Deceptive Mail: Consumers' Problems Appear Substantial (Testimony,
08/04/1999, GAO/T-GGD-99-150).
Information GAO collected from several sources suggests that consumers
are having major problems with deceptive mail, which includes
sweepstakes, chain letters, cashier's check look-alikes, work-at-home
schemes, and fraudulent charity solicitations. About one in two adults
believe that in the last six months they have received deceptive mailed
sweepstakes material or cashier's check look-alikes, according to GAO
estimates. The Federal Trade Commission (FTC), Postal Inspection
Service, and the state attorneys general offices estimate that in fiscal
year 1998 about 10,400 deceptive mail complaints led to about 100 law
enforcement actions. Between October 1997 and March 1999, FTC received
more than 18,000 deceptive mail complaints, of which about 2,700
involved consumer payments that totaled nearly $5 million. The Postal
Service received more than 16,700 complaints, of which 3,000 involved
consumer fraud losses that totaled more than $5 million. The Inspection
Service also had more than 1,800 open investigations on deception mail
in 1998. Various federal agencies and other groups have undertaken
efforts to address consumers' deceptive mail problems and educate them
about these risks. For example, FTC established a national toll-free
hotline for receiving deceptive mail and other complaints.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD-99-150
TITLE: Deceptive Mail: Consumers' Problems Appear Substantial
DATE: 08/04/1999
SUBJECT: Mail fraud
Consumer protection
Mailing lists
Interagency relations
Consumer education
Sales promotion
Surveys
Law enforcement
IDENTIFIER: FTC Consumer Information System
USPS Fraud Complaint System
USPS Inspection Service Data Base Information System
FTC/USPS Project Mailbox
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United States General Accounting Office GAO
Testimony Before the Subcommittee on the Postal Service Committee
on Government Reform House of Representatives For Release on
Delivery Expected at 1:00 p.m. EDT DECEPTIVE MAIL
Wednesday August 4, 1999 Consumers' Problems Appear
Substantial Statement of Bernard L. Ungar, Director Government
Business Operations Issues General Government Division GAO/T-GGD-
99-150 Summary Deceptive Mail: Consumers' Problems Appear
Substantial In response to requests from three congressional
subcommittees, GAO obtained information on the extent and nature
of consumers' problems with deceptive mail and identified
initiatives various federal agencies and other organizations have
made to address deceptive mail problems and educate consumers.
Examples of deceptive mail include sweepstakes, chain letters,
cashier's check look-alikes, work-at-home schemes, and fraudulent
charity solicitations. Officials in various agencies and
organizations said that comprehensive data on the full extent of
consumers' deceptive mail problems were not available mainly
because consumers often did not report their problems and no
centralized database existed from which such data could be
obtained. However, data GAO collected from various sources
suggested that consumers were having substantial problems with
deceptive mail. * Based on a GAO sponsored November 1998
statistically generalizable sample of the U.S. adult population,
GAO estimates that about half of the adult population believed
that within the preceding 6 months, they had received deceptive
mailed sweepstakes material or cashier's check look- alikes. *
Officials from the Federal Trade Commission (FTC), Postal
Inspection Service, and state Attorneys General offices estimated
that in fiscal year 1998, about 10,400 deceptive mail complaints
led to or initiated about 100 law enforcement actions. * For the
period October 1, 1997, through March 31, 1999, FTC received over
18,000 deceptive mail complaints, of which about 2,700 (15
percent) reported consumer payments of about $4.9 million. Also,
the Postal Inspection Service received over 16,700 complaints on
fraud and chain letters, of which about 3,000 (18 percent)
reported consumer fraud losses of about $5.2 million. The
Inspection Service also had over 1,800 open investigative cases on
deceptive mail during fiscal year 1998. Various federal agencies
and other organizations have undertaken efforts to address
consumers' deceptive mail problems and educate them about such
problems. For example, FTC established a national toll-free
hotline for receiving deceptive mail and other complaints. One
joint effort was Project Mailbox, which involved such
organizations as FTC, Postal Inspection Service, and various state
Attorneys General. These organizations initiated over 200 law
enforcement actions against companies and individuals that used
the mail to allegedly defraud consumers. Page 1
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial Mr. Chairman and Members of the Subcommittee:
We are pleased to have this opportunity to discuss matters related
to deceptive mail marketing practices, which have been used by
various organizations and individuals to induce consumers to
purchase goods and services or send money for misrepresented
purposes. My statement will include a brief summary of our
previous testimony on the extent and nature of problems that
consumers experienced primarily with mailed sweepstakes material.1
Also, I will discuss our most recent efforts to obtain updated
information that could indicate the extent and nature of problems
that consumers may have experienced with various types of mailed
material that have been used to deceive, mislead, or fraudulently
induce them into purchasing goods or services. This type of mail,
known as deceptive mail, includes sweepstakes and other types of
mailed material, such as lotteries and chain letters. Finally, I
will provide information on initiatives in which various federal
agencies and other organizations have participated to address
consumers' problems with deceptive mail marketing practices and
help educate consumers about potential problems that could occur
with such practices. Our most recent work on deceptive mail was
done in response to your November 1998, request as well as an
October 1998, request from the Permanent Subcommittee on
Investigations and the Subcommittee on International Security,
Proliferation and Federal Services, Senate Committee on
Governmental Affairs. We are also providing copies of our
statement to the chairs of the two Senate subcommittees. Mr.
