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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