DECEPTIVE MAIL

Consumers’ Problems

Appear Substantial

Statement of Bernard L. Ungar, Director

Government Business Operations Issues

General Government Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on the Postal Service

Committee on Government Reform

House of Representatives

For Release on Delivery

Expected at

1:00 p.m. EDT

Wednesday

August 4, 1999

GAO/T-GGD-99-150

Summary

Deceptive Mail: Consumers’ Problems Appear

Substantial

Page 1 GAO/T-GGD-99-150

In response to requests from three congressional subcommittees, GAO

obtained information on the extent and nature of consumers’ problems

with deceptive mail and identified initiatives various federal agencies and

other organizations have made to address deceptive mail problems and

educate consumers. Examples of deceptive mail include sweepstakes,

chain letters, cashier’s check look-alikes, work-at-home schemes, and

fraudulent charity solicitations.

Officials in various agencies and organizations said that comprehensive

data on the full extent of consumers’ deceptive mail problems were not

available mainly because consumers often did not report their problems

and no centralized database existed from which such data could be

obtained. However, data GAO collected from various sources suggested

that consumers were having substantial problems with deceptive mail.

• Based on a GAO sponsored November 1998 statistically generalizable

sample of the U.S. adult population, GAO estimates that about half of the

adult population believed that within the preceding 6 months, they had

received deceptive mailed sweepstakes material or cashier’s check lookalikes.

• Officials from the Federal Trade Commission (FTC), Postal Inspection

Service, and state Attorneys General offices estimated that in fiscal year

1998, about 10,400 deceptive mail complaints led to or initiated about 100

law enforcement actions.

• For the period October 1, 1997, through March 31, 1999, FTC received over

18,000 deceptive mail complaints, of which about 2,700 (15 percent)

reported consumer payments of about $4.9 million. Also, the Postal

Inspection Service received over 16,700 complaints on fraud and chain

letters, of which about 3,000 (18 percent) reported consumer fraud losses

of about $5.2 million. The Inspection Service also had over 1,800 open

investigative cases on deceptive mail during fiscal year 1998.

Various federal agencies and other organizations have undertaken efforts

to address consumers’ deceptive mail problems and educate them about

such problems. For example, FTC established a national toll-free hotline

for receiving deceptive mail and other complaints. One joint effort was

Project Mailbox, which involved such organizations as FTC, Postal

Inspection Service, and various state Attorneys General. These

organizations initiated over 200 law enforcement actions against

companies and individuals that used the mail to allegedly defraud

consumers.
Statement

Deceptive Mail: Consumers’ Problems Appear

Substantial

Page 2 GAO/T-GGD-99-150

Mr. Chairman and Members of the Subcommittee:

We are pleased to have this opportunity to discuss matters related to

deceptive mail marketing practices, which have been used by various

organizations and individuals to induce consumers to purchase goods and

services or send money for misrepresented purposes. My statement will

include a brief summary of our previous testimony on the extent and

nature of problems that consumers experienced primarily with mailed

sweepstakes material.1

 Also, I will discuss our most recent efforts to obtain

updated information that could indicate the extent and nature of problems

that consumers may have experienced with various types of mailed

material that have been used to deceive, mislead, or fraudulently induce

them into purchasing goods or services. This type of mail, known as

deceptive mail, includes sweepstakes and other types of mailed material,

such as lotteries and chain letters. Finally, I will provide information on

initiatives in which various federal agencies and other organizations have

participated to address consumers’ problems with deceptive mail

marketing practices and help educate consumers about potential problems

that could occur with such practices.

Our most recent work on deceptive mail was done in response to your

November 1998, request as well as an October 1998, request from the

Permanent Subcommittee on Investigations and the Subcommittee on

International Security, Proliferation and Federal Services, Senate

Committee on Governmental Affairs. We are also providing copies of our

statement to the chairs of the two Senate subcommittees.

