienced with mailed
sweepstakes material and cashier's check look-alikes were not available;
(2) the main reasons officials and representatives gave for the lack of
comprehensive data were that: (a) consumers oftentimes did not report
their problems; and (b) no centralized database existed from which
comprehensive data could be obtained; (3) although comprehensive data
were unavailable, the Federal Trade Commission (FTC) and the Postal
Inspection Service were two organizations that GAO identified as having
some data on consumers' complaints about deceptive mail marketing
practices, which could indicate the nature of these types of problems;
(4) much of the consumer complaint information, which GAO obtained in a
sample from FTC's Consumer Information System, showed that in many
instances, consumers were required to remit money or purchase products
or services before being allowed to participate in the sweepstakes; (5)
information about Postal Inspection Service cases that had been
investigated largely involved sweepstakes and cash prize promotions for
which up-front taxes or insurance, judging, or handling fees were
required before consumers could participate in sweepstakes promotions;
(6) GAO was unable to identify examples of consumers' problems with
cashier's check look-alikes similar to those involving mailed
sweepstakes material because such information was not readily available;
(7) two recent initiatives are intended to address consumers' problems
with deceptive direct mail marketing practices; and (8) the initiatives
are: (a) Project Mailbox, for which various participating organizations,
including FTC, the Postal Inspection Service, and 25 state attorneys
general, collectively took steps to target organizations that used such
practices; and (b) the establishment of a multi-state sweepstakes
committee that, among other things, is designed to facilitate
cooperation among various states in dealing effectively with companies
that attempt to defraud consumers through the use of mailed sweepstakes
material.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-98-198
     TITLE:  Proposed Legislation: Issues Related to Honesty in 
             Sweepstakes Act of 1998 (S. 2141)
      DATE:  09/01/98
   SUBJECT:  Proposed legislation
             Consumer protection
             Mail fraud
             Data collection
             Sales promotion
             Mailing lists
IDENTIFIER:  FTC Consumer Information System
             USPS Fraud Complaint System
             
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Cover
================================================================ COVER


Before the Subcommittee on International Security,
Proliferation and Federal Services
Senate Committee on Governmental Affairs

Not to be Released
Before
2:00 p.m., EDT
Tuesday
September 1, 1998

PROPOSED LEGISLATION - ISSUES
RELATED TO HONESTY IN
SWEEPSTAKES ACT OF 1998
(S.  2141)

Statement for the Record by
Bernard L.  Ungar, Director
Government Business Operations Issues
General Government Division

GAO/T-GGD-98-198

GAO/GGD-98-198T


(240317)


Abbreviations
=============================================================== ABBREV

  AARP - American Association of Retired Persons
  AFP - American Family Publishers
  AMMA - Advertising Mail Marketing Association
  CBBB - Council of Better Business Bureaus
  CIS - Consumer Information System
  DMA - Direct Marketing Association
  FCS - Fraud Complaint System
  FTC - Federal Trade Commission
  GAO - General Accounting Office
  NAAG - National Association of Attorneys General
  NCL - National Consumers League
  NFIC - National Fraud Information Center
  USPIRG - U.S.  Public Interest Research Group

PROPOSED LEGISLATION:  ISSUES
RELATED TO HONESTY IN SWEEPSTAKES
ACT OF 1998
====================================================== Chapter Summary

The intent of the proposed "Honesty in Sweepstakes Act of 1998" (S. 
2141), introduced by Senator Ben Nighthorse Campbell on June 5, 1998,
is to ensure that organizations that use sweepstakes or other games
of chance and cashier's check "look-alikes" as promotional or
marketing tools are as honest and accurate as possible in their
dealings with consumers.  In response to Senator Campbell's July 1,
1998, request, GAO obtained information on two issues related to the
proposed legislation:  (1) the extent and nature of consumers'
problems with mailed sweepstakes material and cashier's check
look-alikes and (2) recent initiatives to address such problems.  GAO
obtained information from officials and representatives in a total of
17 federal, state, and local government agencies and nongovernmental
organizations. 

GAO found that comprehensive data that could indicate the full extent
of the problems that consumers experienced with mailed sweepstakes
material and cashier's check look-alikes were not available.  The
main reasons officials and representatives gave for the lack of
comprehensive data were that (1) consumers oftentimes did not report
their problems and (2) no centralized database existed from which
comprehensive data could be obtained. 

