UNITED STATES OF AMERICA 

POSTAL REGULATORY COMMISSION 

WASHINGTON, DC 20268-0001 

Commissioners: 

Dan G. Blair, Chairman; 

Nanci E. Langley, Vice Chairman; 

Mark Acton; 

Ruth Y. Goldway; and 

Tony L. Hammond 

Report of the Postal Regulatory Commission 

on the 

Fundraising Exception 

to the 

Cooperative Mail Rule 

February 13, 2009
i 

Table of Contents 

Page 

I. Introduction ......................................................................................................... 1

II. Review of 2003 Rulemaking Record ................................................................. 3

A. Background ................................................................................................ 3

B. Observations .............................................................................................. 6

III. Assessment of Post-Rulemaking Developments (2003 through 2008) ......... 9

A. Outcome of Commission’s Data and Information Request to Postal 

Service ....................................................................................................... 9

1. Authorizations to Mail and Volume .................................................. 9

2. Information Concerning Complaints .............................................. 11

3. Other Means of Eliminating Charitable Fraud ............................... 12

B. Other Areas of Investigations ................................................................... 13

IV. Outcome of Public Inquiry ............................................................................... 15

A. Establishment of Public Inquiry and Request for Public Comments ........ 15

B. Summary of Comments ........................................................................... 16

C. Comments in Favor of Changing the Fundraising Exception ................... 17

1. ANM’s Comments ......................................................................... 17

2. The Public Representative’s Comments ....................................... 19

D. Comments Opposed to Modifying the Fundraising Exception ................. 20

1. ATA’s Comments .......................................................................... 20

2. FSC, et al.’s Comments ................................................................ 21

V. Results and Recommendations ...................................................................... 24

A. Results ..................................................................................................... 24

B. Recommendations ................................................................................... 25

Commissioner Goldway Dissents 
ii 

APPENDICES 

Appendix A—Section 711 of the Postal Accountability and Enhancement Act 

Appendix B—Postal Regulations (Cooperative Mail Rule and Fundraising 

 Exception) 

Appendix C—Postal Service Response to Commission Data and Information 

 Request 

Appendix D—Commission Order No. 72 

Appendix E—Summary of Selected Cases on Charitable Fundraising 

Solicitations 
Section I 

1 

I. INTRODUCTION 

Statutory authority. Section 711(a) of the Postal Accountability and 

Enhancement Act (PAEA) of 2006 directs the Postal Regulatory Commission 

(Commission) to examine the “Fundraising Exception” to the Cooperative Mail Rule for 

the purpose of determining whether the exception contains adequate safeguards to 

protect against two longstanding concerns: abuse of bulk nonprofit postal rates and 

deception of consumers. The PAEA further directs the Commission to report the results 

of its examination to the United States Postal Service, along with any recommendations 

the Commission finds appropriate.1 Pub. L. 109-435, Title VII, § 711(a), Dec. 20, 2006, 

120 Stat. 3248 (39 U.S.C. 501 Note 12). 

Scope of examination. Pursuant to section 711, the Commission has reviewed

the rulemaking that led to adoption of the Fundraising Exception in 2003, developments 

in the ensuing five years, and selected data and information. In support of this review, 

it: 

— Established a formal docket, designated as a Public Inquiry, to obtain the 

views of the interested public; 

— Directed questions related to administration and enforcement of the 

Cooperative Mail Rule and Fundraising Exception to the Postal Service 

and held related discussions with the Postal Service; 

— Conferred with the Postal Service’s Office of Inspector General (OIG); 

— Adopted working definitions of “abuse of rates” and “deception of 

consumers,” given the absence of such in section 711; and 

— Considered Congressional hearing records, State laws, judicial decisions, 

charity rating websites, and Postal Service documents. 

 

1

 The full text of section 711, which includes an additional paragraph addressing the potential for 

further Commission action, appears in Appendix A. 
Section I 

2 

Organization. This report presents the results of the Commission’s examination, 

five related recommendations, and additional explanatory material. Section I consists of 

this Introduction. Section II presents the Commission’s review of the Cooperative Mail 

Rule and the 2003 rulemaking record. Section III addresses post-rulemaking 

developments. Section IV presents a summary of comments in the Commission’s 

Public Inquiry. Section V consists of the Commission’s examination and its 

recommendations. A set of appendices provide selected supporting documentation. 

Appendix E provides a summary of U.S. Supreme Court decisions addressing 

charitable fundraising. 

Distribution. As required by section 711, the Commission is providing this report 

to the Postal Service. It is also transmitting it to the Chairmen and Ranking Members of 

the Congressional committees and subcommittees with responsibility for oversight of 

the Postal Service, and to the United States Postal Service’s Office of the Inspector 

General, and the United States Postal Inspection Service. The report will also be 

posted on the Commission’s website. 

Acknowledgements. The Commission acknowledges and appreciates the 

assistance it has received in conducting its examination from Congressional staff 

members; Postal Service employees and management; the Postal Service’s Office of 

Inspector General; and commenters in the Commission’s Public Inquiry. 
Section II 

3 

II. REVIEW OF 2003 RULEMAKING RECORD 

A. Background 

Formal Postal Service action on the Fundraising Exception can be traced to May 

6, 2003, when a notice of proposed rulemaking appeared in the Federal Register. The 

Postal Service’s explanation indicated that the topic was linked to a set of postal 

regulations referred to as the Cooperative Mail Rule. See 68 FR 23937.2

The Cooperative Mail Rule, as administered by the Postal Service, controls 

access to nonprofit Standard Mail rates by limiting the ability of an entity with 

authorization for a nonprofit permit to “cooperate” or partner with another entity (typically 

a commercial enterprise, such as a professional fundraiser) in a bulk mailing and still 

retain eligibility for reduced rates. This is accomplished through provisions which: 

• Require that each cooperating entity must independently qualify for 

nonprofit rates at the post office where the mailing is deposited; 

• Require that the mail matter must be owned by the eligible entity; 

and 

• Prohibit “sharing” a permit with an entity not authorized to mail at 

reduced rates. 

Principal-agent relationships in a fee-for-service arrangement, such as for 

printing or creative services, generally have been considered outside the scope of the 

Cooperative Mail Rule; however, parties to the mailing must be able to show that the 

relationship is legitimate if questioned. 

The longstanding rationale for the prohibitions in the Cooperative Mail Rule is 

that access to reduced rates is intended solely for the benefit of organizations 

authorized to mail at nonprofit rates. Moreover, access to this authorization is a 

privilege—with rates once subsidized by taxpayers, but more recently funded by other 

 

2

 See Appendix B for the full text of the provision. 
Section II 

4 

mailers—and the restrictions help prevent abuse of this privilege and undue imposition 

on other mailers. 

The extent of the financial benefit associated with a nonprofit permit has varied, 

but eligible nonprofit bulk mailings currently are assessed at 60 percent of the Regular 

(commercial) Standard Mail rate. Thus, a mailing that would incur postage costs of 

$1,000 at Regular Standard Mail rates may be sent under a nonprofit bulk permit for 

$600. 

Proposed version. The Fundraising Exception, as originally proposed, read as 

follows: 

Exception: 

[T]his standard [pertaining to Cooperative Mail] does not apply to mailings 

by a nonprofit organization authorized to mail at Nonprofit Standard Mail 

rates soliciting monetary donations and not promoting or otherwise 

facilitating the sale or lease of any goods or service. 

Id. at 23939. 

This formulation of the regulation excluded voter registration officials and certain 

qualified political committees, which are authorized to mail at reduced rates. It also 

excluded solicitations not strictly limited to raising funds. Id. 

Final version. Following consideration of comments, the Postal Service 

published a final rule on October 9, 2003, and established November 13, 2003 as the 

effective date. The final rule reflected several changes, but maintained key aspects of 

the initial conceptual approach, and thereby continued to reflect the Postal Service’s 

interest in crafting a limited exception to the Cooperative Mail Rule. The final regulation, 

as adopted, provides: 
Section II 

5 

Exception: 

[E]ffective November 13, 2003, this standard [pertaining to Cooperative 

Mail] no longer applies to mailings by an organization authorized to mail at 

Nonprofit Standard Mail rates soliciting monetary donations to the 

authorized mailer and not promoting or otherwise facilitating the sale or 

lease of any goods or service. This exception applies only where the 

organization authorized to mail at Nonprofit Standard Mail rates is given a 

list of each donor, contact information (e.g., address, telephone number) 

for each, and the amount of the donation or waives in writing the receipt of 

this list. 

68 FR 58276. 

This formulation of the regulation makes two substantive changes. First, in terms 

of eligibility, it now brings the previously-excluded voter registration officials and certain 

qualified political committees within the scope of the Fundraising Exception and thereby 

expands eligibility. Second, it requires the mailing partner to provide the entity with the 

nonprofit authorization with a detailed donor list or to have obtained a written waiver. 