Mr. Chairman, as we agreed, the primary objective for our most recent

work was to obtain updated available information on the extent and nature

of consumers’ problems with various types of deceptive mail. Also, we

obtained updated available information on efforts by various federal, state,

local, and nongovernmental organizations to address consumers’ deceptive

mail problems and educate them about possible problems that could occur

with deceptive mail marketing practices. In addition, through an outside

contractor, we conducted a survey to obtain opinions from the U.S. adult

population about specific types of deceptive mail.

We did our work from November 1998 through July 1999 in accordance

with generally accepted government auditing standards. We obtained

comments on a draft of this testimony from the Federal Trade Commission

 

1

 Proposed Legislation: Issues Related to Honesty in Sweepstakes Act of 1998 (S. 2141) (GAO/T-GGD98-198, Sept. 1, 1998).
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 3 GAO/T-GGD-99-150

(FTC) and the U.S. Postal Service, including the Postal Inspection Service

and the Consumer Advocate. We included their comments where

appropriate. We also arranged for the various state, local, and

nongovernmental organizations that provided us information to review

relevant sections of this testimony. We incorporated their technical

comments where appropriate. Additional information about our approach

is included in attachment I to this statement.

As you are aware, Mr. Chairman, since the summer of 1998, much attention

has been focused on consumers’ problems with deceptive mail. Various

activities, including specific legislative proposals and hearings, have raised

congressional and public awareness about problems that some consumers

have experienced as a result of deceptive mail marketing practices.

A recent example of such an activity was the May 1999 approval by the

Senate Governmental Affairs Committee of proposed legislation entitled

“Deceptive Mail Prevention and Enforcement Act” (S. 335), which was

introduced in February 1999, by Senator Susan Collins. In her introductory

remarks, Senator Collins indicated that the proposed legislation was

generally designed to help ensure that organizations that used various

types of promotional mailed material, such as sweepstakes, were as honest

and accurate as possible in their dealings with consumers. Provisions in

the proposed legislation (1) authorized financial penalties against

organizations that did not comply with proposed requirements, (2)

authorized specific law enforcement actions, including the issuance of

subpoenas, that the Postal Inspection Service could use in combating

deceptive mail marketing practices; and (3) provided assurance that the

proposed legislation would not preempt state and local laws that were

designed to protect consumers against deceptive mail marketing practices.

For a congressional hearing held in September 1998, we provided

testimony in which we discussed information about consumers’ problems

with specific types of deceptive mail and some initiatives that were

intended to help educate consumers about potential deceptive mail

problems. We found that comprehensive data indicating the full extent of

consumers’ problems with mailed sweepstakes material and cashier’s

check look-alikes were not available. However, FTC and the Postal

Inspection Service had some data on complaints that could indicate the

nature of consumers’ problems with deceptive mail. A sample of

complaints from FTC showed that in many instances, consumers were

required to remit money or purchase products or services before being

allowed to participate in sweepstakes. Information about specific Postal

Inspection Service cases that had been investigated largely involved

Background
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 4 GAO/T-GGD-99-150

sweepstakes and cash prize promotions for which up-front taxes, fees, or

insurance were required before consumers could participate in

sweepstakes promotions.

In our previous testimony, we discussed two initiatives that were intended

to address consumers’ problems with deceptive mail. The initiatives

included (1) Project Mailbox, which was established to help educate

consumers and appropriately deal with organizations and individuals that

attempted to defraud consumers through the use of mass mailings; and (2)

a multi-state sweepstakes subcommittee that was designed to facilitate

cooperation among states in dealing with companies that attempted to

defraud consumers through the use of mailed sweepstakes material. With

your permission, I would like to provide the Subcommittee a full copy of

our previous testimony for inclusion into the record of today’s hearing.

Comprehensive data that could indicate the full extent of consumers’

problems with deceptive mail were not available. Various officials from the

agencies and organizations we contacted told us that such data were

unavailable mainly because consumers oftentimes did not report their

problems and no centralized database existed from which comprehensive

data could be obtained.