Chairman, as we agreed, the primary objective for our most recent
work was to obtain updated available information on the extent and
nature of consumers' problems with various types of deceptive
mail. Also, we obtained updated available information on efforts
by various federal, state, local, and nongovernmental
organizations to address consumers' deceptive mail problems and
educate them about possible problems that could occur with
deceptive mail marketing practices. In addition, through an
outside contractor, we conducted a survey to obtain opinions from
the U.S. adult population about specific types of deceptive mail.
We did our work from November 1998 through July 1999 in accordance
with generally accepted government auditing standards. We obtained
comments on a draft of this testimony from the Federal Trade
Commission 1 Proposed Legislation: Issues Related to Honesty in
Sweepstakes Act of 1998 (S. 2141) (GAO/T-GGD- 98-198, Sept. 1,
1998). Page 2
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial (FTC) and the U.S. Postal Service, including
the Postal Inspection Service and the Consumer Advocate. We
included their comments where appropriate. We also arranged for
the various state, local, and nongovernmental organizations that
provided us information to review relevant sections of this
testimony. We incorporated their technical comments where
appropriate. Additional information about our approach is included
in attachment I to this statement. As you are aware, Mr. Chairman,
since the summer of 1998, much attention Background has been
focused on consumers' problems with deceptive mail. Various
activities, including specific legislative proposals and hearings,
have raised congressional and public awareness about problems that
some consumers have experienced as a result of deceptive mail
marketing practices. A recent example of such an activity was the
May 1999 approval by the Senate Governmental Affairs Committee of
proposed legislation entitled "Deceptive Mail Prevention and
Enforcement Act" (S. 335), which was introduced in February 1999,
by Senator Susan Collins. In her introductory remarks, Senator
Collins indicated that the proposed legislation was generally
designed to help ensure that organizations that used various types
of promotional mailed material, such as sweepstakes, were as
honest and accurate as possible in their dealings with consumers.
Provisions in the proposed legislation (1) authorized financial
penalties against organizations that did not comply with proposed
requirements, (2) authorized specific law enforcement actions,
including the issuance of subpoenas, that the Postal Inspection
Service could use in combating deceptive mail marketing practices;
and (3) provided assurance that the proposed legislation would not
preempt state and local laws that were designed to protect
consumers against deceptive mail marketing practices. For a
congressional hearing held in September 1998, we provided
testimony in which we discussed information about consumers'
problems with specific types of deceptive mail and some
initiatives that were intended to help educate consumers about
potential deceptive mail problems. We found that comprehensive
data indicating the full extent of consumers' problems with mailed
sweepstakes material and cashier's check look-alikes were not
available. However, FTC and the Postal Inspection Service had some
data on complaints that could indicate the nature of consumers'
problems with deceptive mail. A sample of complaints from FTC
showed that in many instances, consumers were required to remit
money or purchase products or services before being allowed to
participate in sweepstakes. Information about specific Postal
Inspection Service cases that had been investigated largely
involved Page 3
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial sweepstakes and cash prize promotions for which
up-front taxes, fees, or insurance were required before consumers
could participate in sweepstakes promotions. In our previous
testimony, we discussed two initiatives that were intended to
address consumers' problems with deceptive mail. The initiatives
included (1) Project Mailbox, which was established to help
educate consumers and appropriately deal with organizations and
individuals that attempted to defraud consumers through the use of
mass mailings; and (2) a multi-state sweepstakes subcommittee that
was designed to facilitate cooperation among states in dealing
with companies that attempted to defraud consumers through the use
of mailed sweepstakes material. With your permission, I would like
to provide the Subcommittee a full copy of our previous testimony
for inclusion into the record of today's hearing. Comprehensive
data that could indicate the full extent of consumers' Extent and
Nature of problems with deceptive mail were not
available. Various officials from the Consumers' Problems
agencies and organizations we contacted told us that such data
were unavailable mainly because consumers oftentimes did not
report their With Deceptive Mail problems and no
centralized database existed from which comprehensive data could
be obtained. Due to the overall lack of comprehensive data, we
contracted for a survey to obtain perspective on the extent to
which consumers believed that they had received specific types of
mailed material that appeared to them to be misleading or
deceptive. Also, we identified two federal agencies-FTC and the
Postal Inspection Service-that maintained some data that could
provide insight into the nature of consumers' problems with
deceptive mail. However, these data may include some duplicative
complaints because some consumers who filed complaints may have
done so with both agencies. To obtain perspective on American
consumers' opinions about specific Opinion Survey on Specific
types of deceptive mail, we contracted with International
Communications Types of Deceptive Mail Research (ICR), a
