United States General Accounting Office

GAO Testimony

Before the Subcommittee on International Security,

Proliferation and Federal Services

Senate Committee on Governmental Affairs

Not to be Released

Before

2:00 p.m., EDT

Tuesday

September 1, 1998

PROPOSED LEGISLATION

Issues Related to Honesty in

Sweepstakes Act of 1998

(S. 2141)

Statement for the Record by

Bernard L. Ungar, Director

Government Business Operations Issues

General Government Division

GAO/T-GGD-98-198

Summary 

Proposed Legislation: Issues Related to

Honesty in Sweepstakes Act of 1998

The intent of the proposed “Honesty in Sweepstakes Act of 1998” (S. 2141),

introduced by Senator Ben Nighthorse Campbell on June 5, 1998, is to

ensure that organizations that use sweepstakes or other games of chance

and cashier’s check “look-alikes” as promotional or marketing tools are as

honest and accurate as possible in their dealings with consumers. In

response to Senator Campbell’s July 1, 1998, request, GAO obtained

information on two issues related to the proposed legislation: (1) the

extent and nature of consumers’ problems with mailed sweepstakes

material and cashier’s check look-alikes and (2) recent initiatives to

address such problems. GAO obtained information from officials and

representatives in a total of 17 federal, state, and local government

agencies and nongovernmental organizations.

GAO found that comprehensive data that could indicate the full extent of

the problems that consumers experienced with mailed sweepstakes

material and cashier’s check look-alikes were not available. The main

reasons officials and representatives gave for the lack of comprehensive

data were that (1) consumers oftentimes did not report their problems and

(2) no centralized database existed from which comprehensive data could

be obtained.

Although comprehensive data were unavailable, FTC and the Postal

Inspection Service were two organizations that GAO identified as having

some data on consumers’ complaints about deceptive mail marketing

practices, which could indicate the nature of these types of problems.

Much of the consumer complaint information, which GAO obtained in a

sample from FTC’s Consumer Information System, showed that in many

instances, consumers were required to remit money or purchase products

or services before being allowed to participate in the sweepstakes.

Information about Postal Inspection Service cases that had been

investigated largely involved sweepstakes and cash prize promotions for

which up-front taxes or insurance, judging, or handling fees were required

before consumers could participate in sweepstakes promotions. GAO was

unable to identify examples of consumers’ problems with cashier’s check

look-alikes similar to those involving mailed sweepstakes material because

such information was not readily available.

Two recent initiatives are intended to address consumers’ problems with

deceptive direct mail marketing practices. The initiatives are (1) Project

Mailbox for which various participating organizations, including FTC, the

Postal Inspection Service, and 25 state attorneys general, collectively took

steps to target organizations that used such practices; and (2) the

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Summary 

Proposed Legislation: Issues Related to

Honesty in Sweepstakes Act of 1998

establishment of a multi-state sweepstakes committee that, among other

things, is designed to facilitate cooperation among various states in

dealing effectively with companies that attempt to defraud consumers

through the use of mailed sweepstakes material.

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Statement 

Proposed Legislation: Issues Related to

Honesty in Sweepstakes Act of 1998

Mr. Chairman and Members of the Subcommittee:

We are pleased to have this opportunity to discuss issues related to the

proposed legislation entitled “Honesty in Sweepstakes Act of 1998,” (S.

2141), which was introduced on June 5, 1998, by Senator Ben Nighthorse

Campbell.1

 In my statement, I will provide information on the results of

our efforts to determine the extent and nature of problems that consumers

may have experienced with various sweepstakes mailings that

organizations have used to entice consumers to purchase goods and

services. Also, I will provide information on our efforts to obtain similar

information related to the mailing of documents that resembled cashier’s

checks, also known as cashier’s check “look-alikes,” which are not the

negotiable instruments that they appear to be. In addition, I will provide

information on initiatives in which various agencies and organizations

have participated to address consumers’ problems with direct mail

marketing practices. We performed our work in response to Senator

Campbell’s July 1, 1998, request.