Due to the overall lack of comprehensive data, we contracted for a survey

to obtain perspective on the extent to which consumers believed that they

had received specific types of mailed material that appeared to them to be

misleading or deceptive. Also, we identified two federal agencies—FTC

and the Postal Inspection Service—that maintained some data that could

provide insight into the nature of consumers’ problems with deceptive

mail. However, these data may include some duplicative complaints

because some consumers who filed complaints may have done so with

both agencies.

To obtain perspective on American consumers’ opinions about specific

types of deceptive mail, we contracted with International Communications

Research (ICR), a national market research firm, to perform a statistically

generalizable sample of adults 18 years of age or older in the continental

United States. The results of the survey, which was conducted in

November 1998, indicated that 51 percent of the survey respondents

believed that within the preceding 6 months, they had received mail

involving sweepstakes or documents resembling cashier’s checks, known

as cashier’s check look-alikes, that appeared to be misleading or deceptive.

However, 45 percent of the respondents said they had not received such

Extent and Nature of

Consumers’ Problems

With Deceptive Mail

Opinion Survey on Specific

Types of Deceptive Mail
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 5 GAO/T-GGD-99-150

mail and the remaining 4 percent were not sure, did not remember, or did

not know.

Additional analysis of survey results indicated that the higher the

educational levels of respondents, the more likely they were to believe that

they had received these types of deceptive mail. The percentages of

respondents who believed that they had received such mail were about:

• 43 percent for respondents with a high school education or less;

• 56 percent for those with some college education; and

• 62 percent for those with a completed college education or higher.

A similar trend was identified for respondents and their income levels in

that at higher income levels, respondents were more likely to believe that

they had received such mail. The percentages by income level included

about:

• 32 percent for respondents whose annual income was less than $15,000;

• 52 percent for respondents whose annual income ranged between $15,000

and $49,999; and

• 62 percent for respondents whose annual income was $50,000 or more.

For our updated work efforts, various officials and representatives of the

agencies and organizations from which we obtained information again

believed that the most appropriate source of consumer complaint data

would be FTC’s Consumer Information System (CIS). According to FTC

officials, the purpose of CIS, which was first established around February

1997 and became fully operational in September 1997, was to collect and

maintain various data related to consumers’ complaints. FTC officials told

us that CIS data are used primarily by law enforcement organizations and

officials to assist them in fulfilling their law enforcement duties.

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

consumers’ complaints were included. The categories covered a wide

range of topics such as (1) creditor debt collection, (2) home repair, (3)

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

services, such as automobiles and furniture.

For the period October 1, 1997, through March 31,1999, our analysis

indicated that CIS included a total of 48,122 consumer complaints for

FTC’s Consumer

Information

System Included Data That

Could Indicate the Nature

of Problems
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 6 GAO/T-GGD-99-150

which the methods of initial contact with consumers were identified.2 Such

methods included mail; telephone; fax; printed material, such as

newspapers and magazines; and the Internet. Of the 48,122 complaints, the

largest number, 18,143, or about 38 percent, indicated that consumers

were initially contacted through the mail. Of the 18,143 complaints, we

found that in 10,145, or about 56 percent, of these complaints, companies

had requested individual consumers to remit money. The total amount of

money requested by the companies was reported to be about $88.2 million.

Also, our review of the 18,143 consumer complaints showed that 2,715, or

about 15 percent, of the consumers reported that they had remitted money

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

had paid was about $4.9 million. The amounts of money individual

consumers said that they had paid ranged from less than $1 to over $1

million. Of these 2,715 complaints, about:

• 50 percent were less than $100;

• 35 percent were between $100 and $999;

• 10 percent were between $1,000 and $4,999; and

• 5 percent were $5,000 or more.

The largest reported amount of money paid by a consumer was $1,734,000.