The Postal Service considered, but rejected, suggestions that would impose 

additional requirements on the cooperating parties, such as: 

— Prohibiting or restricting close ties, including family relationships, between 

the nonprofit organization and the cooperating partner; 

— Requiring a written contract between the nonprofit organization and the 

cooperating partner; 

— Requiring prior written approval of the contract by the nonprofit 

organization’s board of directors; and 

— Requiring the inclusion of certain terms in the contract related to important 

aspects of control over the mailing and the proceeds. 

Id. at 58275-76. 
Section II 

6 

Potential restrictions associated with the last point include, among others, 

retention of intellectual property rights, limits on financing conditions, direct deposit of 

the proceeds in an account under the exclusive control of the nonprofit organization, 

and the right to receipt and exclusive ownership of a detailed donor list. 

The Postal Service also rejected a suggestion to expand the proposal in a way 

that would exempt mailpieces promoting the sale of products and goods, even if those 

products and goods are of nominal value, from application of the Cooperative Mail Rule, 

and a suggestion that coverage be expanded to include other documents, such as 

thank you letters, newsletters, and confirmations of donations. Id. at 58276. 

B. Observations 

Review of the 2003 rulemaking record shows that the Postal Service’s main 

objective was to carve a consensus provision out of myriad, and often competing, 

considerations. These considerations included, among others, some commenters’ 

questions about the consistency of the underlying Cooperative Mail Rule with 

Congressional intent; related questions of agency leeway in statutory interpretation; the 

impact of State laws regulating charitable solicitations on the Postal Service’s traditional 

insistence on “no shared risk” in reduced rate mailings; the effect of Supreme Court 

decisions striking down certain percentage-based limits on the viability of other 

regulatory restrictions; and concerns about Postal Service resources and enforcement 

authority. 

Thus, although the Postal Service asserted that there was broad support for the 

terms in the final version of the Fundraising Exception, the record also supports the 

conclusion that there was still a sharp divide over the Postal Service’s rulemaking 

authority, its administration of the Cooperative Mail Rule, and its reluctance to stretch 

restrictions in the Fundraising Exception beyond those safely within the “consensus” 

category. Overall, the terms of the final rule were strongly influenced by the following 

factors: 
Section II 

7 

The growing role of professional fundraising in charitable solicitations and 

expressions of interest, on the part of some nonprofit mailers, in partnering 

with them, given concerns about the impact of an economic downturn on 

the success of solicitation efforts; 

Lack of congressional action on related legislation, coupled with 

congressional interest in an administrative solution; and

Passage of State laws and regulations posing substantive,

and irreconcilable, conflicts with the Cooperative Mail Rule’s 

ban on risk sharing. 

The Postal Service acknowledged the seriousness of a concern that if 

contractual terms between nonprofits and fundraisers were no longer a postal concern 

(given an exemption from application of the Cooperative Mail Rule), some fundraisers 

might impose financial terms that could take advantage of unsophisticated nonprofits or 

even seek to create nonprofit organizations of their own to enrich themselves off of 

fundraising mailings, rather than to benefit the public. Id. at 58274. However, the 

Postal Service characterized this as primarily involving consumer protection concerns, 

rather than postal concerns. It therefore regarded this as a type of social policy concern 

best addressed elsewhere, such as through Federal legislation or the State officials who 

regulate the relationship between professional fundraisers and nonprofit organizations. 

Id. at 58275. 

In a statement that bears directly on the Commission’s mandate under section 

711, the Postal Service affirmatively stated that the proposed rule “would not establish 

safeguards to address the concern that some professional fundraisers may seek to take 

advantage of unsophisticated clients.” 68 FR 23939. Its reasoning was that: 
Section II 

8 

In our discussions with nonprofit representatives and 

Congressional representatives, no consensus was reached 

on an effective and administratively feasible method to 

accomplish this goal. However, this rulemaking does not 

prevent other interested federal or state agencies from 

regulating such practices. Moreover, it is also hoped that the 

nonprofit sector may undertake educational efforts to inform 

potential targets of such practices. 

Id.
Section III 

9 

III. ASSESSMENT OF POST-RULEMAKING DEVELOPMENTS 

(2003 THROUGH 2008) 

A. Outcome of Commission’s Data and Information Request to 

Postal Service 

In correspondence directed to the Postal Service, the Commission requested a 

range of data and information on administration of the Fundraising Exception. The 

Postal Service’s response appears in Appendix C.3

The Postal Service’s response is generally thoughtful and detailed; however, on 

the question of initial interest to the Commission—namely, the extent to which the 

Fundraising Exception is used, whether in terms of number of nonprofit organizations 

authorized to mail at reduced rates or volume—the Postal Service said it could not 

provide an answer because it does not collect this information. Postal Service 

Response at 2. The Commission then learned that the Office of the Inspector General 

was planning to conduct a statistical survey, and concluded that this data collection 

effort would likely provide a benchmark on usage. 

A review of several other aspects of the response to the Data and Information 

Request follows. 

1. Authorizations to Mail and Volume 

Authorizations to use Nonprofit Standard Mail prices. For an overall perspective 

on the use of Nonprofit Standard rates, the Postal Service provided annual data on the 

number of organizations authorized to mail in this category for fiscal years 2000 through 

2007. The following table reproduces data from the Postal Service Response. The 

highlighted rows identify the fiscal year in which the Fundraising Exception was adopted 

(FY 2004) and the fiscal years immediately before and after. 

 

3

 Letter from Stephen L. Sharfman, General Counsel, Postal Regulatory Commission, May 13, 

2008 (Data and Information Request); and Letter from R. Andrew German, Legal Policy and Ratemaking, 

Office of the General Counsel, United States Postal Service, June 19, 2008 (Postal Service Response). 
Section III 

10 

__________ 

Table 1. 

Nonprofit Standard Rates: 

Authorized Mailers and Volumes 

Fiscal Year Authorized Mailers* Volume 

2000 264,641 14, 250,295,000 

2001 274,490 14, 423,446,000 

2002 286,974 14,006,494,000 

2003 306,144 14,527,723,000 

2004 317,496 14,441,837,000 

2005 324,208 15,046,802,000

2006 337,379 14,602,767,000 

2007 352,823 14,783,682,000 

*As of end of respective fiscal year.

Source: Derived from Postal Service Response at 1 and 2. 

__________ 

The table shows that authorizations to use Nonprofit Standard rates have 

increased each year in the period for which data was provided and on a relatively 

steady basis. The Postal Service characterizes volumes as having remained relatively 

stable despite the increase in the number of organizations authorized to mail at 

Nonprofit Standard Mail prices and the adoption of the exception to the Cooperative 

Mail Rule. Id. at 2. The Commission notes that in FY 2004, relative to the preceding 

year, the Postal Service’s data shows that authorizations increased, but volume 

decreased. FY 2005 saw an increase in both authorizations and volume. In FY 2006, 

authorizations continued to increase, but volume declined. 
Section III 

11 

2. Information Concerning Complaints 

The Postal Service provides data and information on three aspects of the 

Commission’s inquiry into the number, nature, and source of complaints related to 

cooperative mailings and/or the Fundraising Exception. First, it states that its Consumer 

Advocate has not received any complaints, since the adoption of the rule, relating to the 

Fundraising Exception. Id. at 3. Second, it provides the following data on complaints 

received by the Postal Inspection Service and categorized broadly as “charitable fraud” 

for the 8-year period (FY 2000 through FY 2007) corresponding to the years covered by 

the permit and volume data in Table 1. 

__________

Table 2. 

Postal Inspection Service Complaint Summary: 

Charitable Fraud 

Fiscal Year Subjects of Complaints Number of Complaints 

2000 309 1,364 

2001 221 839 

2002 183 350 

2003 186 541 

2004 250 844 

2005 200 770 

2006 162 328 

2007 96 190 

Source: Adapted from Postal Service Response, Answer to Question No. 4. 

__________

These data show that for the selected period, the peak year for complaints in the 

Postal Inspection Service’s charitable fraud category was FY 2000, when 1,364 were 

identified. In FY 2004, the year of adoption of the Fundraising Exception, there were 
Section III 

12 

884 complaints in this category. While this is higher than the number received in fiscal 

years 2002 and 2003, it is considerably lower than the 1,364 received in FY 2000. 

Moreover, since adoption of the Fundraising Exception, the number of complaints has 

continued to drop, reaching the lowest level—190—in FY 2007. 

Finally, the Postal Service states that the Postal Inspection Service conducted an 

analysis of the 190 charitable fraud complaints received in FY 2007. It says that of this 

total, 42 alleged monetary losses relate to the reported scheme or fraud, and further 

explains: 

These 42 complaints related to 28 different subjects of

complaints. In other words, more than one complaint was 

received for some of the subjects. Of the 28 subjects ...,18 

related to Charity Fraud. Ten of the subjects and their 

alleged schemes were miscategorized and related to 

investment fraud or other matters. The Postal Inspection 

Service opened investigations on three of the subjects. One 

investigation remains open, and the other two have been 

closed. 