Background As Senator Campbell indicated in his remarks that appeared in the June 5,

1998, Congressional Record, the proposed legislation is primarily intended

to protect consumers, particularly senior citizens, from deceptive direct

mail marketing practices. The provisions of the proposed legislation are

generally designed to help ensure that organizations, which may use

questionable or deceptive direct mail sales promotions involving

sweepstakes or other games of chance and cashier’s check look-alikes, be

required to be as accurate and honest as possible in such promotions.

Specifically, the provisions would require these organizations to ensure

that statements are printed in large typeface on the outside of the envelope

to clearly indicate that the printed material inside involves a sweepstakes

or game of chance and that the consumer has not automatically won. Also,

the provisions would require that these organizations include statements

at the top on the first page of the printed material inside the envelope that

would

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

• indicate consumers’ chances of winning the sweepstakes; and

• state that no purchase is necessary for consumers to win a prize nor would

such purchases enhance their chances of winning.

1

On July 28, 1998, Congressman Frank LoBiondo introduced proposed legislation entitled “Honesty in

Sweepstakes Act of 1998” (H.R. 4340), which was identical to Senator Campbell’s proposed legislation.

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Honesty in Sweepstakes Act of 1998

In addition, for mailed cashier’s check look-alike documents, the

provisions would generally require that in accordance with prescribed

Postal Service regulations, a statement be included in large or contrasting

typeface on the document to indicate that it is not a check and has no cash

value.

As Senator Campbell has indicated, consumers would be key stakeholders

in helping to ensure that organizations complied with the provisions in the

proposed legislation. The role of consumers would be to report their

complaints to the Postal Service about any mailed material that appeared

not to meet the proposed legislative provisions. Such complaints would

provide the Postal Service with information that could be used to

appropriately investigate and determine an organization’s compliance with

the proposed “Honesty in Sweepstakes Act” provisions. If such

information indicates that the mailed material is not in compliance, the

Postal Service may take action to dispose of the material or return it to the

sender.

Approach As agreed with Senator Campbell, our primary purpose was to obtain

available information that could help indicate the extent and nature of

problems that consumers may have experienced with mailed sweepstakes

material and cashier’s check look-alikes. To accomplish this purpose, we

performed general research to identify any federal, state, and local

government agencies as well as nongovernmental organizations that may

have been involved in dealing with consumers’ complaints about

questionable or deceptive direct mail marketing tactics involving mailed

sweepstakes material and cashier’s check look-alikes. The key federal

agencies we identified were the Federal Trade Commission (FTC) and the

U.S. Postal Service, specifically, the Postal Inspection Service. We also

identified other state and local government agencies and nongovernmental

organizations that dealt with such complaints, including

• state Attorneys General offices for such states as Florida and West

Virginia;

• local government offices that handled consumer protection issues; and

• various nongovernmental organizations including (1) American

Association of Retired Persons (AARP); (2) National Consumers League

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Honesty in Sweepstakes Act of 1998

(NCL),2 which established the National Fraud Information Center (NFIC);3

and (3) Direct Marketing Association (DMA).4

We contacted officials at FTC and the Postal Inspection Service and

discussed with them the extent to which they may have collected and

maintained data that could indicate the extent or scope of consumers’

problems with questionable or deceptive mail marketing practices that

involved mailed sweepstakes material and cashier’s check look-alikes.

Also, we discussed with these officials whether we could obtain examples

of consumers’ complaints about such practices that could indicate the

nature or the types of problems that consumers had experienced.

In selecting states to contact, we relied in large part on information

obtained from FTC officials. These officials generally cited various states

that

• had laws, which included requirements for organizations to follow in using

mailed sweepstakes material as marketing techniques;

• were involved in legal actions concerning mailed sweepstakes material

against specific organizations; and

• had been active in dealing with consumers’ complaints about mailed

sweepstakes material and working with other agencies and organizations

to help educate consumers about questionable or deceptive mail

marketing practices.