Available CIS information indicated that this complaint involved a

consumer’s concerns about a credit bureau referring inaccurate

information to a debt collection agency.

In reviewing the 18,143 complaints in which consumers were initially

contacted through the mail, we identified five CIS categories that included

the highest number of consumer complaints, which totaled 10,776

complaints, or about 59 percent. The five categories included

• Telephone: pay per call/information services, which can involve consumer

complaints about calls to publicly available telephone numbers, such as 1-

900 numbers, for which consumers incur per-minute charges in return for

information or entertainment. Also, complaints can involve unauthorized

charges on consumers’ telephone bills, also known as “cramming” (3,487

complaints).

 2

 In order to obtain the most recent CIS data possible, we requested that FTC provide us with data for

an 18-month period that, at the time of our request, extended from October 1, 1997, through March 31,

1999.
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 7 GAO/T-GGD-99-150

• Telephone: carrier switching, also known as “slamming,” in which

companies would switch consumers’ telephone services from one

company to another without consumer authorization (1,051 complaints).

• Prizes/sweepstakes/gifts, which can oftentimes involve consumer

complaints about mailed material that solicit advance fees for consumers

to be able to participate in a sweepstakes or contest (2,859 complaints).

• Credit bureaus, which can generally involve consumer complaints about

the methods by which such bureaus maintain and disseminate credit

information (2,025 complaints).

• Third party debt collection, which can involve consumer complaints about

methods used by various companies or individuals to collect debts owed

by consumers (1,354 complaints).

For the five CIS categories, we found that a total of 10,355 complaints, or

about 96 percent, included comments that could provide insight into the

nature of problems that consumers had experienced with deceptive mail.

We randomly selected 20 consumer complaints from each of the 5

categories for a total of 100 complaints. A discussion of the types of

comments in the five categories and some examples follow.

Two of the five CIS categories involved problems that consumers

reportedly experienced with mailed material that involved various

telephone services, including pay-per-call and specific information services

as well as slamming and cramming. Generally, consumers’ comments in

these two categories focused on complaints about unauthorized actions by

companies in providing various telephone services, including (1) switching

telephone services from one company to another without consumer

authorization, (2) charging consumers for services they never requested,

and (3) charging for services that consumers claimed were cancelled.

For the prizes/sweepstakes/gifts category, consumer comments focused on

complaints about companies’ requirements for participating in

sweepstakes. According to FTC, various requirements, such as advance

payments, fees, or purchases of products, should not be required before

consumers may participate in sweepstakes. Also, consumers complained

about being required to call specific telephone numbers for which they

were charged fees.

In the credit bureaus category, the comments included consumers’

complaints about inaccurate information on their credit reports. Also,
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 8 GAO/T-GGD-99-150

consumers expressed concerns about such issues as denial of credit and

dissemination of credit information to companies and individuals without

permission.

For the third party debt collection category, consumer comments focused

generally on harassment that consumers reportedly experienced from debt

collectors. Such harassment included being called nasty names, receiving

numerous telephone calls, and being treated without dignity. Also, some

consumers disputed owing specific debts or the amounts of the debts.

The Postal Inspection Service maintained two databases—the Fraud

Complaint System (FCS) and the Inspection Service Data Base Information

System (ISDBIS)—that included information related to consumers’

problems with deceptive mail. FCS was designed to collect and maintain

consumer complaint information about various types of alleged fraudulent

activities, including those involving deceptive mail marketing practices.

ISDBIS was designed to be a case-tracking system that recorded

information related to specific cases that postal inspectors used as they

investigated specific organizations or individuals involved in various

mailing activities that were allegedly intended to defraud consumers,

businesses, and the federal government.