Although comprehensive data were unavailable, FTC and the Postal
Inspection Service were two organizations that GAO identified as
having some data on consumers' complaints about deceptive mail
marketing practices, which could indicate the nature of these types
of problems.  Much of the consumer complaint information, which GAO
obtained in a sample from FTC's Consumer Information System, showed
that in many instances, consumers were required to remit money or
purchase products or services before being allowed to participate in
the sweepstakes.  Information about Postal Inspection Service cases
that had been investigated largely involved sweepstakes and cash
prize promotions for which up-front taxes or insurance, judging, or
handling fees were required before consumers could participate in
sweepstakes promotions.  GAO was unable to identify examples of
consumers' problems with cashier's check look-alikes similar to those
involving mailed sweepstakes material because such information was
not readily available. 

Two recent initiatives are intended to address consumers' problems
with deceptive direct mail marketing practices.  The initiatives are
(1) Project Mailbox for which various participating organizations,
including FTC, the Postal Inspection Service, and 25 state attorneys
general, collectively took steps to target organizations that used
such practices; and (2) the establishment of a multi-state
sweepstakes committee that, among other things, is designed to
facilitate cooperation among various states in dealing effectively
with companies that attempt to defraud consumers through the use of
mailed sweepstakes material. 


PROPOSED LEGISLATION:  ISSUES
RELATED TO HONESTY IN SWEEPSTAKES
ACT OF 1998
==================================================== Chapter Statement

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to have this opportunity to discuss issues related to
the proposed legislation entitled "Honesty in Sweepstakes Act of
1998," (S.  2141), which was introduced on June 5, 1998, by Senator
Ben Nighthorse Campbell.\1 In my statement, I will provide
information on the results of our efforts to determine the extent and
nature of problems that consumers may have experienced with various
sweepstakes mailings that organizations have used to entice consumers
to purchase goods and services.  Also, I will provide information on
our efforts to obtain similar information related to the mailing of
documents that resembled cashier's checks, also known as cashier's
check "look-alikes," which are not the negotiable instruments that
they appear to be.  In addition, I will provide information on
initiatives in which various agencies and organizations have
participated to address consumers' problems with direct mail
marketing practices.  We performed our work in response to Senator
Campbell's July 1, 1998, request. 


--------------------
\1 On July 28, 1998, Congressman Frank LoBiondo introduced proposed
legislation entitled "Honesty in Sweepstakes Act of 1998" (H.R. 
4340), which was identical to Senator Campbell's proposed
legislation. 


   BACKGROUND
-------------------------------------------------- Chapter Statement:1

As Senator Campbell indicated in his remarks that appeared in the
June 5, 1998, Congressional Record, the proposed legislation is
primarily intended to protect consumers, particularly senior
citizens, from deceptive direct mail marketing practices.  The
provisions of the proposed legislation are generally designed to help
ensure that organizations, which may use questionable or deceptive
direct mail sales promotions involving sweepstakes or other games of
chance and cashier's check look-alikes, be required to be as accurate
and honest as possible in such promotions.  Specifically, the
provisions would require these organizations to ensure that
statements are printed in large typeface on the outside of the
envelope to clearly indicate that the printed material inside
involves a sweepstakes or game of chance and that the consumer has
not automatically won.  Also, the provisions would require that these
organizations include statements at the top on the first page of the
printed material inside the envelope that would

  -- repeat the statements that were printed on the outside of the
     envelope;

  -- indicate consumers' chances of winning the sweepstakes; and

  -- state that no purchase is necessary for consumers to win a prize
     nor would such purchases enhance their chances of winning. 

In addition, for mailed cashier's check look-alike documents, the
provisions would generally require that in accordance with prescribed
Postal Service regulations, a statement be included in large or
contrasting typeface on the document to indicate that it is not a
check and has no cash value. 

As Senator Campbell has indicated, consumers would be key
stakeholders in helping to ensure that organizations complied with
the provisions in the proposed legislation.  The role of consumers
would be to report their complaints to the Postal Service about any
mailed material that appeared not to meet the proposed legislative
provisions.  Such complaints would provide the Postal Service with
information that could be used to appropriately investigate and
determine an organization's compliance with the proposed "Honesty in
Sweepstakes Act" provisions.  If such information indicates that the
mailed material is not in compliance, the Postal Service may take
action to dispose of the material or return it to the sender. 