During the course of our work, we also obtained information about

initiatives in which various federal and state government agencies and

nongovernmental organizations have participated in addressing

consumers’ problems with questionable or deceptive direct mail marketing

practices.

2

NCL is a private, nonprofit consumer advocacy organization that was established in 1899 with a

mission to identify, protect, represent, and advance the economic and social interests of consumers

and workers. Among other things, NCL provides government agencies, businesses, and other

organizations with information concerning the consumer’s perspective on various issues such as child

labor, health care, and food and drug safety.

3

In 1992, NCL established NFIC as a nationwide toll-free hotline through which consumers could

report suspected instances of fraudulent activity and receive information about avoiding the dangers

of fraud. NFIC focuses on problems associated with telemarketing and Internet fraud.

4

The Direct Marketing Association (DMA) was established in 1917 as an international, nonprofit trade

association whose primary objective was to serve its members in bringing about more effective direct

marketing techniques. As of June 1998, DMA had about 6,700 members representing about 3,700

organizations in the United States and in 54 other countries. Examples of DMA members included

catalogers, publishers, book and record clubs, financial service companies, manufacturers, and

advertising agencies.

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At the time we completed our work in mid-August 1998, we had obtained

information from officials and representatives in 17 federal, state, and

local government agencies and nongovernmental organizations. Because

we had a limited amount of time in which to obtain information related to

mailed sweepstakes material and cashier’s check look-alikes, we did not

independently verify the information provided by the 17 agencies and

organizations. A list of these agencies and organizations is included in the

appendix to this statement. We did our work from July through

mid-August 1998, in accordance with generally accepted government

auditing standards.

Extent and Nature of

Consumers’ Problems

With Mailed

Sweepstakes Material

and Cashier’s Check

“Look-Alikes”

Of the 17 agencies and organizations from which we obtained information,

we found that comprehensive data on the extent of consumers’ problems

with mailed sweepstakes material and cashier’s check look-alikes were

generally not available. We found that in 2 of the 17 agencies and

organizations—namely FTC and the Postal Inspection Service—some data

were available that could help indicate the nature or types of problems

that consumers had experienced with mailed sweepstakes material.

However, we were unable to obtain similar data concerning cashier’s

check look-alikes. According to FTC and Postal Inspection Service officials,

consumer complaint data on cashier’s check look-alikes were not as

readily available as data on mailed sweepstakes material.

Various officials and representatives in the remaining 15 agencies and

organizations told us that generally they could not provide us with

information similar to FTC and the Postal Inspection Service that could

indicate the extent or nature of consumers’ problems. The reasons they

cited were mainly because (1) their agencies and organizations did not

believe it was their primary function to collect or maintain such

information or (2) their data collection was limited to information that

could assist the agencies and organizations in taking action against a

specific company that may have misused sweepstakes as a marketing tool.

For example, an official in Florida’s Office of the Attorney General told us

that consumer complaint information was collected and maintained only

on American Family Publishers (AFP)5

 because the state of Florida had

filed a lawsuit against AFP for allegedly deceiving consumers with mailed

sweepstakes material.

5

American Family Publishers (AFP) is a company partly owned by Time Customer Service, Inc. AFP’s

main purpose is to provide consumers with opportunities to purchase magazine subscriptions. AFP

has used a sweepstakes to try to induce consumers to purchase subscriptions.

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Comprehensive Data

Unavailable That Could

Indicate the Extent of

Consumers’ Problems

In attempting to identify the extent of consumers’ problems with mailed

sweepstakes material and cashier’s check look-alikes, we found that

comprehensive data that could clearly indicate the extent of the problems,

including such information as how frequently such problems might occur,

were not available. Various officials and representatives from the 17

federal, state, and local government agencies and nongovernmental

organizations from which we obtained information told us that generally,

such data were not available for two main reasons—first, consumers

oftentimes do not complain or report their problems and second, no

centralized database existed that could indicate the full extent of such

problems involving those who did not register complaints.