national market research firm, to perform a statistically
generalizable sample of adults 18 years of age or older in the
continental United States. The results of the survey, which was
conducted in November 1998, indicated that 51 percent of the
survey respondents believed that within the preceding 6 months,
they had received mail involving sweepstakes or documents
resembling cashier's checks, known as cashier's check look-alikes,
that appeared to be misleading or deceptive. However, 45 percent
of the respondents said they had not received such Page 4
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial mail and the remaining 4 percent were not sure,
did not remember, or did not know. Additional analysis of survey
results indicated that the higher the educational levels of
respondents, the more likely they were to believe that they had
received these types of deceptive mail. The percentages of
respondents who believed that they had received such mail were
about: * 43 percent for respondents with a high school education
or less; * 56 percent for those with some college education; and
* 62 percent for those with a completed college education or
higher. A similar trend was identified for respondents and their
income levels in that at higher income levels, respondents were
more likely to believe that they had received such mail. The
percentages by income level included about: * 32 percent for
respondents whose annual income was less than $15,000; * 52
percent for respondents whose annual income ranged between $15,000
and $49,999; and * 62 percent for respondents whose annual income
was $50,000 or more. For our updated work efforts, various
officials and representatives of the FTC's Consumer
agencies and organizations from which we obtained information
again Information believed that the most
appropriate source of consumer complaint data System Included Data
That would be FTC's Consumer Information System (CIS).
According to FTC Could Indicate the Nature officials, the
purpose of CIS, which was first established around February 1997
and became fully operational in September 1997, was to collect and
of Problems maintain various data related to
consumers' complaints. FTC officials told us that CIS data are
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 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.
For the period October 1, 1997, through March 31,1999, our
analysis indicated that CIS included a total of 48,122 consumer
complaints for Page 5
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial which the methods of initial contact with
consumers were identified.2 Such methods included mail; telephone;
fax; printed material, such as newspapers and magazines; and the
Internet. Of the 48,122 complaints, the largest number, 18,143, or
about 38 percent, indicated that consumers were initially
contacted through the mail. Of the 18,143 complaints, we found
that in 10,145, or about 56 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 $88.2 million. Also, our review of the 18,143 consumer
complaints showed that 2,715, or about 15 percent, of the
consumers reported that they had remitted money to the companies.
The total amount of money these consumers said they had paid was
about $4.9 million. The amounts of money individual consumers said
that they had paid ranged from less than $1 to over $1 million. Of
these 2,715 complaints, about: * 50 percent were less than $100;
* 35 percent were between $100 and $999; * 10 percent were
between $1,000 and $4,999; and * 5 percent were $5,000 or more.
The largest reported amount of money paid by a consumer was
$1,734,000. Available CIS information indicated that this
complaint involved a consumer's concerns about a credit bureau
referring inaccurate information to a debt collection agency. In
reviewing the 18,143 complaints in which consumers were initially
contacted through the mail, we identified five CIS categories that
included the highest number of consumer complaints, which totaled
10,776 complaints, or about 59 percent. The five categories
included * Telephone: pay per call/information services, which
can involve consumer complaints about calls to publicly available
telephone numbers, such as 1- 900 numbers, for which consumers
incur per-minute charges in return for information or
entertainment. Also, complaints can involve unauthorized charges
on consumers' telephone bills, also known as "cramming" (3,487
complaints). 2 In order to obtain the most recent CIS data
possible, we requested that FTC provide us with data for an 18-
month period that, at the time of our request, extended from
October 1, 1997, through March 31, 1999. Page 6
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial * Telephone: carrier switching, also known as
"slamming," in which companies would switch consumers' telephone
services from one company to another without consumer
authorization (1,051 complaints). * Prizes/sweepstakes/gifts,
which can oftentimes involve consumer complaints about mailed
material that solicit advance fees for consumers to be able to
participate in a sweepstakes or contest (2,859 complaints). *
Credit bureaus, which can generally involve consumer complaints
about the methods by which such bureaus maintain and disseminate
credit information (2,025 complaints). * Third party debt
collection, which can involve consumer complaints about methods
used by various companies or individuals to collect debts owed by
consumers (1,354 complaints). For the five CIS categories, we
found that a total of 10,355 complaints, or about 96 percent,
included comments that could provide insight into the nature of
problems that consumers had experienced with deceptive mail. We
randomly selected 20 consumer complaints from each of the 5
categories for a total of 100 complaints. A discussion of the
types of comments in the five categories and some examples follow.