   APPROACH
-------------------------------------------------- Chapter Statement:2

As agreed with Senator Campbell, our primary purpose was to obtain
available information that could help indicate the extent and nature
of problems that consumers may have experienced with mailed
sweepstakes material and cashier's check look-alikes.  To accomplish
this purpose, we performed general research to identify any federal,
state, and local government agencies as well as nongovernmental
organizations that may have been involved in dealing with consumers'
complaints about questionable or deceptive direct mail marketing
tactics involving mailed sweepstakes material and cashier's check
look-alikes.  The key federal agencies we identified were the Federal
Trade Commission (FTC) and the U.S.  Postal Service, specifically,
the Postal Inspection Service.  We also identified other state and
local government agencies and nongovernmental organizations that
dealt with such complaints, including

  -- state Attorneys General offices for such states as Florida and
     West Virginia;

  -- local government offices that handled consumer protection
     issues; and

  -- various nongovernmental organizations including (1) American
     Association of Retired Persons (AARP); (2) National Consumers
     League (NCL),\2 which established the National Fraud Information
     Center (NFIC);\3 and (3) Direct Marketing Association (DMA).\4

We contacted officials at FTC and the Postal Inspection Service and
discussed with them the extent to which they may have collected and
maintained data that could indicate the extent or scope of consumers'
problems with questionable or deceptive mail marketing practices that
involved mailed sweepstakes material and cashier's check look-alikes. 
Also, we discussed with these officials whether we could obtain
examples of consumers' complaints about such practices that could
indicate the nature or the types of problems that consumers had
experienced. 

In selecting states to contact, we relied in large part on
information obtained from FTC officials.  These officials generally
cited various states that

  -- had laws, which included requirements for organizations to
     follow in using mailed sweepstakes material as marketing
     techniques;

  -- were involved in legal actions concerning mailed sweepstakes
     material against specific organizations; and

  -- had been active in dealing with consumers' complaints about
     mailed sweepstakes material and working with other agencies and
     organizations to help educate consumers about questionable or
     deceptive mail marketing practices. 

During the course of our work, we also obtained information about
initiatives in which various federal and state government agencies
and nongovernmental organizations have participated in addressing
consumers' problems with questionable or deceptive direct mail
marketing practices. 

At the time we completed our work in mid-August 1998, we had obtained
information from officials and representatives in 17 federal, state,
and local government agencies and nongovernmental organizations. 
Because we had a limited amount of time in which to obtain
information related to mailed sweepstakes material and cashier's
check look-alikes, we did not independently verify the information
provided by the 17 agencies and organizations.  A list of these
agencies and organizations is included in the appendix to this
statement.  We did our work from July through mid-August 1998, in
accordance with generally accepted government auditing standards. 


--------------------
\2 NCL is a private, nonprofit consumer advocacy organization that
was established in 1899 with a mission to identify, protect,
represent, and advance the economic and social interests of consumers
and workers.  Among other things, NCL provides government agencies,
businesses, and other organizations with information concerning the
consumer's perspective on various issues such as child labor, health
care, and food and drug safety. 

\3 In 1992, NCL established NFIC as a nationwide toll-free hotline
through which consumers could report suspected instances of
fraudulent activity and receive information about avoiding the
dangers of fraud.  NFIC focuses on problems associated with
telemarketing and Internet fraud. 

\4 The Direct Marketing Association (DMA) was established in 1917 as
an international, nonprofit trade association whose primary objective
was to serve its members in bringing about more effective direct
marketing techniques.  As of June 1998, DMA had about 6,700 members
representing about 3,700 organizations in the United States and in 54
other countries.  Examples of DMA members included catalogers,
publishers, book and record clubs, financial service companies,
manufacturers, and advertising agencies. 


   EXTENT AND NATURE OF CONSUMERS'
   PROBLEMS WITH MAILED
   SWEEPSTAKES MATERIAL AND
   CASHIER'S CHECK "LOOK-ALIKES"
-------------------------------------------------- Chapter Statement:3

Of the 17 agencies and organizations from which we obtained
information, we found that comprehensive data on the extent of
consumers' problems with mailed sweepstakes material and cashier's
check look-alikes were generally not available.  We found that in 2
of the 17 agencies and organizations--namely FTC and the Postal
Inspection Service--some data were available that could help indicate
the nature or types of problems that consumers had experienced with
mailed sweepstakes material.  However, we were unable to obtain
similar data concerning cashier's check look-alikes.  According to
FTC and Postal Inspection Service officials, consumer complaint data
on cashier's check look-alikes were not as readily available as data
on mailed sweepstakes material. 

Various officials and representatives in the remaining 15 agencies
and organizations told us that generally they could not provide us
with information similar to FTC and the Postal Inspection Service
that could indicate the extent or nature of consumers' problems.  The
reasons they cited were mainly because (1) their agencies and
organizations did not believe it was their primary function to
collect or maintain such information or (2) their data collection was
limited to information that could assist the agencies and
organizations in taking action against a specific company that may
have misused sweepstakes as a marketing tool.  For example, an
official in Florida's Office of the Attorney General told us that
consumer complaint information was collected and maintained only on
American Family Publishers (AFP)\5 because the state of Florida had
filed a lawsuit against AFP for allegedly deceiving consumers with
mailed sweepstakes material. 