Regarding the first main reason for the lack of comprehensive data,

officials and representatives told us that consumers often did not report

problems because they were too embarrassed or did not realize that they

had been victimized. Also, some consumers reportedly feared that if they

complained, their chances of future sweepstakes winnings would be

diminished. In addition, an AARP representative mentioned that in many

instances, elderly consumers may fear losing their financial independence

if they reported negative experiences with mailed sweepstakes material.

Specifically, elderly consumers may fear that if their family members

learned that they had been victimized, the family members might then take

steps to prevent future victimization, such as stricter control over bank

account activities.

In addition, consumers may not file complaints because such complaints

can be filed with various organizations, such as FTC, the Postal Inspection

Service, NFIC, a local better business bureau, or a consumer protection

agency. In many instances, consumers may be uncertain about which

organization is the most appropriate one to receive their complaints. Also,

in some cases, if consumers try to file complaints, they may be referred to

or told to contact other organizations, which may cause consumers to

become frustrated and abandon their attempts to file complaints.

Concerning the second reason for the lack of comprehensive data, various

officials and representatives mentioned that no centralized database

existed that could indicate the extent of consumers’ reported problems

with deceptive mail marketing practices involving mailed sweepstakes

material and cashier’s check look-alikes. Some of the agencies and

organizations from which we obtained information, such as FTC, NFIC, and

state attorney general’s offices, have collected and maintained some, but

not complete, consumer complaint data related to such practices.

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Consumers can complain to a variety of organizations, but none of these

organizations necessarily receives information on complaints filed with

other organizations. For example, in large part, FTC receives complaints

directly from consumers and from various outside organizations, including

NFIC, AARP, and Project Phonebusters.6 However, FTC does not generally

receive consumer complaints from all organizations that may accept such

complaints, such as state attorneys general offices and local consumer

affairs offices. An FTC official mentioned that currently FTC is working with

other organizations, such as the National Association of Attorneys General

(NAAG),7

 to encourage these organizations to share consumer complaint

information with FTC, so that more comprehensive data on consumer

complaints can be centrally collected and maintained.

Also, although the Postal Inspection Service receives numerous

complaints related to consumers’ problems with alleged fraudulent

activities, including mailed sweepstakes material, it does not necessarily

receive these complaints from all organizations that accept them. In

addition, according to Postal Service Inspection officials, the extent to

which complaints within the Postal Inspection Service’s database involve

mailed sweepstakes material or cashier’s check look-alikes is not easily

determined.

Furthermore, some of the agencies and organizations from which we

obtained information did not have comprehensive data because they

generally believed that collecting and maintaining such data were not their

primary functions. Also, an AARP representative told us that the general

lack of comprehensive data was partially due to an overall scarcity of

resources, including staff and funds, which she believed would be needed

to collect and maintain a comprehensive, centralized database.

6

Project Phonebusters is a Canadian national task force that provides consumers with a toll-free

hotline through which they can register their complaints about fraudulent or deceptive marketing or

promotional practices.

7

The National Association of Attorneys General (NAAG) is a professional association that was

established in 1907. Its members include the Attorneys General of 50 states and chief legal officers for

other jurisdictions, such as the District of Columbia and the Virgin Islands. The U.S. Attorney General

is an honorary member of NAAG. NAAG’s overall goals include (1) promoting cooperation and

coordination on interstate legal matters and (2) increasing citizen understanding of the law and law

enforcement’s role to ensure both protection of individual rights and compliance with the law.

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FTC’s Consumer

Information System

Included Data That Could

Indicate the Nature of

Problems

In our discussions with various officials and representatives of the

agencies and organizations from which we obtained information, they

suggested that in order to obtain examples of such problems, in all

likelihood, FTC would be the most appropriate agency to provide us with

data on consumers’ complaints about sweepstakes mailings and cashier’s

check look-alikes. FTC officials explained that the Consumer Information

System (CIS) is FTC’s database that includes consumer complaint

information. The officials told us that the purpose of CIS, which became

fully operational in September 1997, was to collect and maintain various

data related to consumers’ complaints.8 FTC officials expected that CIS data

would be used primarily by law enforcement organizations and officials to

assist them in fulfilling their law enforcement duties.