Id. at 3. 

The Postal Inspection’s analysis of FY 2007 data makes clear that the number of 

complaints associated with the category of charitable fraud in FY 2007 has diminished 

significantly since implementation of the Fundraising Exception. 

3. Other Means of Eliminating Charitable Fraud 

In response to a Commission query about other means to eliminate Charitable 

Fraud, the Postal Service said that it is difficult to provide a definitive response without 

knowledge of specific abuses that have occurred and the underlying circumstances in 

each instance. The Postal Service says that despite its best efforts, it has not received 

this information. It adds: 

As a general matter, we continue to believe that educational 

efforts directed at nonprofit organizations and the individuals 

that receive charitable solicitations is an appropriate 
Section III 

13 

measure. We note that the Postal Service defers to industry 

experts concerning the steps that nonprofit organizations 

and individuals should take to protect their interests, and 

believe that the proper role for the Postal Service is to assist 

in communicating the advice provided by these experts. The 

Postal Service stands willing to continue and expand on its 

partnership with industry experts by: 

1. Improving its website to increase the information 

available, including links to appropriate governmental

and private resources, and making this information 

more visible to those accessing the site[;] 

2. Engaging in a direct mail campaign to consumers to 

pass on expert advice they should consider upon 

receipt of a charitable solicitation[;] 

3. Considering making Charitable Fraud a focus during 

Consumer Protection Week[;] 

4. Continuing to partner with industry representatives in 

presentations to nonprofit groups[; and] 

5. Designating a point of contact within the Inspection

Service for the industry members and consumers to 

report concerns regarding charitable solicitations[.] 

Id. at 5. 

B. Other Areas of Investigations 

Commission staff contacted the National Association of Attorneys General 

(NAAG) and asked whether that organization had any records or reports of nonprofits 

using deceptive practices in soliciting funds from the public. Marjorie Tharp, Director of 

Communications, states that NAAG does not track these types of complaints. 

Commission staff also contacted the National Association of State Charity Officials 

(NASCO), currently headed by Chris Cash, who is also the Charities Program Manager 

for the Colorado Department of State. His office reported that NASCO does not track 

complaints. 
Section III 

14 

Terry Long in Colorado’s Charities Program office acknowledged that while the 

Colorado Department of State tracks complaints, it does not differentiate between 

telemarketing, in person, or mail solicitations. He also stated that to his knowledge the 

office has never received a complaint about solicitations via mail. 

Commission staff also explored the potential usefulness of the Federal Trade 

Commission’s Sentinel database that compiles consumer complaints from multiple 

sources. It also accessed websites maintained by State consumer organizations. 
Section IV 

15 

IV. OUTCOME OF PUBLIC INQUIRY 

A. Establishment of Public Inquiry and Request for Public Comments 

The Commission established Docket No. PI2008-4 to obtain comments from the 

public on the scope and nature of its examination, report, and potential 

recommendations. To focus the discussion, it invited responses to questions on 

selected topics, but also encouraged commenters to address any matters they deemed 

relevant.4 Questions directed at abuse of nonprofit rates asked: 

To what extent have abusive fundraising practices identified in the 2003 

rulemaking occurred since adoption of the Fundraising Exception? 

Have there been any material changes in fundraising since the 2003 

rulemaking that give rise to new concerns about abuse in connection with 

the Fundraising Exception? 

To what extent have the nonprofit sector and the Postal Service engaged 

in education efforts designed to inform nonprofit organizations, especially 

those considered especially vulnerable to overreaching or predatory 

partners, about the scope of the Fundraising Exception and potential 

abuses? Are there reliable means of measuring or assessing the success 

of these efforts? 

In terms of data, the Commission asked: 

What information and data are available about the extent to which the 

Fundraising Exception has been used by mailers eligible for nonprofit 

rates since adoption in 2003, in terms of features such as number and 

type of entities using the Fundraising Exception, volume, and total postage 

involved? 

Deception of consumers. With respect to section 711’s concern about deception 

of consumers, the Commission inquired into State laws regulating charities, Postal 

Service education efforts, State education efforts, and related documentation of such 

efforts. 

 

4

 See Appendix D, PRC Order No. 72, Notice and Order Requesting Comments on Fundraising 

Exception, April 22, 2008 (Order No. 72). Comments can be accessed via the Commission’s website. 
Section IV 

16 

The 2003 rulemaking mentioned that there was a growing number of state 

laws on charitable fundraising that created a potential for conflict with 

cooperative mail as then formulated. Has there been an increase in the 

number of states proposing or adopting such laws? What safeguards or 

protections are included in these laws? Do these laws pose any conflicts 

with the 2003 Fundraising Exception or did the Fundraising Exception 

satisfactorily resolve relevant concerns? 

To what extent has the Postal Service undertaken efforts to educate 

consumers (in the capacity of a donor or potential donor responding to a 

mailed solicitation) about abuses or potential fundraising abuses? 

To what extent have individual states engaged in efforts to educate 

consumers (in the capacity of a donor or potential donor responding to a 

mailed solicitation) about abuses or potential fundraising abuses? 

To what extent has deception of potential donors been reported or 

documented by the Postal Service, nonprofit mailer organizations, state or 

local consumer protection agencies, or others? 

B. Summary of Comments 

The Commission requested comments from interested parties on several topics 

pertaining to the Fundraising Exception. See Order No. 72. Initial comments were 

submitted by the Alliance of Nonprofit Mailers (ANM); the Free Speech Coalition, Inc., 

et al. (FSC, et al.); the Public Representative;5 the Association of Direct Response 

Fundraising Counsel (ADRFC);6 and the American Target Advertising, Inc. (ATA).7 

Reply Comments were filed by ANM, FSC, et al.,

8

 and ATA.9

 

5

 Comments of Alliance of Nonprofit Mailers (ANM Comments); Free Speech Coalition, Inc., the 

Free Speech Defense and Education Fund, Inc., et al. (FSC, et al. Comments); and Public 

Representative Comments on Fundraising Exception (Public Representative Comments), all filed June 

24, 2008. 

6

 Letter from the Association of Direct Response Fundraising Counsel, June 25, 2008. 

7

 Comments of American Target Advertising, Inc. in Response to the Notice and Order of April 

22, 2008 on the Cooperative Mail Rule, May 20, 2008 (ATA Comments). 

8

 Reply Comments of Alliance of Nonprofit Mailers (ANM Reply Comments); and Free Speech 

Coalition, Inc., Free Speech Defense and Education Fund, Inc., et al. Reply Comments Regarding 

Cooperative Mail Rule (FSC, et al. Reply Comments), both filed July 24, 2008. 

9

 Reply Comments of American Target Advertising, Inc. in Response to Notice and Order of April 

22, 2008 on the Cooperative Mail Rule, July 25, 2008 (ATA Reply Comments). 
Section IV 

17 

The comments demonstrate broad division on the matter at hand. While some 

parties believe that changing the Fundraising Exception is necessary to prevent alleged 

abuses of nonprofit rates, other parties argue that the alleged abuses are just that—

allegations unsupported by substantive facts. ANM and ADRFC argue that there is a 

need to modify the current Fundraising Exception, and support their position by citing 

allegations of abuse. Conversely, ATA and FSC, et al. argue that the Fundraising 

Exception should not be modified because there is no evidence of abuse. The Public 

Representative suggests that changes to the Fundraising Exception may be warranted, 

but only if the Commission finds that the Fundraising Exception is being abused. 

C. Comments in Favor of Changing the Fundraising Exception 

1. ANM’s Comments 

ANM contends that the Fundraising Exception should be modified and cites 

allegations of fraud as its basis. In its comments, ANM gives a brief summary of events 

leading up to the adoption of the current Fundraising Exception. ANM notes that in 

2003, a broad coalition of nonprofit organizations and fundraisers opposed the current 

Fundraising Exception. ANM Comments at 1. It goes on to say that a review of the 

exemption is overdue and adds that determining the full extent of the abuse would 

require the subpoena authority of the Postal Service Office of Inspector General. Id. at 

3. ANM relies on reports suggesting some charities divert the majority of their 

contributions to their professional staff, fundraising consultants, and other overhead 

costs. Id. ANM claims that allegations of abuse by fundraisers surfaced during the 

hearing before the House Committee on Oversight and Government Reform.10 Those 

allegations included the following: 

• Hundreds of thousands of dollars in donations, raised supposedly to help 

wounded veterans, spent instead on the personal expenses of executives 

and fundraising officials; 

 

10 Hearing on Assessing Veterans’ Charities—Part II, House Committee on Oversight and 

Government Reform (Jan. 17, 2008). 
Section IV 

18 

• $340,000 worth of meals, hotels, and entertainment;

• Six- and seven-figure personal loans; and 

• $17,000 country club membership. 