--------------------
\5 American Family Publishers (AFP) is a company partly owned by Time
Customer Service, Inc.  AFP's main purpose is to provide consumers
with opportunities to purchase magazine subscriptions.  AFP has used
a sweepstakes to try to induce consumers to purchase subscriptions. 


      COMPREHENSIVE DATA
      UNAVAILABLE THAT COULD
      INDICATE THE EXTENT OF
      CONSUMERS' PROBLEMS
------------------------------------------------ Chapter Statement:3.1

In attempting to identify the extent of consumers' problems with
mailed sweepstakes material and cashier's check look-alikes, we found
that comprehensive data that could clearly indicate the extent of the
problems, including such information as how frequently such problems
might occur, were not available.  Various officials and
representatives from the 17 federal, state, and local government
agencies and nongovernmental organizations from which we obtained
information told us that generally, such data were not available for
two main reasons--first, consumers oftentimes do not complain or
report their problems and second, no centralized database existed
that could indicate the full extent of such problems involving those
who did not register complaints. 

Regarding the first main reason for the lack of comprehensive data,
officials and representatives told us that consumers often did not
report problems because they were too embarrassed or did not realize
that they had been victimized.  Also, some consumers reportedly
feared that if they complained, their chances of future sweepstakes
winnings would be diminished.  In addition, an AARP representative
mentioned that in many instances, elderly consumers may fear losing
their financial independence if they reported negative experiences
with mailed sweepstakes material.  Specifically, elderly consumers
may fear that if their family members learned that they had been
victimized, the family members might then take steps to prevent
future victimization, such as stricter control over bank account
activities. 

In addition, consumers may not file complaints because such
complaints can be filed with various organizations, such as FTC, the
Postal Inspection Service, NFIC, a local better business bureau, or a
consumer protection agency.  In many instances, consumers may be
uncertain about which organization is the most appropriate one to
receive their complaints.  Also, in some cases, if consumers try to
file complaints, they may be referred to or told to contact other
organizations, which may cause consumers to become frustrated and
abandon their attempts to file complaints. 

Concerning the second reason for the lack of comprehensive data,
various officials and representatives mentioned that no centralized
database existed that could indicate the extent of consumers'
reported problems with deceptive mail marketing practices involving
mailed sweepstakes material and cashier's check look-alikes.  Some of
the agencies and organizations from which we obtained information,
such as FTC, NFIC, and state attorney general's offices, have
collected and maintained some, but not complete, consumer complaint
data related to such practices. 

Consumers can complain to a variety of organizations, but none of
these organizations necessarily receives information on complaints
filed with other organizations.  For example, in large part, FTC
receives complaints directly from consumers and from various outside
organizations, including NFIC, AARP, and Project Phonebusters.\6

However, FTC does not generally receive consumer complaints from all
organizations that may accept such complaints, such as state
attorneys general offices and local consumer affairs offices.  An FTC
official mentioned that currently FTC is working with other
organizations, such as the National Association of Attorneys General
(NAAG),\7 to encourage these organizations to share consumer
complaint information with FTC, so that more comprehensive data on
consumer complaints can be centrally collected and maintained. 

Also, although the Postal Inspection Service receives numerous
complaints related to consumers' problems with alleged fraudulent
activities, including mailed sweepstakes material, it does not
necessarily receive these complaints from all organizations that
accept them.  In addition, according to Postal Service Inspection
officials, the extent to which complaints within the Postal
Inspection Service's database involve mailed sweepstakes material or
cashier's check look-alikes is not easily determined. 

Furthermore, some of the agencies and organizations from which we
obtained information did not have comprehensive data because they
generally believed that collecting and maintaining such data were not
their primary functions.  Also, an AARP representative told us that
the general lack of comprehensive data was partially due to an
overall scarcity of resources, including staff and funds, which she
believed would be needed to collect and maintain a comprehensive,
centralized database. 


--------------------
\6 Project Phonebusters is a Canadian national task force that
provides consumers with a toll-free hotline through which they can
register their complaints about fraudulent or deceptive marketing or
promotional practices. 

\7 The National Association of Attorneys General (NAAG) is a
professional association that was established in 1907.  Its members
include the Attorneys General of 50 states and chief legal officers
for other jurisdictions, such as the District of Columbia and the
Virgin Islands.  The U.S.  Attorney General is an honorary member of
NAAG.  NAAG's overall goals include (1) promoting cooperation and
coordination on interstate legal matters and (2) increasing citizen
understanding of the law and law enforcement's role to ensure both
protection of individual rights and compliance with the law. 