Two of the five CIS categories involved problems that consumers
reportedly experienced with mailed material that involved various
telephone services, including pay-per-call and specific
information services as well as slamming and cramming. Generally,
consumers' comments in these two categories focused on complaints
about unauthorized actions by companies in providing various
telephone services, including (1) switching telephone services
from one company to another without consumer authorization, (2)
charging consumers for services they never requested, and (3)
charging for services that consumers claimed were cancelled. For
the prizes/sweepstakes/gifts category, consumer comments focused
on complaints about companies' requirements for participating in
sweepstakes. According to FTC, various requirements, such as
advance payments, fees, or purchases of products, should not be
required before consumers may participate in sweepstakes. Also,
consumers complained about being required to call specific
telephone numbers for which they were charged fees. In the credit
bureaus category, the comments included consumers' complaints
about inaccurate information on their credit reports. Also, Page 7
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial consumers expressed concerns about such issues
as denial of credit and dissemination of credit information to
companies and individuals without permission. For the third party
debt collection category, consumer comments focused generally on
harassment that consumers reportedly experienced from debt
collectors. Such harassment included being called nasty names,
receiving numerous telephone calls, and being treated without
dignity. Also, some consumers disputed owing specific debts or the
amounts of the debts. The Postal Inspection Service maintained two
databases-the Fraud Postal Inspection Service Complaint System
(FCS) and the Inspection Service Data Base Information Consumer
Complaint and System (ISDBIS)-that included information
related to consumers' Investigation Databases problems with
deceptive mail. FCS was designed to collect and maintain consumer
complaint information about various types of alleged fraudulent
activities, including those involving deceptive mail marketing
practices. ISDBIS was designed to be a case-tracking system that
recorded information related to specific cases that postal
inspectors used as they investigated specific organizations or
individuals involved in various mailing activities that were
allegedly intended to defraud consumers, businesses, and the
federal government. Consumer Complaint Process To gain a better
understanding of how consumer complaints about deceptive mail were
included in FCS, we obtained information about the overall process
through which consumers could file complaints with the Postal
Service. According to Postal Inspection Service officials, if
consumers have concerns or wish to file complaints about material
that they have received through the mail, consumers may visit or
call their nearby Postal Inspection Service offices or postal
facilities, which included post offices, stations, or branches. If
consumers' concerns are related to mailed material that they
believe is deceptive, misleading, or fraudulent, postal employees
are expected to refer consumers to the Postal Inspection Service.
The methods of these referrals generally include providing
consumers with the telephone number or address of the appropriate
local Postal Inspection Service office, the Internet website
address of the Postal Inspection Service, or a Postal Inspection
Service mail fraud complaint form. Also, Postal Inspection Service
officials told us that in some cases, to provide additional
assistance to consumers, postal employees may offer to forward the
questionable mailed material directly to the Postal Inspection
Service. We visited a total of 15 postal facilities to observe how
postal employees referred consumers to the Postal Inspection
Service. The facilities Page 8
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial included post offices and stations in the
metropolitan areas of Dallas, Texas; Los Angeles, California; and
Washington, DC. At the facilities, we asked postal employees
working at counters how to handle mail believed to be deceptive.
At 8 of the 15 facilities we visited, postal employees
appropriately referred us to the Postal Inspection Service. At the
7 remaining facilities, postal employees either referred us to
organizations other than the Postal Inspection Service or were
unable to provide any guidance. For example, two postal employees
referred us to a national toll- free 1-800 number (i.e., 1-800-
ASK-USPS). 3 According to postal officials, consumers could reach
the Postal Inspection Service through 1-800-ASK- USPS. We made
three calls to 1-800-ASK-USPS to determine whether consumers could
reach the Postal Inspection Service through this number. During
one call, the responding customer service representative provided
us with the telephone numbers of both the local consumer affairs
office and Postal Inspection Service office. During the remaining
calls, the representatives either provided us the telephone number
for the local consumer affairs office or the address of the Direct
Marketing Association (DMA), which we were told could remove
consumers' names from mailing lists.4 Postal Inspection Service's
We obtained FCS data for an 18-month period, (i.e., October 1,
1997, Fraud Complaint System through March 31, 1999). The
data we obtained focused on two of the four complaint categories
within FCS-fraud and chain letters-because postal officials told
us that these categories were most likely to include relevant
information about consumers' problems concerning deceptive mail.5
Our analysis of FCS data indicated that the Postal Inspection
Service had received 16,749 consumer complaints regarding fraud
and chain letters. Complaints in the fraud category totaled 7,667,
or about 46 percent, of the total complaints in these two
categories, and 9,082 complaints, or about 54 percent, were
included in the chain letter category. 3 The purpose of the 1-800-
ASK-USPS number is to provide consumers with a quick means of
obtaining assistance with and information about a wide range of
postal issues, such as the hours of operation at specific postal
facilities, mailing rates for packages, and appropriate ZIP codes.
4 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 1999, DMA had about 4,500 member companies from the United
States and 53 other nations. Examples of DMA members included
catalogers, publishers, book and record clubs, financial service
companies, manufacturers, and advertising agencies. 5 According to
Postal Inspection Service officials, the other two FCS categories
included (1) consumers' general inquiries or requests for
information and (2) consumer complaint program, which involves
complaints about such matters as fraud, bad business practices, or
misunderstandings between consumers and companies. Page 9
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial According to FCS data, no monetary losses were
reported for the 9,082 complaints in the chain letter category.