ANM Comments at 3. 

ANM admits that these allegations of misconduct are not necessarily proof of 

abuse. However, ANM believes that the concerns expressed in the hearing by 

members of Congress must be taken seriously. Id. at 4. 

ANM filed its own comments with the Commission and also joined with ADRFC 

and five other organizations to submit a proposal for consideration. This proposal would 

add a new Domestic Mail Manual (DMM) section entitled, “Exception for Fundraising 

Mailings”. This section adds new language explaining how mailers who are 

unauthorized to send mail at nonprofit rates can qualify. It requires nonprofit 

organizations to certify in writing that the arrangement between the nonprofit and 

professional fundraiser or other party not eligible for the nonprofit rate satisfies a list of 

eight requirements. 

Under the proposal, each nonprofit mailing must contain a certification of eight 

new factors on an entry statement including the following: (1) no officers, director, or 

fiduciary of any ineligible participant may serve the nonprofit as a key employee; (2) the 

arrangement is governed by a written contract; (3) contributions received from recipients 

of solicitations are deposited in a bank account under the exclusive control of the 

nonprofit; and (4) the ineligible party has no ownership of donor lists.11

 

11 See attachments to ANM Comments and ADRFC Comments. 
Section IV 

19 

2. The Public Representative’s Comments 

The Public Representative suggests several possible areas of inquiry, starting 

with how often professional fundraisers actually are involved in fundraising efforts. 

Public Representative Comments at 6-9. Based on limited data, she concludes that the 

use of commercial fundraisers is low.12 Id. at 3-6. She also suggests that the 

Commission could examine whether current State and Federal laws prohibiting 

fraudulent solicitations are sufficient to protect consumers from fundraising abuses. Id. 

at 6. 

The Public Representative caveats her proposals with the premise that the 

Fundraising Exception need only be modified if it is being abused. She notes that if 

individual cases of Cooperative Mail Rule abuse are sufficiently handled by the 

appropriate Federal and State authorities then changes may not be necessary. Id. The 

Public Representative offers a number of suggestions as to how the Cooperative Mail 

Rule might be modified upon findings of abuse. She offers that if abuse is found to be 

widespread, the Fundraising Exception could be abolished. Id. at 6-7. 

The Public Representative discusses benchmarks as a way to prevent abuse of 

the Cooperative Mail Rule. Id. at 7-9. She says that the Postal Service could require 

that a set percentage of funds raised by commercial fundraisers on behalf of a nonprofit 

be paid to the nonprofit entity as opposed to the commercial fundraiser. Another 

potential benchmark would mandate that in order for a charity to qualify for the favorable 

nonprofit postage rates, it would be required to show that it spends a certain minimum 

percentage of its total funds on actual program expenses. Id. at 7. However, she warns 

of the conflicts that could prevent establishing such benchmarks. She references a 

trilogy of cases where courts considered preventative statutes designed to combat fraud 

by imposing prior restraints on solicitation when fundraising fees exceeded a specified 

reasonable level. In each instance, the court held the measures to be unconstitutional. 

Id. at 8. 

 

12 See also Attachment to Public Representative Comments. 
Section IV 

20 

The Public Representative recommends additional safeguards that were 

originally suggested by Patricia Read, Senior Vice President of Independent Sector,13 in 

a letter to Congressman Henry Waxman, chairman of the Committee on Oversight and 

Government Reform. Id. at 9. These safeguards include a requirement that donations 

go directly to the nonprofit, that donor lists remain the property of the nonprofit, and that 

the nonprofit board has approved the contract governing the solicitation effort. Id. 

These requirements also appear in ANM’s and ADRFC’s proposed DMM revisions. 

Along with her recommendations, the Public Representative encourages the 

Commission to consider the additional economic burdens that would be imposed on the 

Postal Service by any Commission recommendations for additional safeguards. Id. at 

10. She argues that if the costs of adding safeguards to curb abuses under the 

Fundraising Exception to the Cooperative Mail Rule become too high, the balance might 

be tipped in favor of abolishing the Fundraising Exception altogether instead of 

implementing overly costly safeguards. Id. 

D. Comments Opposed to Modifying the Fundraising Exception 

ATA and FSC, et al. contend that the Fundraising Exception should be left as is. 

They contend that none of the comments provide any reason to modify the Cooperative 

Mail Rule. 

1. ATA’s Comments 

ATA believes that the governing statute14 supports its contention that the purpose 

of the Fundraising Exception is to prevent organizations from using nonprofit rates to 

mail commercial advertisements such as for travel, insurance, or financial services. 

ATA Comments at 2. ATA further supports its contention by citing legislative history 

 

13 Independent Sector is one of the five organizations which joined with ANM in submitting its 

proposal on DMM revisions. 

14 39 U.S.C. 3626(j)(1), which was added by amendments of 1990 (Pub. L. 101-509) and 1993 

(Pub. L. 103-123). 
Section IV 

21 

which provides that the purpose of the Fundraising Exception was to eliminate the use 

of nonprofit third-class mail for promoting any item or service for which an organization 

is subject to unrelated business income tax. Id. 

ATA also addresses the comments of other parties. ATA notes that the 

comments submitted by ANM and ADRFC lacked facts, substantiation, and persuasive 

opinions showing that the Cooperative Mail Rule should be changed to protect against 

abuses. ATA Reply Comments at 1. Next, ATA challenges ANM’s representations that 

there is broad support for changing the Cooperative Mail Rule by pointing out that the 

umbrella organizations desiring to make changes to the Cooperative Mail Rule 

represent less than four one-hundredths of one percent (.0004) of the total number of 

nonprofit organizations. Id. at 1-2. ATA adds that its members also include for-profit 

corporations and foundations. Id. at 2. 

As for the statements made during the oversight hearing cited by ANM and the 

Public Representative, ATA refers to them as objectively false. ATA Comments at 6; 

and ATA Reply Comments at 1, n.1. ATA argues that because the statements were not 

subject to cross-examination and their evidentiary foundations were never questioned, 

they should not be relied upon as conclusive in any way. ATA Reply Comments at 4. 

As such, the statements should not be used as support for modifying the Fundraising 

Exception. 

2. FSC, et al.’s Comments 

FSC, et al. expresses general satisfaction with the current rule. FSC, et al. 

Comments at 9. FSC, et al. filed comments on behalf of 47 nonprofit organizations and 

for-profit firms which assist nonprofit organizations in fundraising. FSC, et al. Reply 

Comments at 1. Though FSC, et al. is pleased with the Cooperative Mail Rule, it 

expresses discontent with the scope of the Commission’s examination of the 

Fundraising Exception. FSC, et al. Comments at 4. FSC, et al. contends that the PAEA 
Section IV 

22 

requires the Commission to examine the entire Cooperative Mail Rule, and notes that 

the Commission’s Notice and Order only solicits comments on the exception. Id. 

FSC, et al. adds that the Postal Service was not created to regulate nonprofits, 

and that proper governance of charitable solicitations is a matter for the States. Id. at 

8-9. It concludes by pointing out that the burden of proof is on those who want to 

change the Fundraising Exception, to make a clear showing that mail not eligible to be 

entered at nonprofit rates is currently being accepted by the Postal Service. Id. at 10. 

In its reply comments, FSC, et al. contends there has been no reliable evidence 

offered as a basis for changing the Fundraising Exception. It argues that ANM and the 

Public Representative express concern about nonprofit organizations without 

establishing any legal or logical nexus between those concerns and proposed changes 

to the Cooperative Mail Rule. FSC, et al. Reply Comments at 4. In regard to the 

oversight hearing, FSC, et al. says statements offered at Congressional hearings by 

partisans, particularly statements which are not the subject of a meaningful adversarial 

process, are statements of position rather than statements of fact, and thus should not 

serve as the foundation of postal policy. Id. at 3. FSC, et al. points out that while 

ADRFC provides a proposal, it fails to provide any support for its proposed changes to 

the Fundraising Exception. Id. at 4. FSC, et al. opposes benchmarks as suggested by 

the Public Representative referring to them as unconstitutional in light of the cases she 

references. Id. at 8-9. 

FSC, et al. also contends that if fraud is found, there exist proper mechanisms to 

deal with it. For example, some 41 states have laws regulating charitable solicitations. 

Id. at 5-6. Also, if fraud on the part of the nonprofit organization is discovered, the 

nonprofit will be disqualified from Federal income tax exempt status leading to the 

organization being ineligible for nonprofit postage rates. Id. at 6. 
Section IV 

23 

Last, FSC, et al. notes there is a Federal statute prohibiting mail fraud and 

providing for penalties, including up to 30 years in prison and $1,000,000 in fines. See 

18 U.S.C. § 1341. Id. 
Section V 

24 

V. RESULTS AND RECOMMENDATIONS 

A. Results 

Despite strong support from some stakeholders, the Fundraising Exception 

continues to be controversial. The Public Inquiry indicates that there are several 

continuing, fundamental disagreements in the nonprofit community and in the 

professional fundraising field over the Postal Service’s authority to regulate in this area. 