      FTC'S CONSUMER INFORMATION
      SYSTEM INCLUDED DATA THAT
      COULD INDICATE THE NATURE OF
      PROBLEMS
------------------------------------------------ Chapter Statement:3.2

In our discussions with various officials and representatives of the
agencies and organizations from which we obtained information, they
suggested that in order to obtain examples of such problems, in all
likelihood, FTC would be the most appropriate agency to provide us
with data on consumers' complaints about sweepstakes mailings and
cashier's check look-alikes.  FTC officials explained that the
Consumer Information System (CIS) is FTC's database that includes
consumer complaint information.  The officials told us that the
purpose of CIS, which became fully operational in September 1997, was
to collect and maintain various data related to consumers'
complaints.\8 FTC officials expected that CIS data would be used
primarily by law enforcement organizations and officials to assist
them in fulfilling their law enforcement duties. 

The CIS database contained a total of about 200 categories within
which consumers' complaints were included.  The categories in CIS
covered a wide range of topics such as (1) creditor debt collection,
(2) home repair, (3) investments, (4) health care, and (5) leases for
various products and services such as automobiles and furniture.  We
identified one of those categories--prizes/sweepstakes/gifts--as the
key category that could provide us information on consumers'
complaints about mailed sweepstakes material.  However, we were
unable to identify a specific category that could help us obtain
similar information on cashier's check look-alike documents.  FTC
officials told us that consumer complaints about such documents could
be included in many of the CIS categories because these types of
documents may be related to a wide range of products and services,
including home mortgage loans, automobiles, and real estate sales. 
Thus, we would have needed to review nearly all the CIS categories to
try to obtain insight into the nature of consumers' problems with
these documents.  Because our time to review this information was
limited, we determined that we should focus our efforts on reviewing
those complaints that were included in the prizes/sweepstakes/gifts
CIS category. 

As of August 13, 1998, which was the date that we received the data
from FTC, the prizes/sweepstakes/gifts category included 15,735
consumer complaint records in which the initial contact from the
company to the consumer was made through the mail.  FTC officials
further told us that to expedite delivery of these data, they
provided us with data that included only those complaints received
from two sources--FTC and NFIC.  The officials explained that 95
percent of the complaints included in the prizes/sweepstakes/gifts
category in which the consumers were contacted by mail had been filed
with either FTC or NFIC.  Also, they mentioned that many of the
15,735 records in the prizes/sweepstakes/gifts category included
consumer complaints that both FTC and NFIC had maintained in their
databases for several years before CIS was established. 

In reviewing the consumer complaint data we received from FTC, we
focused on those complaints that were included in CIS during the most
recent 12-month period (i.e., July 1, 1997, through June 30, 1998). 
For this period, we identified 1,394 consumer complaints within the
prizes/sweepstakes/gifts CIS category in which the initial contact
with the consumer was made by mail.  Of the 1,394 complaints, we
found that in 1,215, or about 87 percent, of these complaints,
companies had requested individual consumers to remit money.  The
total amount of money requested by the companies was reported to be
about $102,000. 

Also, our review of the 1,394 consumer complaints showed that 734, or
about 53 percent, of consumers reported that they had remitted money
to the companies.  The total amount of money these consumers said
they had paid was about $46,000.  The amounts of money individual
consumers said that they had paid ranged from less than $5 to $8,850. 
Of the 734 complaints, 551 individual consumers, or about 75 percent,
reported that they had paid amounts less than $5, whereas, in one
case, a consumer reported paying $8,850.  We did not independently
verify the accuracy of this information. 

In reviewing the 1,394 complaints, we identified 1,371 that included
information in the "comment" data field, which indicated the nature
of consumers' complaints.  From the 1,371 complaints, we randomly
selected 200 for analysis to try to more clearly determine the nature
of consumers' complaints that were included in the
prizes/sweepstakes/gifts CIS category.  We sorted the 200 complaints
into the following five groups: 

  -- Sweepstakes that required consumers to send in money or pay
     fees. 

  -- Sweepstakes that required consumers to purchase products or
     services. 

  -- Sweepstakes that required consumers to call a telephone number
     for which they were charged a fee. 

  -- Sweepstakes that required consumers to provide personal
     information, such as social security numbers or bank account
     numbers. 

  -- A miscellaneous group for those complaints that could not
     readily be included in the previous four groups. 

Table 1 shows the general breakdown of the 200 consumer complaints
into the five groups. 