The CIS database contained a total of about 200 categories within which

consumers’ complaints were included. The categories in CIS covered a

wide range of topics such as (1) creditor debt collection, (2) home repair,

(3) investments, (4) health care, and (5) leases for various products and

services such as automobiles and furniture. We identified one of those

categories—prizes/sweepstakes/gifts—as the key category that could

provide us information on consumers’ complaints about mailed

sweepstakes material. However, we were unable to identify a specific

category that could help us obtain similar information on cashier’s check

look-alike documents. FTC officials told us that consumer complaints about

such documents could be included in many of the CIS categories because

these types of documents may be related to a wide range of products and

services, including home mortgage loans, automobiles, and real estate

sales. Thus, we would have needed to review nearly all the CIS categories

to try to obtain insight into the nature of consumers’ problems with these

documents. Because our time to review this information was limited, we

determined that we should focus our efforts on reviewing those

complaints that were included in the prizes/sweepstakes/gifts CIS category.

As of August 13, 1998, which was the date that we received the data from

FTC, the prizes/sweepstakes/gifts category included 15,735 consumer

complaint records in which the initial contact from the company to the

consumer was made through the mail. FTC officials further told us that to

expedite delivery of these data, they provided us with data that included

only those complaints received from two sources—FTC and NFIC. The

officials explained that 95 percent of the complaints included in the

prizes/sweepstakes/gifts category in which the consumers were contacted

8

An FTC official told us that he believed CIS could serve as the central database for receiving

information on consumer complaints from various federal, state, and local government agencies and

non-governmental organizations that deal with such complaints.

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by mail had been filed with either FTC or NFIC. Also, they mentioned that

many of the 15,735 records in the prizes/sweepstakes/gifts category

included consumer complaints that both FTC and NFIC had maintained in

their databases for several years before CIS was established.

In reviewing the consumer complaint data we received from FTC, we

focused on those complaints that were included in CIS during the most

recent 12-month period (i.e., July 1, 1997, through June 30, 1998). For this

period, we identified 1,394 consumer complaints within the

prizes/sweepstakes/gifts CIS category in which the initial contact with the

consumer was made by mail. Of the 1,394 complaints, we found that in

1,215, or about 87 percent, of these complaints, companies had requested

individual consumers to remit money. The total amount of money

requested by the companies was reported to be about $102,000.

Also, our review of the 1,394 consumer complaints showed that 734, or

about 53 percent, of consumers reported that they had remitted money to

the companies. The total amount of money these consumers said they had

paid was about $46,000. The amounts of money individual consumers said

that they had paid ranged from less than $5 to $8,850. Of the 734

complaints, 551 individual consumers, or about 75 percent, reported that

they had paid amounts less than $5, whereas, in one case, a consumer

reported paying $8,850. We did not independently verify the accuracy of

this information.

In reviewing the 1,394 complaints, we identified 1,371 that included

information in the “comment” data field, which indicated the nature of

consumers’ complaints. From the 1,371 complaints, we randomly selected

200 for analysis to try to more clearly determine the nature of consumers’

complaints that were included in the prizes/sweepstakes/gifts CIS category.

We sorted the 200 complaints into the following five groups:

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

• Sweepstakes that required consumers to purchase products or services.

• Sweepstakes that required consumers to call a telephone number for

which they were charged a fee.

• Sweepstakes that required consumers to provide personal information,

such as social security numbers or bank account numbers.

• A miscellaneous group for those complaints that could not readily be

included in the previous four groups.

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Table 1 shows the general breakdown of the 200 consumer complaints into

the five groups.