There are also continuing disputes on whether the Fundraising Exception should 

include terms directed at the tools some mailing partners might be able to employ to 

exert influence and control over mailers with authorization to mail at nonprofit rates. 

The review also reveals two impediments that pose a barrier to the Commission’s 

ability to reach definitive conclusions on section 711’s central concern. One is the 

troubling absence of sound data and information on use of the Fundraising Exception, 

both in terms of the Postal Service’s apparent decision not to collect it and the lack of 

any evidence put forward by commenters. This generally means that anecdotal 

evidence and conjecture are the main sources of estimates of usage, and these fall far 

short of providing statistical certainty. 

The other impediment is that the Fundraising Exception, by Postal Service intent, 

includes very few of the elements one would expect to see if the purpose was to protect 

against abuse of rates and deception of consumers in a substantial way. In fact, the 

current version includes only one “check” in the form of a requirement that a detailed 

donor list be provided or that receipt be waived in writing. For the most part, this stems 

from the Postal Service’s assertion that these matters are the province of other 

authorities and agencies. However, one aspect of the Fundraising Exception that the 

Postal Service promotes as a significant protection against abuse is its decision to limit 

mailings to monetary solicitations only. It sees this as excluding from the Fundraising 

Exception mailstream all mailings offering goods and products, even if those goods and 

services have only nominal value. 
Section V 

25 

On a more positive note, the Commission found that the Postal Service has 

undertaken training and education efforts directed at improving administration of the 

Fundraising Exception. This should increase the likelihood that mailings that do not 

qualify for the Fundraising Exception are excluded from the mailstream, or are identified 

thereafter, prior to delivery. The Postal Service also cooperates with industry education 

efforts. These efforts likely provide a real, although unquantifiable, benefit in terms of 

prevention of abuse of rates and deception of consumers.

The Public Inquiry also revealed growing awareness of the emergence of 

“charity-rating” websites. 

B. Recommendations 

The results of the Commission’s examination support five recommendations. 

The recommendations generally urge closer oversight and monitoring of the use of the 

Fundraising Exception; continuation and enhancement of internal education and 

training; continuation and enhancement of external communication efforts; formal 

coordination with other authorities and agencies; and consideration of a legislative 

solution as essential to resolving persistent concerns about both the Cooperative Mail 

Rule and the Fundraising Exception. The recommendations are presented in numerical 

order primarily for ease of reference; however, the Commission considers the first 

recommendation a priority, given its relationship to accountability and transparency. 
Section V 

26 

Recommendation No. 1: Improve Oversight of Use of the Fundraising 

Exception to Enhance PAEA Goals of Accountability and Transparency in 

the Administration of this Regulation 

• The Postal Service, to provide accountability and transparency with 

respect to the administration of the Fundraising Exception, should devise 

a cost-effective method for establishing a current, baseline estimate of use 

of the Fundraising Exception, and thereafter should monitor use 

periodically; the results should be made publicly available, perhaps via an 

existing reporting method. 

The Commission recognizes that the Postal Service faces tremendous 

challenges in the current economic environment, and that it is addressing difficult issues 

across the full range of its operations. Thus, the Commission does not lightly 

recommend a task that may distract from other more immediate and pressing concerns. 

At the same time, sound administration of the Fundraising Exception and accountability 

to Congress and other stakeholders calls for a concerted effort at developing an 

estimate of use of the Fundraising Exception. The Commission does not recommend a 

specific measurement tool nor specific reporting periods as it believes the Postal 

Service, perhaps in consultation with stakeholders, is better situated to determine these 

matters. One possibility may be to revise the standard form submitted with each mailing 

by adding a box that allows the mailer to indicate whether the mailing involves the 

Fundraising Exception. Another may be to develop a sampling technique. 
Section V 

27 

Recommendation No. 2: Develop a Coordinated Internal Plan that Builds 

on Existing In-house Training and Education, with Added Emphasis on 

both the Cooperative Mail Rule and the Fundraising Exception 

The Postal Service’s response to the Commission’s request for information on its 

efforts in this area indicates that it conducts training on the Fundraising Exception and 

the Cooperative Mail Rule, and the Commission finds no reason to believe that this is 

not the case. At the same time, it is not clear whether this is a fully-coordinated, 

comprehensive effort, or an ad hoc approach. If the effort more closely resembles the 

latter, the Postal Service should enhance its existing training capabilities so that all field 

personnel and managers likely to encounter Fundraising Exception issues are wellversed in the subject matter. 

Recommendation No. 3: Develop a Comprehensive External 

Communications Plan that Builds on Concerns of the Nonprofit Mailing 

Community, the Professional Fundraising Community, and the Donor 

Community and, as Part of This, Consider Whether Editorial Improvements 

in the Wording of the Cooperative Mail Rule Would Enhance a Lay 

Audience’s Understanding of these Regulations 

The Commission’s examination shows that the Postal Service already 

communicates with stakeholders about the Cooperative Mail Rule and the Fundraising 

Exception, but that the wording of the Cooperative Mail Rule can pose an initial barrier 

to ready comprehension. Information is also divided across a variety of websites, 

publications, and other sources. To foster administration of the Cooperative Mail Rule 

and the Fundraising Exception, the Postal Service should build on its existing 

relationships with external groups, to develop and implement a coordinated, 

comprehensive communications plan for interested mailers and their mailing partners, 

including: 
Section V 

28 

Maintaining (or reinstating) the practice of distributing information about 

the Cooperative Mail Rule at time an application for reduced-rate mailing 

privileges is filed; 

Expanding mailers’ awareness of the availability of advice in advance of a 

mailing in the form of a Customer Support Ruling; 

Considering whether editorial (non-substantive) improvements in the 

wording of the Cooperative Mail Rule would reduce or eliminate confusion 

over “eligible” and “ineligible” cooperative mailings; 

Enhancing training arrangements with nonprofits; 

Designating a Headquarters-level employee to operate as “key contact” 

for the nonprofit mailing community, other interested parties, and as a 

referral for the Postal Service’s Consumer Advocate; and

Leveraging the power of Postal Service websites as a communications 

tool, possibly with the addition of links to, or information about, other 

websites of interest. 

Recommendation No. 4: Consider Whether Ties to Other Authorities and 

Agencies Should be Formalized and, if This is Warranted, Periodically 

Provide a Brief Report on the Activities of This Group Via an Established 

Reporting Mechanism 

The Postal Service’s response to the Commission’s data and information query 

confirms that postal personnel interact with other authorities or agencies; however, it is 

unclear whether these contacts are the result of a systematic, agency-wide commitment 

to coordination and cooperation, or whether they reflect more occasional interaction. To 

foster confidence in its administration of both the Fundraising Exception and the 

Cooperative Mail Rule, management should consider establishing a formal system of 

cooperation with a wide range of authorities, agencies, and industry associations. The 

Postal Service should make the general composition of this working group a matter of 

public record and report on the group’s activities. 
Section V 

29 

Recommendation No. 5: Consider Whether Persistent Concerns About 

Undue Influence or Control Over Nonprofit Organizations Warrant 

Revisiting a Decision in the 2003 Rulemaking, to Exclude from the 

Fundraising Exception Any Terms that Would Address These Matters, and 

Whether Substantive Revisions Warrant Developing a New Legislative 

Proposal 

The preamble to the 2003 rulemaking makes clear that the Postal Service 

excluded terms that some commenters believed would address over-reaching and 

undue influence on grounds that these matters were “consumer protection” issues that 

were the province of other agencies. However, the Postal Service also held out the 

possibility that it might revisit its position if circumstances warranted. 

For some time, the Postal Service’s attention has been repeatedly drawn to the 

concerns that are the focus of section 711, even as much broader issues, such as 

fundamental postal reform. The Commission’s examination makes clear that the Postal 

Service has taken steps to address these issues via regulation, appearances at 

Congressional hearings, responses to the Commission’s Data and Information Request, 

and other means, including working with the nonprofit mailing community and other 

stakeholders. Nevertheless, comments filed in the Commission’s Public Inquiry 

demonstrate that criticisms of the Cooperative Mail Rule and the Fundraising Exception 

not only persist, but that the divide over the appropriate approach may have grown 

wider. Given these circumstances, management should consider whether an effective 

solution requires that it develop, for Congressional consideration, a legislative proposal 

that would provide the agency with definitive guidance on its role in addressing abuses 

of nonprofit rates and deception of consumers. 

The Commission recognizes that preparation of a legislative proposal does not 

guarantee gaining sponsorship, a hearing, or enactment, but the results of the Public 

Inquiry indicate that it might be useful for the Postal Service to consider making its 

position clear to Congress. 
APPENDICES 
APPENDIX A 

Section 711 of the Postal Accountability and Enhancement Act 

SEC. 711. PROVISIONS RELATING TO COOPERATIVE MAILINGS. 