                                Table 1
                
                  Groups In Which 200 FTC CIS Consumer
                    Complaints on Mailed Sweepstakes
                         Material Were Included

                                           Total number
                                            of consumer
Group description                            complaints        Percent
----------------------------------------  -------------  -------------
Send in money or fees.                              140          70.0%
Purchase products or services.                       20           10.0
Call a telephone number.                              7            3.5
Provide personal information.                         7            3.5
Miscellaneous.                                       26           13.0
======================================================================
Total                                               200         100.0%
----------------------------------------------------------------------
Source:  GAO analysis of data from FTC Consumer Information System. 

As indicated in table 1, 160, or 80 percent, of the consumer
complaints we sampled involved sending in money or fees or purchasing
products or services.  Some examples of the types of complaints
included in the two categories were as follows: 

  -- A consumer was told by a company that she had won $12,000, but
     that she was required to send in a processing fee to claim her
     winnings.  She remitted the fee to the company but received no
     winnings.  Later, she received an identical notice from the same
     company but she did not remit the requested processing fee. 

  -- A consumer received repeated notices that she had won a cash
     prize in a company's sweepstakes.  However, she never received
     such a prize, even after she ordered and received several plants
     from the company. 

  -- A consumer reported that a company had offered to enter his name
     in its sweepstakes when he purchased magazines.  After the
     consumer purchased the magazines, the company advised him that
     he was a sweepstakes winner.  The company told the consumer to
     remain at home on a specific date so that he could receive his
     prize, which was a suitcase full of money.  Although the
     consumer remained at home on the specified date, no suitcase
     arrived. 

As shown in table 1, 7 consumer complaints involved organizations
asking consumers to call a telephone number for which the consumer
was charged a fee.  Generally, the consumer complaints in this group
were similar in that consumers were asked to call such a number to
claim their winnings or verify their winning numbers.  Examples of
such complaints included the following: 

  -- A consumer complained that he had received an award notification
     in the mail.  He was required to call a 900 telephone number to
     verify his winning number.  The company told the consumer that
     he had won one dollar.  Later, the consumer was charged $56 for
     the telephone call. 

  -- A consumer was told by a company that she had won either a car
     or cash and required her to either call a 900 telephone number
     or send in a card to receive her prize.  Although she sent in
     the card, she did not receive her promised prize. 

As indicated in table 1, 7 consumer complaints from our sample
involved organizations requesting personal information, such as the
consumer's social security number or bank account number.  Some
examples of these types of complaints included the following: 

  -- A consumer reported that a company informed him that he could
     win as much as $100,000 if he would send in a release form that
     included bank account information.  The consumer did not send in
     the form. 

  -- A consumer complained that a company instructed him to call
     immediately concerning his sweepstakes winnings.  When he
     called, a company representative tried to solicit his telephone
     number as well as credit card information.  The consumer refused
     to provide the information. 

As shown in table 1, 26 complaints contained a variety of
miscellaneous consumer complaints that did not easily fit into one of
the previous four groups.  Examples of these miscellaneous complaints
included the following: 

  -- A consumer received three letters informing him that he was the
     winner of a large sum of money.  After writing many letters to
     the company, the consumer never received any explanation as to
     why he had not received his money. 

  -- A consumer reported that he had received a notice that he was
     the winner in a company sweepstakes.  The notice stated that the
     company was preparing to award him a prize.  The consumer sent
     the company a letter requesting the prize, but subsequently, the
     company notified the consumer that he in fact was not the
     winner. 


--------------------
\8 An FTC official told us that he believed CIS could serve as the
central database for receiving information on consumer complaints
from various federal, state, and local government agencies and
non-governmental organizations that deal with such complaints. 


      POSTAL INSPECTION SERVICE
      HAS INVESTIGATED VARIOUS
      CASES INVOLVING MAILED
      SWEEPSTAKES MATERIAL
------------------------------------------------ Chapter Statement:3.3

Postal Inspection Service officials told us that the Fraud Complaint
System (FCS) is used by the Postal Inspection Service to collect and
maintain consumer complaint information about various types of
alleged fraudulent activities, including those involving deceptive
mail marketing practices.  The officials estimated that the Postal
Inspection Service generally receives between 60,000 and 100,000
consumer complaints each year that pertain to alleged fraudulent
activities.  However, officials were unable to estimate how many of
these complaints were related to mailed sweepstakes material and
cashier's check look-alikes.  The officials told us that generally,
it would be difficult to identify such complaints because FCS has
limited search capabilities.  In large part, complaints regarding
mailed sweepstakes material and cashier's check look-alikes in FCS
can only be identified by searching on the company name or product
sold. 