However, for the 7,667 complaints in the fraud category, a total
of about $5.2 million in monetary losses was reported by
consumers. These losses were reported in 2,976, or about 18
percent, of the 16,749 fraud and chain letter complaints. Also,
the 2,976 complaints that cited losses amounted to about 39
percent of the 7,667 complaints in the fraud category. The
remaining 4,691 fraud complaints, or about 61 percent, cited no
monetary losses. For the 2,976 fraud complaints that cited
monetary losses, the amounts of money individual consumers said
that they had paid ranged from less than $1 to over $365,000. Of
these complaints, about: * 55 percent were less than $100; * 29
percent were between $100 and $999; * 15 percent were between
$1,000 and $29,999; and * 1 percent were $30,000 or more. The
largest monetary loss reported by a consumer was $365,432.
However, available FCS information was insufficient to describe
the nature of the consumer complaint associated with this loss.
Similarly, we attempted to determine the nature of other consumer
complaints in the fraud and chain letter categories using a random
sample of 50 complaints with comments from each category for a
total of 100 complaints. For these complaints, we found that the
comments were unclear or lacked sufficient detail to provide
insight into the nature of consumers' deceptive mail problems. We
recently learned from a Postal Inspection Service official that
additional fraud complaints were contained in a third FCS category
called "consumer complaint program." According to the official,
for the period October 1, 1997, through March 31, 1999, the
category included a total of about 48,000 complaints, which
generally involved such matters as fraud, bad business practices,
or misunderstandings between consumers and companies. Although the
Postal Inspection Service was unable to specifically identify how
many of these complaints involved fraud, officials determined that
about 4,000, or about 8 percent, of these complaints were
associated with active mail fraud investigations. The officials,
however, could determine neither the number of investigations
involved nor whether these complaints led to such investigations.
Page 10
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial Postal Inspection Service's We obtained
information from ISDBIS that focused on fraud against
Investigative Database consumers. For fiscal year 1998,
our analysis identified a total of 1,869 ISDBIS cases, which
included 1,333 cases that carried forward into fiscal year 1998
from fiscal year 1997, and 536 cases that were opened during
fiscal year 1998. The cases involved various types of allegedly
deceptive mail marketing practices, including investment schemes,
lotteries, fraudulent charity solicitations, work-at-home schemes
or plans, and advance fee loan schemes. By the end of fiscal year
1998, 576 cases had been closed, of which 293, or about 51
percent, involved four top deceptive mail marketing practices or
schemes. The four were (1) lotteries, (2) telemarketing, (3)
investment schemes, and (4) work-at-home plans. During fiscal year
1998, the Postal Inspection Service initiated various law
enforcement actions resulting from investigative cases involving
the four top deceptive mail schemes. According to ISDBIS data, a
total of 911 enforcement actions were taken, which included
arrests, convictions, and other actions. Of the total actions
taken, 480, or 53 percent, involved arrests and convictions. Also,
ISDBIS data for sweepstakes showed that a total of 43 actions were
taken. For our most recent work, we obtained updated information
on the two Efforts by initiatives that we
discussed in our previous testimony, namely Project Organizations
Mailbox and the National Association of Attorneys General (NAAG)6
multi- state sweepstakes subcommittee. Also, we obtained updated
information to Address Deceptive from various federal,
state, and local agencies and nongovernmental Mail Problems and
organizations about their recent efforts to help educate and make
Educate Consumers consumers more aware of the
potential problems that could result from deceptive mail marketing
practices. These efforts involved activities that were initiated
by various organizations, including FTC, the Postal Inspection
Service, state Attorneys General offices, and nongovernmental
organizations, such as the American Association of Retired Persons
(AARP) and NAAG. Project Mailbox was established to help educate
consumers and Project Mailbox appropriately deal
with organizations, companies, and individuals that 6 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. Page 11
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial attempted to defraud consumers through the use
of mass mailings. In fiscal year 1998, FTC, the Postal Inspection
Service, and Attorneys General offices for various states
initiated 203 law enforcement actions that targeted specific
organizations, companies, and individuals that allegedly attempted
to deceive, mislead, or defraud consumers through various mail
marketing practices. The practices included a wide range of
schemes, including not only sweepstakes, prize promotions,
lotteries, advance fee loans schemes, and government look-alike
mail, but also such schemes as guaranteed scholarships, vacation
and travel packages, and fraudulent charity solicitations. For the
203 law enforcement actions, FTC, the Postal Inspection Service,
and various state Attorneys General offices provided us some
information on 101, or about 50 percent, of the actions, which
provided perspective on these actions. These federal and state
organizations estimated that a total of about 841,000 consumers
had purchased products and/or services from the organizations,
companies, or individuals that were the targets of the law
enforcement actions. Also, an estimated total of about $424
million was identified as sales to consumers or funds consumers
had paid to the targeted organizations, companies, or individuals.