 (a) STUDY.— 

 (1) IN GENERAL.—The Postal Regulatory Commission shall 

examine section E670.5.3 of the Domestic Mail Manual to determine 

whether it contains adequate safeguards to protect against— 

 (A) abuses of rates for nonprofit mail; and 

 (B) deception of consumers. 

 (2) REPORT.—The Commission shall report the results of its 

examination to the Postal Service, along with any recommendations that 

the Commission determines appropriate. 

(b) FAILURE TO ACT.—If the Postal Service fails to act on the 

recommendations of the Commission, the Commission may take such action as 

it determines necessary to prevent abuse of rates or deception of consumers. 
APPENDIX B 

Postal Regulations 

(Cooperative Mail Rule and Fundraising Exception) 

United States Postal Service Domestic Mail Manual 

703 Nonprofit Standard Mail and Other Unique Eligibility 

1.0 Nonprofit Standard Mail 

. . . 

1.6.3 Cooperative Mailing 

A cooperative mailing may be made at the Nonprofit Standard Mail prices only 

when each of the cooperating organizations is individually authorized to mail at 

the Nonprofit Standard Mail prices at the Post Office where the mailing is 

deposited. A cooperative mailing involving the mailing of any matter on behalf of 

or produced for an organization not itself authorized to mail at the Nonprofit 

Standard Mail prices at the Post Officer where the mailing is deposited must be 

paid at the applicable Regular or Enhanced Carrier Route Standard Mail prices. 

The mailer may appeal the decision under 607.2.0. Exception: This standard 

does not apply to mailings by an organization authorized to mail at Nonprofit 

Standard Mail prices soliciting monetary donations to the authorized mailer and 

not promoting or otherwise facilitating the sale or lease of any goods or services. 

This exception applies only where the organization authorized to mail at 

Nonprofit Standard Mail prices is given a list o each donor, contact information 

(e.g., address, telephone number) for each, and the amount of the donation or 

waives in writing the receipt of this list. 

Note: Due to an editorial reorganization of the Domestic Mail Manual (DMM), 

the postal regulation that Section 711(a) of the Postal Accountability and 

Enhancement Act directs the Commission to examine appears at DMM 670.5.3, 

as set out above. 













Appendix E 

Page 1 of 14 

Appendix E 

Summary of Selected Cases on Charitable Fundraising Solicitations 

A. Introduction 

The record demonstrates general awareness that there are legal restrictions on 

the Postal Service’s ability to impose certain types of conditions on nonprofit mailers 

and others. However, there appears to be some uncertainty about the rationale for 

such restrictions and few readily-available explanations for the lay reader. This 

summary attempts to fill that gap by reviewing several pertinent U.S. Supreme Court 

cases. 

Four U.S. Supreme Court cases are directly on point. Three were decided in the 

1980s; one in May 2003. Thus, all predate issuance of the Postal Service’s 2003 

rulemaking. The first three cases are Village of Schaumburg v. Citizens for a Better 

Environment, 444 U.S. 620 (1980); Secretary of State v. Joseph H. Munson Co., 467 

U.S. 947 (1984); and Riley v. National Federation of the Blind for North Carolina, Inc., 

487 U.S. 781 (1988). The fourth case is Illinois ex rel. Madigan v. Telemarketing 

Associates, Inc., 538 U.S. 600 (2003). 

In brief, in the first three cases (Schaumburg, Munson, and Riley), the Supreme 

Court reviewed—and struck down—several variations on local and state laws that 

established percentage limits on the application of donations to fundraising expenses or 

on the division of fundraising proceeds. Riley also struck down an advance disclosure 

requirement that applied to professional fundraisers relating to average percentage of 

receipts transmitted to the charity. Some legal observers had thought that this 

alternative would survive judicial scrutiny, but it was found unconstitutional. 

The fourth case, Madigan, clarified the Supreme Court’s intention regarding 

restrictions aimed at protecting against fraud. 
Appendix E 

Page 2 of 14 

B. Schaumburg

Background. Schaumburg involved a request from Citizens for a Better 

Environment (CBE) for a solicitation permit from the Village of Schaumburg (Village) in 

suburban Chicago, Illinois to conduct a door-to-door fundraising campaign. (No aspect 

of use of the U.S. Mail to solicit donations was involved in this case.) 

CBE had satisfied certain threshold requirements for obtaining the permit. For 

example, as required, it had registered as a charitable organization with the Illinois 

Attorney Charitable Trust Division and had obtained tax-exempt status from the Internal 

Revenue Service. Denial rested on grounds that CBE had not complied with a 

percentage limit on use of the solicitation proceeds. Specifically, the Village ordinance 

required that permit applications include satisfactory proof that at least 75 percent of the 

proceeds of such solicitations be used directly for the charitable purpose of the 

organization. It also provided that in determining whether this requirement has been 

met, certain items would not be deemed to be used for “the charitable purpose” of the 

organization. These not only included salaries or commissions paid to the door-to-door 

solicitors, but also certain administrative expenses of the organization, such as salaries, 

attorney fees, telephone, advertising expenses, certain contributions to other 

organizations and persons, and related expenses incurred as administrative or 

overhead items. 

Developments at the District Court level. CBE appealed the Village’s denial of its 

request to the District Court. It alleged, among other things, that: 

[I]ncident to its purpose, CBE employs ‘canvassers’ who are 

engaged in door-to-door activity in the Chicago metropolitan 

area, endeavoring to distribute literature on environmental 

topics and answering questions of an environmental nature 

when posed; solicit contributions to financially support the 

organization and its programs; receive grievances and 

complaints of an environmental nature regarding which CBE 

may afford assistance in the evaluation and redress of these 

grievances and complaints. 

444 U.S. 624. 
Appendix E 

Page 3 of 14 

The Village defended its denial of the permit on grounds that CBE is primarily 

devoted to raising funds for the benefit and salary of its employees, and its charitable 

purposes are negligible compared with the primary objective of raising funds. It 

buttressed this claim with the assertion that more than 60 percent of the funds collected 

[by CBE] had been spent for benefits of employees, rather than for any charitable 

purposes. 

The District Court awarded summary judgment to CBE on grounds that the 

Village’s requirement was a form of censorship prohibited by the First and Fourteenth 

Amendments. It declared the ordinance void on its face, enjoined enforcement, and 

ordered the Village to issue a charitable solicitation permit to CBE. The Village 

appealed this decision to the U.S. Court of Appeals for the Seventh Circuit. 

Developments at the Court of Appeals level. The U.S. Court of Appeals 

acknowledged that the Village had a legitimate interest in regulating solicitation to 

protect its residents from fraud and disruption, but said that such regulation must be 

done with narrow specificity when First Amendment interests are affected. It concluded 

that even if the ordinance’s 75-percent requirement might be valid as applied to other 

types of charitable solicitation, the Village’s requirement was unreasonable on its face 

because it barred solicitation by advocacy-based organizations even where it is made 

clear that the contributions will be used for the salaries of the solicitors who gather and 

disseminate information pertaining to the organization’s purpose. 

The Court of Appeals distinguished National Foundation v. Fort Worth, 415 F.2d 

41 (CA5 1969), cert. denied, which had upheld an ordinance authorizing denial of

charitable solicitation permits to organizations with excessive solicitation costs. The 

difference was that although the Fort Worth ordinance deemed solicitation costs in 

excess of 20 percent of gross receipts unreasonable, it permitted a showing 

demonstrating the reasonableness of such costs. The Village pursued its position, and 

the U.S. Supreme Court agreed to review the determination that the ordinance violated 

the First and Fourteenth Amendments. 
Appendix E 

Page 4 of 14 

Supreme Court decision. The U.S. Supreme Court held that the ordinance was 

unconstitutionally overbroad in violation of the First and Fourteenth Amendments. With 

respect to the type of fundraising (on the street and door-to-door), Justice Blackmun, 

writing for the majority, said: 

While soliciting financial support is subject to reasonable 

regulation, such regulation must give due regard to the 

reality that solicitation is characteristically intertwined with 

informative and perhaps persuasive speech seeking support 

for particular causes, or for particular views on economic, 

political, or social issues, and to the reality that without 

solicitation the flow of such information and advocacy would 

likely cease. Moreover, since charitable solicitation does 

more than inform private economic decisions and is not 

primarily concerned with providing information about the 

characteristics and costs of goods and services, it is not 

dealt with as a variety of purely commercial speech. 

Id. at 628-32.