Table 1: Groups in Which 200 FTC CIS

Consumer Complaints on Mailed

Sweepstakes Material Were Included

Group description

Total number of

consumer

complaints Percent

Send in money or fees. 140 70.0%

Purchase products or services. 20 10.0

Call a telephone number. 7 3.5

Provide personal information. 7 3.5

Miscellaneous. 26 13.0

Total 200 100.0%

Source: GAO analysis of data from FTC Consumer Information System.

As indicated in table 1, 160, or 80 percent, of the consumer complaints we

sampled involved sending in money or fees or purchasing products or

services. Some examples of the types of complaints included in the two

categories were as follows:

• A consumer was told by a company that she had won $12,000, but that she

was required to send in a processing fee to claim her winnings. She

remitted the fee to the company but received no winnings. Later, she

received an identical notice from the same company but she did not remit

the requested processing fee.

• A consumer received repeated notices that she had won a cash prize in a

company’s sweepstakes. However, she never received such a prize, even

after she ordered and received several plants from the company.

• A consumer reported that a company had offered to enter his name in its

sweepstakes when he purchased magazines. After the consumer

purchased the magazines, the company advised him that he was a

sweepstakes winner. The company told the consumer to remain at home

on a specific date so that he could receive his prize, which was a suitcase

full of money. Although the consumer remained at home on the specified

date, no suitcase arrived.

As shown in table 1, 7 consumer complaints involved organizations asking

consumers to call a telephone number for which the consumer was

charged a fee. Generally, the consumer complaints in this group were

similar in that consumers were asked to call such a number to claim their

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winnings or verify their winning numbers. Examples of such complaints

included the following:

• A consumer complained that he had received an award notification in the

mail. He was required to call a 900 telephone number to verify his winning

number. The company told the consumer that he had won one dollar.

Later, the consumer was charged $56 for the telephone call.

• A consumer was told by a company that she had won either a car or cash

and required her to either call a 900 telephone number or send in a card to

receive her prize. Although she sent in the card, she did not receive her

promised prize.

As indicated in table 1, 7 consumer complaints from our sample involved

organizations requesting personal information, such as the consumer’s

social security number or bank account number. Some examples of these

types of complaints included the following:

• A consumer reported that a company informed him that he could win as

much as $100,000 if he would send in a release form that included bank

account information. The consumer did not send in the form.

• A consumer complained that a company instructed him to call

immediately concerning his sweepstakes winnings. When he called, a

company representative tried to solicit his telephone number as well as

credit card information. The consumer refused to provide the information.

As shown in table 1, 26 complaints contained a variety of miscellaneous

consumer complaints that did not easily fit into one of the previous four

groups. Examples of these miscellaneous complaints included the

following:

• A consumer received three letters informing him that he was the winner of

a large sum of money. After writing many letters to the company, the

consumer never received any explanation as to why he had not received

his money.

• A consumer reported that he had received a notice that he was the winner

in a company sweepstakes. The notice stated that the company was

preparing to award him a prize. The consumer sent the company a letter

requesting the prize, but subsequently, the company notified the consumer

that he in fact was not the winner.

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Postal Inspection Service

Has Investigated Various

Cases Involving Mailed

Sweepstakes Material

Postal Inspection Service officials told us that the Fraud Complaint System

(FCS) is used by the Postal Inspection Service to collect and maintain

consumer complaint information about various types of alleged fraudulent

activities, including those involving deceptive mail marketing practices.

The officials estimated that the Postal Inspection Service generally

receives between 60,000 and 100,000 consumer complaints each year that

pertain to alleged fraudulent activities. However, officials were unable to

estimate how many of these complaints were related to mailed

sweepstakes material and cashier’s check look-alikes. The officials told us

that generally, it would be difficult to identify such complaints because FCS

has limited search capabilities. In large part, complaints regarding mailed

sweepstakes material and cashier’s check look-alikes in FCS can only be

identified by searching on the company name or product sold.