We have no information on the extent to which deceptive mail
problems may have been involved with the total number of consumers
identified and the payments made. However, FTC, the Postal
Inspection Service, and various state Attorneys General offices
estimated that about 10,400 consumer complaints led to or
initiated the 101 law enforcement actions. In February 1999,
NAAG's Subcommittee on Sweepstakes and Prize NAAG Multi-State
Promotion convened a hearing in Indianapolis, Indiana. The purpose
of the Sweepstakes Subcommittee hearing was to gather information
about sweepstakes promotions and create consensus on the best
approaches for deterring and punishing those who participate in
fraudulent sweepstakes activities. Witnesses at the hearing
included representatives of the direct mail marketing industry,
individual consumers from various states, federal government
representatives, and experts from the academic community. Based on
information discussed at the hearing and lessons learned from
years of investigations and litigation, the subcommittee generally
recommended that the sweepstakes industry adopt specific voluntary
practices to ensure that consumers are not misled. Some of the
recommended practices included (1) clearly disclosing the odds of
winning the sweepstakes or contest, (2) not representing or
implying that ordering a product increases a consumer's chance of
winning, and (3) having a Page 12
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial standard, simple, uniform means for entering
sweepstakes both for consumers who place orders and those who do
not. FTC, the Postal Inspection Service, and various state, local,
and Other Consumer Education nongovernmental organizations have
either completed or initiated efforts Activities of Federal,
State, to help educate consumers and raise their awareness
about problems that Local, and could
result from deceptive mail. These efforts range from the
Nongovernmental establishment of a national
toll-free hotline to the publication of consumer awareness
articles. Organizations FTC Activities FTC has
initiated or participated in activities to help consumers deal
with deceptive mail marketing practices. For example, FTC: *
established, on July 7, 1999, a national toll-free hotline (i.e.,
1-877-FTC- HELP or 1-877-382-4357) that consumers could use to
file complaints on various topics, including deceptive mail.
According to FTC, the hotline is intended not only to make FTC
more accessible to consumers who wish to file complaints but also
to make consumer complaint data available to law enforcement
agencies in the United States and Canada. * maintains a website
through which consumers may obtain information that can help them
address potential problems associated with deceptive mail. This
information covers topics ranging from prize offers to magazine
subscription scams to receipts of unordered merchandise. In
addition, FTC officials told us that FTC has continued to work
with other organizations, such as NAAG, 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 in FTC's Consumer Information
System (CIS). CIS fraud consumer complaint data are made available
to various law enforcement organizations through FTC's Consumer
Sentinel website. Postal Inspection Service According to
Postal Inspection Service officials, the Inspection Service's
Activities efforts to educate consumers
are important to its continuing fight against deceptive mail
marketing practices. These efforts range from national to local
activities that are designed to help consumers avoid being
victimized by deceptive mail marketing practices. For example, the
Inspection Service: * mailed out postcards in May 1993, to about
210,000 households in the United States, informing consumers that
they had won prizes and asked consumers to call a telephone
number. However, when consumers called Page 13
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial the number, they reached the Inspection Service
and were warned against responding to the postcards because
similar solicitations are often used by companies to scam
consumers. * is developing another postcard mailing to alert
consumers to potential problems that could be caused by deceptive
mail and telemarketing and identify a national hotline through
which consumers may file complaints. The postcards are to be
distributed to about 114 million households nationwide in October
1999. * distributed in December 1994, a video news release that
was sent to various television news stations throughout the United
States. The video included information on how consumers could
identify whether elderly relatives were having problems in
handling mailed material from organizations. * is developing a
video that will include information to help consumers avoid both
problems with deceptive mail and other types of deceptive
marketing practices via the telephone. The video is scheduled for
distribution to about 16,000 public libraries around October 1999.