The Supreme Court observed that the issue was not whether charitable 

solicitations in residential neighborhoods are within the protections of the First 

Amendment, indicating that it is well settled that they are. Instead, it framed the issue 

as whether the Village had exercised its power to regulate solicitation in such a manner 

as not to intrude upon the rights of free speech. The court agreed with the Court of 

Appeals that the 75-percent limitation was a direct and substantial limitation on activity 

that could not be sustained unless it served a sufficiently strong, subordinating interest 

that the Village was entitled to protect. It also agreed that the Village’s proffered 

justifications were inadequate and could not survive scrutiny under the First 

Amendment. It explained: 
Appendix E 

Page 5 of 14 

The Village urges that the 75-percent requirement is 

intimately related to substantial governmental interests ‘in 

protecting the public from fraud, crime and undue 

annoyance.’ These interests are indeed substantial, but they 

are only peripherally promoted by the 75-percent 

requirement and could be sufficiently served by measures 

less destructive of First Amendment interests. 

Id. at 636. 

The court noted that prevention of fraud was the Village’s principal justification for 

prohibiting solicitation by charities that spend one-quarter of their receipts on salaries 

and administrative expenses. “The submission,” in the parlance of the court, is that any 

charity using more than 25 percent of its receipts on fundraising, salaries, and overhead 

is not a charitable, but commercial, for-profit enterprise and that to permit it to represent 

itself as a charity is fraudulent. But, it said that—as the of Court of Appeals had 

recognized—this cannot be true of organizations that are primarily engaged in research 

or public education and that use their own paid staff to carry out these functions as well 

as to solicit financial support. It noted that the Village may serve its legitimate interests, 

but must do so by narrowly drawn regulations designed to serve those interests without 

unnecessarily interfering with First Amendment freedoms. Id. at 636-37. 

The court also applied “substantial relationship” analysis, and concluded: “We 

also fail to perceive any substantial relationship between the 75-percent requirement 

and the protection of the public safety or of residential privacy.” It added: “The 

75-percent requirement in the village ordinance plainly is insufficiently related to the 

governmental interests asserted in its support to justify its interference with protected 

speech. ...We find no reason to disagree with the Court of Appeals’ conclusion that 

[section] 22-20(g) is unconstitutionally overbroad.” It therefore affirmed the judgment of 

the lower court. Id. at 638-39. 
Appendix E 

Page 6 of 14 

C. Secretary of State of Md. v. J.H. Munson Co. (467 U.S. 947) 

In Munson, three factors that bear on the Commission’s examination are present. 

First, there is a percentage-based limitation on receipt of fundraising proceeds imposed 

by the State of Maryland. Second, there are other non-monetary conditions or 

safeguards, such as requirements that contract between a professional fundraiser and 

the charitable organization be in writing, and that a copy of the contract be filed with the 

Secretary of State within 10 days after it is entered into and before any solicitations. 

Third, postage explicitly factors in as an expense that does not count toward the 

percentage limitation. 

As in Schaumburg, Maryland law prohibited a charitable organization, in 

connection with any fundraising activity, from paying or agreeing to pay as expenses 

more than 25 percent of the amount raised. There was an exception to this limit, 

however, as other language explicitly excluded from the 25 percent limit any 

compensation or expenses paid by a charitable organization to professional fundraising 

counsel for conducting feasibility studies. More specifically, the regulation provided: 

For purposes of this section, the total gross income raised 

or received shall be adjusted so as not to include 

contributions received equal to the actual cost to the 

charitable organization of (1) goods, food, entertainment, or 

drink sold or provided to the public, nor should these costs 

be included as fund-raising costs; (2) the actual postage paid 

to the United States Postal Service and printing expense in 

connection with the soliciting of contributions, nor should 

these costs be included as fund-raising costs. 

467 U.S. 950 (n.2). 

However, unlike Schaumburg, the Maryland statute authorized waiver of the 

percentage limitation if the limit would effectively preclude an organization from raising 

funds. Moreover, in a conscious attempt to minimize or eliminate “prior restraint” as a 

consideration, drafters of the provision allowed waiver to be invoked after the fact. 

Relying on this statute, Maryland’s Secretary of State notified Munson that the 

company would be prosecuted if it refused to comply with the 25 percent limit on 
Appendix E 

Page 7 of 14 

charitable fundraising expenses. Munson challenged the statute, alleging, among other 

things, that a charitable organization was reluctant to enter into a contract with the 

company because of the statutory limitation. (Munson’s Maryland customers included 

various chapters of the Fraternal Order of Police.) 

Lower court developments. The Circuit Court upheld the Maryland statute, and

this decision was affirmed by the Maryland Court of Special Appeals. However, 

Munson pursued the case, and succeeded in having the Maryland Court of Appeals 

reverse the Court of Special Appeals. The Maryland Court of Appeals concluded, on 

the merits, that Schaumburg required that the Maryland statute be ruled 

unconstitutional. The State sought a determination by the U.S. Supreme Court. 

U.S. Supreme Court disposition. The Supreme Court accepted the case on two 

grounds, one being the lower court’s determination that the statute was unconstitutional 

on its face. This discussion pursues this point. 

Justice Blackmun, writing for the majority, noted that Munson presented a slightly 

different factual context than Schaumburg, as it involved a like percentage limitation, but 

had provisions that rendered the statute “more flexible.” He observed that the Court of 

Appeals of Maryland concluded that, even with this increased flexibility, the percentage 

restriction on charitable solicitations was an unconstitutional limitation on protected First 

Amendment solicitation activity. Id. at 950. 

The court observed that the constitutional question was whether the distinctions 

between the Schaumburg ordinance and the Maryland statute were sufficient to render 

the statute constitutionally acceptable. To answer this question, the court reexamined 

the bases for the conclusion reached in Schaumburg. It noted that in that case, the 

court had determined that charitable solicitations are so intertwined with speech that 

they are entitled to the protections of the First Amendment, explaining: 
Appendix E 

Page 8 of 14 

Prior authorities, therefore, clearly establish that charitable 

appeals for funds, on the street or door to door, involve a 

variety of speech interests—communication of information, 

the dissemination and propagation of views and ideas, and 

the advocacy of causes—that are within the protection of the 

First Amendment. Soliciting financial support is undoubtedly 

subject to reasonable regulation but the latter must be

undertaken with due regard for the reality that solicitation is 

characteristically intertwined with informative and perhaps 

persuasive speech seeking support for particular causes or 

particular views on economic, political, or social issues, and 

for the reality that without solicitation the flow of such 

information and advocacy would likely cease. 

Id. at 959, citing U.S. 444 at 632. 

It then observed that the Schaumburg decision had concluded that because the 

percentage limitation restricted the ways in which charities might engage in solicitation 

activity, it was a direct and substantial limitation on protected activity that cannot be 

sustained unless it serves a sufficiently strong, subordinating interest that the Village is 

entitled to protect. In addition, to be valid, the limitation would have to be a narrowly 

drawn regulation designed to serve the interest, without unnecessarily interfering with 

First Amendment freedoms. Id. at 960-61. 

The court said that although the Schaumburg decision recognized that the 

Village had legitimate interests in protecting the public from fraud, crime, and undue 

annoyance, it had rejected the limitation because it was not a precisely tailored means 

of accommodating those interests. Instead, the Village’s asserted interests were only 

peripherally promoted by the limitation and could be served by measures less intrusive 

than a direct prohibition on solicitation. In particular, although the Village’s primary 

interest was in preventing fraud, the limitation was found to be simply too imprecise an 

instrument to accomplish that purpose: it reflected an assumption that any organization 

using more than 25 percent of its receipts on fundraising, salaries, and overhead was 

not charitable, but was a commercial, for-profit enterprise, and that any such enterprise 

that represented itself as a charity was thus fraudulent. Id. at 961. 
Appendix E 

Page 9 of 14 

The court found that the Maryland statute operated on the fundamentally 

mistaken premise that high solicitation costs are an accurate measure of fraud. It said 

the percentage limitation imposed by Maryland on fundraising expenses of charities was 

too imprecise a tool to achieve the legislative purpose of preventing mismanagement, 

and the statute was thus overbroad because of its effects on First Amendment rights of 

charities. Id. at 966-67. It also observed that a prior restraint was not involved, as it 

was in Schaumburg, because organizations could register without first demonstrating 

that they comply with the statute. Id. at 968-69.

D. Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 

108 S.Ct. 2667 (June 29, 1988) 

In Riley, a North Carolina statute regulating charitable solicitations was in issue. 

This statute defined the prima facie “reasonable fee” that a professional fundraiser may 

charge in terms of a three-tier schedule. Under this schedule, a fee up to 20 percent of 

receipts was deemed reasonable; a fee between 20 percent and 35 percent was 

deemed unreasonable if there was a showing that the solicitation did not involve 

dissemination of information, discussion, or advocacy related to public issues as 

directed by the charitable organization benefiting from the solicitation. A fee exceeding 

35 percent was presumed unreasonable, but the fundraiser could choose to rebut this 

presumption by showing that the fee was necessary either because the solicitation 

involved dissemination of information or advocacy on public issues directed by the 

charity, or because the charity’s ability to raise money or communicate would otherwise 

be significantly diminished. 487 U.S. 784-85. 