According to Postal Inspection Service officials, we could best
obtain information on the nature of consumers' complaints by
reviewing specific cases for which postal inspectors had performed
investigations.  One of the officials told us that during the period
October 1, 1997, through August 21, 1998, 16 cases involving mailed
sweepstakes material were closed and specific law enforcement
actions, such as the issuance of cease and desist orders,\9 had been
taken.  The 16 cases most often involved sweepstakes and cash prize
promotions for which up-front taxes or insurance, judging, or
handling fees were required before consumers could participate in the
sweepstakes. 

The disposition of the 16 Postal Inspection Service cases involved
various actions.  For example, seven cases were closed because (1) no
clear violations were identified, (2) criminal prosecution was
declined due to insufficient evidence or a civil agreement was
reached with FTC, or (3) the sweepstakes operators or promoters
abandoned or voluntarily stopped their activities.  In five cases,
cease and desist orders and withholding mail orders were issued.\10
In two cases, sweepstakes operators were arrested, with one of the
cases resulting in a dismissal and the other case resulting in a
conviction.  The remaining two cases were combined into one case
because they involved activities sponsored by the same organization. 
This organization offered to provide consumers with money allegedly
held in the consumers' names with the federal government for which
the consumers would have to pay a fee.  The two combined cases
resulted in the issuance of a cease and desist order, a withholding
mail order, and a false representation order.\11


--------------------
\9 A cease and desist order is an order of an administrative agency
or court prohibiting a person or business from continuing a
particular course of action. 

\10 An order to withhold mail is an order that is requested by the
Postal Inspection Service if specific laws regarding delivery of mail
have been violated.  Such an order is issued by a judicial officer
and sent to the violator and to the postal inspector-in-charge within
the area where the violator was operating.  The order usually
requires that mail from the violator is held for a time by the Postal
Service, then returned to the violator. 

\11 Under 39 U.S.C.  3005, if the Postal Service finds sufficient
evidence, an order can be issued against any person engaged in
conducting (1) a scheme or device for obtaining money or property
through the mail by means of false representations or (2) a lottery,
gift enterprise, or scheme for the distribution of money or of real
or personal property, by lottery, chance, or drawing of any kind. 
Such an order may involve returning mail to the sender and forbidding
payment of any postal money order that was made payable to the
sender. 


   INITIATIVES BY ORGANIZATIONS TO
   ADDRESS DECEPTIVE MAIL
   MARKETING PRACTICES
-------------------------------------------------- Chapter Statement:4

We identified various initiatives by specific agencies and
organizations that were intended to provide opportunities for these
entities to address, among other things, the problems affecting
consumers that involved questionable or deceptive mail marketing
practices.  These initiatives also provided the agencies and
organizations with information that they could use to assist law
enforcement organizations in initiating appropriate actions, such as
investigations and lawsuits.  In addition, the initiatives provided
agencies and organizations with opportunities to work together on
efforts that could help educate and inform consumers about direct
mail marketing practices that could cause problems.  Examples of two
of the more recent initiatives included (1) Project Mailbox and (2)
the establishment of a multi-state sweepstakes committee, which
resulted from a legal complaint involving AFP. 


      PROJECT MAILBOX
------------------------------------------------ Chapter Statement:4.1

In October 1997, FTC announced the establishment of the Project
Mailbox initiative.  According to FTC and AARP, its main purpose was
to establish specific efforts that could help educate consumers and
appropriately deal with organizations that attempted to defraud
consumers through the use of mass mailings.  Various agencies and
organizations participated in Project Mailbox, including FTC, the
Postal Inspection Service, about 25 state Attorneys General, and
AARP.  Project Mailbox resulted in four efforts being established
that would target any questionable activities of organizations that
use the mail to defraud consumers.  The four efforts included

  -- the initiation of 190 law enforcement actions, which targeted
     companies that were suspected of mail and telemarketing fraud,
     including such actions as (1) issuing cease and desist letters
     and notices of intent to sue and (2) filing complaints in court;

  -- the establishment of a strike force involving FTC, the Postal
     Inspection Service, various state Attorneys General, NAAG, and
     AARP that would collect and review direct mail for future law
     enforcement actions;

  -- the initiation of AARP's "Project Senior Sting," a project
     established in Massachusetts and Arizona in which unsolicited
     mail would be turned over to law enforcement agencies to search
     for possible examples of fraud; and

  -- the launching of a consumer education campaign involving the
     Postal Inspection Service, AARP, and the Yellow Pages Publishers
     Association that is intended to help consumers and small
     businesses spot mail fraud. 