In addition, according to Postal Service field officials, the
Service has and continues to help educate consumers and raise
their awareness about deceptive mail practices. In many instances,
postal field personnel work with their local postal inspectors to
prepare news releases and make presentations before consumer
groups. State and Local Activities Officials in the state and
local organizations that we contacted cited the following examples
of their efforts to help educate consumers about deceptive mail. *
Representatives from the Connecticut Office of the Attorney
General have conducted half-day consumer education sessions for
groups of senior citizens to provide them information about
deceptive mail. Since January 1, 1999, the office has sponsored 4
sessions with about 1,000 consumers in attendance. * Since
January 1999, staff from Florida's Division of Consumer Services
have spoken to consumer groups, many of which involved senior
citizens, about fraud-related issues. These efforts focused on
telemarketing fraud, but have also involved discussions about
deceptive mail, including sweepstakes. Page 14
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial * In April 1999, local consumer affairs staff
from Montgomery County, Maryland, conducted an adult education
class focusing on consumers' rights and responsibilities, but
information was also provided on sweepstakes and fake award
notification letters. * In the spring of 1999, the administrator
of the Office of Consumer Affairs in Alexandria, Virginia, made a
presentation on pyramid schemes received through the mail that pay
commissions for recruiting distributors, not for making sales. The
presentation was made to both staff in Alexandria's Office of
Aging and local consumers. Activities of Nongovernmental
Various nongovernmental organizations, including DMA, AARP, and
Organizations Arizona State University,
reported that to help educate consumers, these organizations
offered conferences and seminars as well as distributed
information on deceptive mail marketing practices. Representatives
of the organizations identified several examples, which included *
DMA prepares and distributes action line reports on deceptive mail
problems, as well as other marketing issues. These reports are
distributed to approximately 800 to 900 consumer affairs
professionals and press contacts who are encouraged to share the
reports with consumers. A recent action line report, dated July
11, 1999, established a special Sweepstakes HelpLine, which is
intended to help various caregivers, such as adult children, who
care for elderly relatives; consumer affairs personnel; and social
service professionals address problems some people may have with
sweepstakes. * AARP has conducted 26 training seminars throughout
the United States that were attended by about 1,300 law
enforcement professionals. The seminars were held during 1998 and
provided the professionals with information on deceptive mail,
including sweepstakes, prize promotions, and foreign lotteries. *
Arizona State University, in cooperation with AARP and the Office
of the Arizona Attorney General, hosted a conference entitled "New
Directions: Seniors, Sweepstakes and Scams." The conference, which
was held in October 1998, was designed for individuals who have
been and continue to be involved in consumer education and
awareness efforts. Among the conference attendees were
representatives from FTC, the Postal Inspection Service, and NAAG.
Information on deceptive mail marketing practices was presented
and attendees were encouraged to share this information with
consumers. Page 15
GAO/T-GGD-99-150 Statement Deceptive Mail: Consumers' Problems
Appear Substantial Mr. Chairman, this concludes my prepared
statement. I would be pleased to respond to any questions you or
the members of the Subcommittee may have. For future contacts
regarding this testimony, please contact Bernard L. Contact and
Ungar at (202) 512-8387. Individuals making key contributions to
this Acknowledgment testimony included Gerald Barnes, Anne
Hilleary, Lisa Wright-Solomon, Anne Rhodes-Kline, and George
Quinn. Page 16
GAO/T-GGD-99-150 Page 17 GAO/T-GGD-99-150 Attachment I Scope
and Methodology In developing the scope and methodology for our
work, we first obtained a general description of the term
"deceptive" as it could be applied to mailed material. According
to FTC, mailed material would generally be considered deceptive if
the material included a representation or practice or if the
material omitted information that caused a consumer to be misled
and eventually suffer some loss or injury, despite the fact that
the consumer behaved reasonably under the circumstances. Both FTC
and the Postal Inspection Service identified various types of
mailed material that have been used to induce consumers to remit
money, pay upfront fees, or purchase goods or services through
deceptive means. However, in many cases, the promised goods or
services were not delivered or were not of the quality that
consumers may have reasonably expected to receive. Some examples
included * lotteries from foreign countries or from states that
did not have authorized lotteries. * chain letters that required
consumers to remit payments to participants in the chain letter
scheme for which substantial financial returns were promised but
never delivered. * mailed material that involved various types of
consumer credit schemes, such as loans, credit repair offers, and
credit card solicitations, for which advance fees were required. *
requests for charitable donations from organizations that were not
legitimate charities. * mailed material that looks as if it has
been distributed or endorsed by a government agency, also referred
to as government look-alike mail. In some instances, mailed
material may be illegal in that it violates specific postal or
other statutes. For example, chain letters that request money or
other items of value and promise a substantial return to the
participants are generally illegal. Such letters are considered a
form of gambling and sending them through the mail violates
section 1302 of Title 18 of the U.S.Code, the Postal Lottery
Statute. To obtain updated information about the extent and nature
of consumers' problems with deceptive mail, as well as consumer
education efforts, we attempted to contact the 17 federal, state,
and local agencies and nongovernmental organizations that we
contacted for our September 1998 Page 18
GAO/T-GGD-99-150 Attachment I Scope and Methodology testimony. In
our earlier work, we identified these agencies and organizations
as those which had been involved in dealing with consumers'
complaints about questionable or deceptive mail marketing
practices involving mailed sweepstakes material and cashier's
check look-alikes. The 17 agencies and organizations included 2
federal agencies-FTC and the Postal Inspection Service-as well as
other state and local government agencies and nongovernmental
organizations such as * 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; (2) National Consumers League, which
established National Fraud Information Center; and (3) Direct
Marketing Association. Based on our most recent work efforts, we
obtained information from 12 of the 17 agencies and organizations,
which are listed in attachment II to this statement. At the 12
agencies and organizations, we interviewed officials and reviewed
documents to obtain available information about the extent and
nature of consumers' deceptive mail problems and consumer
education efforts. Also, we obtained and analyzed consumer
complaint data from FTC and Postal Inspection Service databases.