The statute further provided that a professional fundraiser must disclose to 

potential donors the average percentage of gross receipts actually turned over to 

charities by the fundraiser for all charitable solicitations conducted in the State within the 

previous 12 months. Other terms prohibited professional fundraisers from solicitation 

without an approved license, but allowed volunteer fundraisers may solicit immediately 

upon submitting a license application. Id. at 786. 
Appendix E 

Page 10 of 14 

Riley was the leader of a coalition (which included professional fundraisers and 

charitable organizations) that brought suit against government officials charged with the 

enforcement of the North Carolina statute. The District Court ruled that the challenged 

provisions on their face unconstitutionally infringed upon freedom of speech and 

enjoined enforcement, and the Court of Appeals for the Fourth Circuit affirmed. The 

State of North Carolina pursued its case, and the Supreme Court agreed to hear it. 

The Supreme Court, with Justice Brennan writing the opinion, held that: 

• The North Carolina statute was subject to review under the “strict scrutiny” 

standard; 

• The state’s definition of “reasonable fee,” using percentages, was not 

narrowly tailored to States’ interest in preventing fraud; 

• The requirement that professional fundraisers disclose a potential donor’s 

percentage of charitable contributions collected during previous 

campaigns actually turned over to charity was unduly burdensome and 

unconstitutional; and 

• A licensing requirement for professional fundraisers was unconstitutional.1 

Moreover, the court held that North Carolina could not meaningfully distinguish 

its statute from those previously held invalid in Schaumburg and Munson on the ground 

that it has a motivating interest to ensure that the maximum amount of funds reach the 

charity or to guarantee that the fee charged charities is not unreasonable. Id. at 789-90. 

 

1

 Justice Scalia filed an opinion concurring in part and concurring in judgment. Justice Stevens 

filed an opinion concurring in part and dissenting in part. Chief Justice Rehnquist filed a dissenting 

opinion. Justice O’Connor joined in his dissent. 
Appendix E 

Page 11 of 14 

The court emphasized that the North Carolina statute was not merely an 

economic regulation, with no First Amendment implication, to be tested only for 

rationality; instead, it must be considered as a provision burdening speech. It also said 

that North Carolina’s asserted justification that charities’ speech must be regulated for 

the charities’ own benefit was unsound, observing that the First Amendment mandates 

the presumption that speakers, not the government, know best both what they want to 

say and how they say it. It also held that while a State’s interest in protecting charities 

and the public from fraud is a sufficiently substantial interest to justify a narrowly tailored 

regulation, the North Carolina statute, even with its flexibility, was not sufficiently tailored 

to such interest. Id. at 790-91. 

As for the advance disclosure requirement, the court easily found it 

unconstitutional on grounds that it was a content-based regulation because mandating 

speech that a speaker would not otherwise make necessarily alters the speech’s 

content. Moreover, it said that even assuming that the mandated speech, in the 

abstract, is merely “commercial,” it does not retain its commercial character when it is 

inextricably intertwined with the otherwise fully protected speech involved in charitable 

solicitations, and thus the mandated speech is subject to the test for fully protected 

expression. Id. at 795-96. 

E. Illinois ex rel. Madigan, Attorney General of Illinois v. Telemarketing Associates, 

Inc., et al. 538 U.S. 600 (2003) 

The Madigan decision stems from a complaint filed in State court by the Illinois 

attorney general against commercial fundraisers (referred to here as the 

“Telemarketers”). The facts involve fundraising by the Telemarketers pursuant to a 

contract with VietNow National Headquarters (VietNow), a charitable nonprofit 

corporation to conduct fundraising campaigns. The terms of the contract designated a 

15/85 split of the proceeds, with the larger share going to the Telemarketers. They also 

allowed the Telemarketers to keep donor lists developed for the fundraising effort under 
Appendix E 

Page 12 of 14 

their sole and exclusive control and to broker agreements with out-of-state fundraisers 

on VietNow’s behalf, and retain an even larger split of the proceeds of these efforts. 

The gravamen of the attorney general’s complaint was that the Telemarketers 

represented to donors that a significant amount of each dollar donated would be turned 

over to VietNow for specific charity endeavors, and that such representations were 

knowingly deceptive and materially false, constituted a fraud, and were made for the 

Telemarketers’ private pecuniary benefit. 

In initial legal steps, the Telemarketers filed a motion to dismiss the attorney 

general’s fraud claims on First Amendment grounds, and the trial court granted their 

motion. The Illinois Appellate Court and Supreme Court each affirmed, citing 

Schaumburg, Munson, and Riley. The Illinois Supreme Court’s reasoning for affirming 

the trial court’s dismissal was that the Telemarketers’ statements invoked by the 

attorney general as grounds for the complaint were alleged to be false only because the 

split between Telemarketers and the charity was, by contract, 15/85 of gross receipts, 

and this information had not been disclosed to donors. It concluded that the attorney 

general’s complaint was an attempt to regulate the Telemarketers’ ability to engage in a 

protected activity based upon a percentage rate limitation, and that this was the same 

regulatory principle that had been rejected in Schaumburg, Munson, and Riley. 

Supreme Court decision. The court characterized the threshold question as 

whether the allegations in the attorney general’s complaint state a claim for relief that 

can survive a motion to dismiss, and observed that the Illinois Supreme Court had 

considered itself compelled to dismiss the complaint based on the earlier trilogy of 

cases. 538 U.S. 606. However, the decision noted that the reasoning in those cases 

did not rule out, in terms of support for a fraud claim against fundraisers, “any and all 

reliance on the percentage of charitable donations fundraisers retain for themselves.” 

Id. Instead, it said that while bare failure to disclose that information directly to potential 

donors does not suffice to establish fraud, when nondisclosure is accompanied by 

intentionally misleading statements designed to deceive the listener, the First 

Amendment leaves room for a fraud claim. 
Appendix E 

Page 13 of 14 

Expanding on this point, the court explained that on the facts presented, the 

complaint described misrepresentations that Supreme Court precedent does not place 

under First Amendment protection. It identified one of these misrepresentations as the 

Telemarketers’ claim VietNow would receive a “significant amount” of the proceeds for 

specific charitable purposes, although they knew that the charity would receive only 

15 cents per dollar raised. It identified another as pertaining to application of funds, 

which the Telemarketers asserted would be used for several of VietNow’s specific 

charitable purposes, although most of the funds went to the Telemarketers. The court 

characterizes this aspect of the attorney general’s complaint as essentially alleging that 

the charitable solicitation was a façade, with the money turned over to the charity 

incidental to the fundraising effort. 

The court noted that fraud actions tailored in this fashion, which target misleading 

affirmative representations about how donations will be used, are plainly distinguishable 

from the measures invalidated in Schaumburg, Munson, and Riley. It added that so 

long as the emphasis is on what the fundraisers misleadingly convey, and not on 

percentage limitations on solicitors’ fees, per se, such actions need not impermissibly 

chill protected speech. Id. at 619. 

The court further observed that in this case, it is of prime importance that the 

State bears the full burden of proof in a fraud action; false statement alone does not 

subject a fundraiser to fraud liability. Instead, to prove a defendant liable for fraud, the 

complainant must show, by clear and convincing evidence, that the defendant made a 

false representation of a material fact knowing that the representation was false, that 

the representation was made with the intent to mislead the listener, and that the 

defendant succeeded in misleading the listener. It noted that “exacting proof 

requirements” of this type have been held to provide “sufficient breathing room for 

protected speech,” and emphasized that the First Amendment and case law do not 

require “a blanket exemption from fraud liability for a fundraiser who intentionally 

misleads in calls for donations.” Id. at 620-21. 
Appendix E 

Page 14 of 14 

The court stated that its decisions have repeatedly recognized the legitimacy of 

government efforts to enable donors to make informed choices about their charitable 

contributions. Toward that end, it said that Schaumburg found it proper to require 

disclosure of the finances of charitable organizations; Munson reiterated that point, and 

Riley extended disclosure requirements to professional fundraisers. Id. at 623-24. 

Moreover, the court noted that even as government may seek to inform the public and 

prevent fraud through such disclosure requirements, it also may vigorously enforce 

antifraud laws to prohibit professional fundraisers from obtaining money on false 

pretenses or by making false statements. Id. at 623-24 (citing Riley). 

Summarizing the court’s reasoning, it said that high fundraising costs, without 

more, do not establish fraud, and that mere failure to volunteer the fundraiser’s fee 

when contacting potential donors, without more, is insufficient to state a claim for fraud; 

however, these limitations did not disarm states from assuring that their residents are 

positioned to make informed choices about their charitable giving. Thus, it concludes 

that consistent with its precedent and the First Amendment, States may maintain fraud 

actions when fundraisers make false or misleading representations designed to deceive 

donors about how their donations will be used. Id. at 624.