According to Postal Inspection Service officials, we could best obtain

information on the nature of consumers’ complaints by reviewing specific

cases for which postal inspectors had performed investigations. One of the

officials told us that during the period October 1, 1997, through August 21,

1998, 16 cases involving mailed sweepstakes material were closed and

specific law enforcement actions, such as the issuance of cease and desist

orders,9

 had been taken. The 16 cases most often involved sweepstakes

and cash prize promotions for which up-front taxes or insurance, judging,

or handling fees were required before consumers could participate in the

sweepstakes.

The disposition of the 16 Postal Inspection Service cases involved various

actions. For example, seven cases were closed because (1) no clear

violations were identified, (2) criminal prosecution was declined due to

insufficient evidence or a civil agreement was reached with FTC, or (3) the

sweepstakes operators or promoters abandoned or voluntarily stopped

their activities. In five cases, cease and desist orders and withholding mail

orders were issued.10 In two cases, sweepstakes operators were arrested,

with one of the cases resulting in a dismissal and the other case resulting

in a conviction. The remaining two cases were combined into one case

because they involved activities sponsored by the same organization. This

organization offered to provide consumers with money allegedly held in

9

A cease and desist order is an order of an administrative agency or court prohibiting a person or

business from continuing a particular course of action.

10An order to withhold mail is an order that is requested by the Postal Inspection Service if specific

laws regarding delivery of mail have been violated. Such an order is issued by a judicial officer and

sent to the violator and to the postal inspector-in-charge within the area where the violator was

operating. The order usually requires that mail from the violator is held for a time by the Postal

Service, then returned to the violator.

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the consumers’ names with the federal government for which the

consumers would have to pay a fee. The two combined cases resulted in

the issuance of a cease and desist order, a withholding mail order, and a

false representation order.11

Initiatives by

Organizations to

Address Deceptive

Mail Marketing

Practices

We identified various initiatives by specific agencies and organizations

that were intended to provide opportunities for these entities to address,

among other things, the problems affecting consumers that involved

questionable or deceptive mail marketing practices. These initiatives also

provided the agencies and organizations with information that they could

use to assist law enforcement organizations in initiating appropriate

actions, such as investigations and lawsuits. In addition, the initiatives

provided agencies and organizations with opportunities to work together

on efforts that could help educate and inform consumers about direct mail

marketing practices that could cause problems. Examples of two of the

more recent initiatives included (1) Project Mailbox and (2) the

establishment of a multi-state sweepstakes committee, which resulted

from a legal complaint involving AFP.

Project Mailbox In October 1997, FTC announced the establishment of the Project Mailbox

initiative. According to FTC and AARP, its main purpose was to establish

specific efforts that could help educate consumers and appropriately deal

with organizations that attempted to defraud consumers through the use

of mass mailings. Various agencies and organizations participated in

Project Mailbox, including FTC, the Postal Inspection Service, about 25

state Attorneys General, and AARP. Project Mailbox resulted in four efforts

being established that would target any questionable activities of

organizations that use the mail to defraud consumers. The four efforts

included

• the initiation of 190 law enforcement actions, which targeted companies

that were suspected of mail and telemarketing fraud, including such

actions as (1) issuing cease and desist letters and notices of intent to sue

and (2) filing complaints in court;

11Under 39 U.S.C. 3005, if the Postal Service finds sufficient evidence, an order can be issued against

any person engaged in conducting (1) a scheme or device for obtaining money or property through the

mail by means of false representations or (2) a lottery, gift enterprise, or scheme for the distribution of

money or of real or personal property, by lottery, chance, or drawing of any kind. Such an order may

involve returning mail to the sender and forbidding payment of any postal money order that was made

payable to the sender.