In addition, during the course of our work, we obtained from FTC,
the Postal Inspection Service, and 45 state attorneys general
offices information on specific law enforcement actions involving
organizations, companies, and individuals that attempted to
defraud consumers through the use of deceptive mail.1 To obtain
information about the consumer complaint process at the Postal
Service, we interviewed postal headquarters officials in the
Postal Inspection Service and the Postal Service's Office of
Consumer Advocate. Also, we interviewed postal officials at
various field locations in different parts of the country who were
knowledgeable about the consumer complaint process. Specifically,
we spoke with consumer affairs and marketing officials in postal
district offices and inspectors in Postal Inspection Service
offices located in the metropolitan areas of Dallas, Texas; Los
Angeles, California; and Washington, DC. In addition, to obtain 1
According to FTC, for Project Mailbox in fiscal year 1998, five
states did not identify such actions. The states included Alaska,
Louisiana, New Hampshire, Rhode Island, and Tennessee. Also, no
such actions were identified for the District of Columbia. Page 19
GAO/T-GGD-99-150 Attachment I Scope and Methodology insight into
how the consumer complaint process was implemented, we visited 15
postal field facilities, including post offices and stations, that
were located in the metropolitan areas of Dallas, Texas; Los
Angeles, California; and Washington, DC. These locations were
selected mainly because staff from our Dallas Regional Office, as
well as headquarters staff, were available to conduct face-to-face
meetings with appropriate postal field employees. In addition, we
had an outside contractor conduct a survey to obtain opinions from
the U.S. adult population about specific types of deceptive mail.
Through the survey, we attempted to determine whether survey
respondents had received any mail delivered by the U.S. Postal
Service within the last 6 months involving sweepstakes or
documents resembling cashier's checks that the respondents
believed were in any way misleading or deceptive. We contracted
with International Communications Research (ICR) of Media,
Pennsylvania, a national market research firm, to administer our
survey question, which was worded as follows. "We would like to
ask you a question concerning mail delivered by the U.S. Postal
Service. Within the last 6 months, have you received any mail
delivered by the U.S. Postal Service involving sweepstakes or
documents resembling cashier's checks that you believe were in any
way misleading or deceptive?" A total of 1,014 adults (18 and
older) in the continental United States were interviewed between
November 18 and 22, 1998. The contractor's survey was made up of
a random-digit-dialing sample of households with telephones. Once
a household was reached, one adult was selected at random using a
computerized procedure based on the birthdays of household
members. The survey was conducted over a 5-day period, including
both weekdays and weekends, and up to four attempts were made to
reach each telephone number. To ensure that survey results could
be generalized to the adult population 18 years of age and older
in the continental United States, results from the survey were
adjusted by ICR to account for selection probabilities and to
match the characteristics of all adults in the general public
according to such demographic groups as age, gender, region, and
education. Because we surveyed a random sample of the population,
the results of the survey have a measurable precision or sampling
error. The sample error is stated at a certain confidence level.
The overall results of our survey question Page 20
GAO/T-GGD-99-150 Attachment I Scope and Methodology regarding the
public's opinion about misleading or deceptive mail are surrounded
by 95 percent confidence levels of plus or minus 4 percentage
points or less. The practical difficulties of conducting any
survey may introduce nonsampling errors. As in any survey,
differences in the wording of questions, in the sources of
information available to respondents, or in the types of people
who do not respond can lead to somewhat different results. We
took steps to minimize nonsampling errors. For example, we
developed our survey question with the aid of a survey specialist
and pretested the question prior to submitting it to ICR. We did
our work from November 1998 through July 1999, in accordance with
generally accepted government auditing standards. We did not
verify consumer complaint data obtained from FTC and Postal
Inspection Service nor did we verify data provided by FTC, Postal
Inspection Service, and state Attorneys General offices on
specific law enforcement actions. Page 21
GAO/T-GGD-99-150 Attachment II List of Federal, State, and Local
Government Agencies and Nongovernmental Organizations Contacted
and Their Locations 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 Local government agencies: Citizen Assistance
(Consumer Affairs) for City of Alexandria Alexandria, Virginia
Consumer Affairs Division for Montgomery County
Rockville, Maryland Nongovernmental organizations: American
Association of Retired Persons (AARP) Washington,
D.C. Arizona State University (Gerontology Program)
Tempe, Arizona Direct Marketing Association (DMA)
Washington, D.C. National Association of Attorneys General (NAAG)
Washington, D.C. National Consumers League (NCL)/National Fraud
Information Center (NFIC)
Washington, D.C. U.S. Public Interest Research Group (USPIRG)
Washington, D.C. Source: GAO. Page 22
GAO/T-GGD-99-150 Page 23 GAO/T-GGD-99-150 Page 24 GAO/T-GGD-
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