      NAAG MULTI-STATE SWEEPSTAKES
      COMMITTEE
------------------------------------------------ Chapter Statement:4.2

Within NAAG, various committees work on a wide range of issues
including civil rights, environment, energy, health care, bankruptcy,
and taxes.  These committees are responsible for studying such issues
and recommending policy positions to NAAG members for action.  In
July 1998, NAAG approved a resolution to establish within its
Consumer Protection Committee a subcommittee that plans to address
matters related to sweepstakes and prize promotions.  According to
the resolution, some of the subcommittee's objectives include (1)
ensuring active enforcement of current laws that prohibit unfair and
deceptive practices by operators of sweepstakes and prize promotions,
(2) determining whether specific legislative initiatives would be
effective in deterring and punishing deceptive and abusive practices
by operators of sweepstakes and prize promotions, and (3) when
appropriate, drafting documents that could be developed into state
legislation. 

According to NAAG, the establishment of the subcommittee stemmed
partly from a recent legal complaint filed against AFP by about 30
states and the District of Columbia, which sued AFP for engaging in
direct mail marketing practices that deceived many consumers. 
Generally, the complaint alleged that in its mailed sweepstakes
material, AFP

  -- falsely suggested that a consumer must purchase one or more
     magazine subscriptions to win a prize;

  -- falsely suggested that a consumer was part of a select group
     vying for a prize or was one of only two recipients with the
     winning number;

  -- falsely suggested that a consumer needed only to respond within
     a certain number of days, and before an alternative winner
     responded, in order to claim the prize; and

  -- required consumers who wanted to enter the sweepstakes without
     purchasing magazines to follow a more circuitous and cumbersome
     procedure than those who purchased magazines. 

According to various states, as part of the settlement, which was
reached in March 1998, AFP agreed to pay a total of approximately
$1.25 million to about 30 states and the District of Columbia.  AFP
also agreed to revise future mailed sweepstakes material so that it
would

  -- only tell consumers that they were winners if they had in fact
     won,

  -- only tell consumers that they were among a select group that has
     a chance of winning a prize if the odds of winning are
     disclosed,

  -- tell consumers that no purchase is necessary to participate in
     the sweepstakes,

  -- clearly explain how to enter the sweepstakes without a purchase,

  -- make it clear to consumers who order magazines on an installment
     payment plan how much money is due each month, and

  -- not imply that consumers have a better chance of winning if they
     purchased magazines. 

According to a NAAG official, the sweepstakes subcommittee chair--the
Indiana Attorney General--has been identified.  However, it was not
clear whether other subcommittee members had been selected or whether
the subcommittee's work had begun.  Generally, the subcommittee
members are expected to include representatives from various state
Attorneys General offices. 


LIST OF FEDERAL, STATE, AND LOCAL
GOVERNMENT AGENCIES AND
NON-GOVERNMENTAL ORGANIZATIONS AND
THEIR LOCATIONS
=========================================================== Appendix I

Name of agency/organization                         Location
--------------------------------------------------  ------------------
Federal government agencies:
----------------------------------------------------------------------
--Federal Trade Commission (FTC)                    Washington, D.C.

--U.S. Postal Inspection Service                    Washington, D.C.


State government agencies (Offices of Attorneys General):
----------------------------------------------------------------------
--Connecticut                                       Hartford,
                                                    Connecticut

--Florida                                           Tallahassee,
                                                    Florida

--Texas                                             Austin, Texas

--West Virginia                                     Charleston, West
                                                    Virginia

--Wisconsin                                         Madison, Wisconsin


Local government agencies:
----------------------------------------------------------------------
--Citizen Assistance (Consumer Affairs) for City    Alexandria,
of Alexandria                                       Virginia

--Consumer Affairs Division for Montgomery County   Rockville,
                                                    Maryland


Nongovernmental organizations:
----------------------------------------------------------------------
--Advertising Mail Marketing Association (AMMA)     Washington, D.C.

--American Association of Retired Persons (AARP)    Washington, D.C.

--Arizona State University (Gerontology Program)    Tempe, Arizona

--Council of Better Business Bureaus (CBBB)         Arlington,
                                                    Virginia

--Direct Marketing Association (DMA)                Washington, D.C.

--National Association of Attorneys General (NAAG)  Washington, D.C.

--National Consumers League (NCL)/National Fraud    Washington, D.C.
Information Center (NFIC)

--U.S. Public Interest Research Group (USPIRG)      Washington, D.C.
----------------------------------------------------------------------
Source:  GAO. 

*** End of document. ***