Page 14 GAO/T-GGD-98-198
Statement 

Proposed Legislation: Issues Related to

Honesty in Sweepstakes Act of 1998

• the establishment of a strike force involving FTC, the Postal Inspection

Service, various state Attorneys General, NAAG, and AARP that would collect

and review direct mail for future law enforcement actions;

• the initiation of AARP’s “Project Senior Sting,” a project established in

Massachusetts and Arizona in which unsolicited mail would be turned

over to law enforcement agencies to search for possible examples of

fraud; and

• the launching of a consumer education campaign involving the Postal

Inspection Service, AARP, and the Yellow Pages Publishers Association that

is intended to help consumers and small businesses spot mail fraud.

NAAG Multi-State

Sweepstakes Committee

Within NAAG, various committees work on a wide range of issues including

civil rights, environment, energy, health care, bankruptcy, and taxes.

These committees are responsible for studying such issues and

recommending policy positions to NAAG members for action. In July 1998,

NAAG approved a resolution to establish within its Consumer Protection

Committee a subcommittee that plans to address matters related to

sweepstakes and prize promotions. According to the resolution, some of

the subcommittee’s objectives include (1) ensuring active enforcement of

current laws that prohibit unfair and deceptive practices by operators of

sweepstakes and prize promotions, (2) determining whether specific

legislative initiatives would be effective in deterring and punishing

deceptive and abusive practices by operators of sweepstakes and prize

promotions, and (3) when appropriate, drafting documents that could be

developed into state legislation.

According to NAAG, the establishment of the subcommittee stemmed partly

from a recent legal complaint filed against AFP by about 30 states and the

District of Columbia, which sued AFP for engaging in direct mail marketing

practices that deceived many consumers. Generally, the complaint alleged

that in its mailed sweepstakes material, AFP

• falsely suggested that a consumer must purchase one or more magazine

subscriptions to win a prize;

• falsely suggested that a consumer was part of a select group vying for a

prize or was one of only two recipients with the winning number;

• falsely suggested that a consumer needed only to respond within a certain

number of days, and before an alternative winner responded, in order to

claim the prize; and

Page 15 GAO/T-GGD-98-198
Statement 

Proposed Legislation: Issues Related to

Honesty in Sweepstakes Act of 1998

• required consumers who wanted to enter the sweepstakes without

purchasing magazines to follow a more circuitous and cumbersome

procedure than those who purchased magazines.

According to various states, as part of the settlement, which was reached

in March 1998, AFP agreed to pay a total of approximately $1.25 million to

about 30 states and the District of Columbia. AFP also agreed to revise

future mailed sweepstakes material so that it would

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

• only tell consumers that they were among a select group that has a chance

of winning a prize if the odds of winning are disclosed,

• tell consumers that no purchase is necessary to participate in the

sweepstakes,

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

• make it clear to consumers who order magazines on an installment

payment plan how much money is due each month, and

• not imply that consumers have a better chance of winning if they

purchased magazines.

According to a NAAG official, the sweepstakes subcommittee chair—the

Indiana Attorney General—has been identified. However, it was not clear

whether other subcommittee members had been selected or whether the

subcommittee’s work had begun. Generally, the subcommittee members

are expected to include representatives from various state Attorneys

General offices.

Page 16 GAO/T-GGD-98-198
Page 17 GAO/T-GGD-98-198
Appendix I 

List of Federal, State, and Local Government

Agencies and Non-Governmental

Organizations 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

—Texas Austin, Texas

—West Virginia Charleston, West Virginia

—Wisconsin Madison, Wisconsin

Local government agencies:

—Citizen Assistance (Consumer Affairs) for City of

Alexandria

Alexandria, Virginia

—Consumer Affairs Division for Montgomery County Rockville, Maryland

Nongovernmental organizations:

—Advertising Mail Marketing Association (AMMA) Washington, D.C.

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

—Arizona State University (Gerontology Program) Tempe, Arizona

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

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

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

—National Consumers League (NCL)/National Fraud

Information Center (NFIC)

Washington, D.C.

—U.S. Public Interest Research Group (USPIRG) Washington, D.C.

Source: GAO.

(240317) Page 18 GAO/T-GGD-98-198
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