To gain a better understanding of how consumer complaints about

deceptive mail were included in FCS, we obtained information about the

overall process through which consumers could file complaints with the

Postal Service. According to Postal Inspection Service officials, if

consumers have concerns or wish to file complaints about material that

they have received through the mail, consumers may visit or call their

nearby Postal Inspection Service offices or postal facilities, which included

post offices, stations, or branches. If consumers’ concerns are related to

mailed material that they believe is deceptive, misleading, or fraudulent,

postal employees are expected to refer consumers to the Postal Inspection

Service. The methods of these referrals generally include providing

consumers with the telephone number or address of the appropriate local

Postal Inspection Service office, the Internet website address of the Postal

Inspection Service, or a Postal Inspection Service mail fraud complaint

form. Also, Postal Inspection Service officials told us that in some cases, to

provide additional assistance to consumers, postal employees may offer to

forward the questionable mailed material directly to the Postal Inspection

Service.

We visited a total of 15 postal facilities to observe how postal employees

referred consumers to the Postal Inspection Service. The facilities

Postal Inspection Service

Consumer Complaint and

Investigation Databases

Consumer Complaint Process
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 9 GAO/T-GGD-99-150

included post offices and stations in the metropolitan areas of Dallas,

Texas; Los Angeles, California; and Washington, DC. At the facilities, we

asked postal employees working at counters how to handle mail believed

to be deceptive. At 8 of the 15 facilities we visited, postal employees

appropriately referred us to the Postal Inspection Service. At the 7

remaining facilities, postal employees either referred us to organizations

other than the Postal Inspection Service or were unable to provide any

guidance. For example, two postal employees referred us to a national tollfree 1-800 number (i.e., 1-800-ASK-USPS). 3 According to postal officials,

consumers could reach the Postal Inspection Service through 1-800-ASKUSPS.

We made three calls to 1-800-ASK-USPS to determine whether consumers

could reach the Postal Inspection Service through this number. During one

call, the responding customer service representative provided us with the

telephone numbers of both the local consumer affairs office and Postal

Inspection Service office. During the remaining calls, the representatives

either provided us the telephone number for the local consumer affairs

office or the address of the Direct Marketing Association (DMA), which we

were told could remove consumers’ names from mailing lists.4

We obtained FCS data for an 18-month period, (i.e., October 1, 1997,

through March 31, 1999). The data we obtained focused on two of the four

complaint categories within FCS—fraud and chain letters—because postal

officials told us that these categories were most likely to include relevant

information about consumers’ problems concerning deceptive mail.5

Our analysis of FCS data indicated that the Postal Inspection Service had

received 16,749 consumer complaints regarding fraud and chain letters.

Complaints in the fraud category totaled 7,667, or about 46 percent, of the

total complaints in these two categories, and 9,082 complaints, or about 54

percent, were included in the chain letter category.

 

3

 The purpose of the 1-800-ASK-USPS number is to provide consumers with a quick means of obtaining

assistance with and information about a wide range of postal issues, such as the hours of operation at

specific postal facilities, mailing rates for packages, and appropriate ZIP codes.

4

 DMA was established in 1917 as an international, nonprofit trade association whose primary objective

was to serve its members in bringing about more effective direct marketing techniques. As of June

1999, DMA had about 4,500 member companies from the United States and 53 other nations. Examples

of DMA members included catalogers, publishers, book and record clubs, financial service companies,

manufacturers, and advertising agencies.

5

 According to Postal Inspection Service officials, the other two FCS categories included (1)

consumers’ general inquiries or requests for information and (2) consumer complaint program, which

involves complaints about such matters as fraud, bad business practices, or misunderstandings

between consumers and companies.

Postal Inspection Service’s

Fraud Complaint System
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 10 GAO/T-GGD-99-150

According to FCS data, no monetary losses were reported for the 9,082

complaints in the chain letter category. However, for the 7,667 complaints

in the fraud category, a total of about $5.2 million in monetary losses was

reported by consumers. These losses were reported in 2,976, or about 18

percent, of the 16,749 fraud and chain letter complaints. Also, the 2,976

complaints that cited losses amounted to about 39 percent of the 7,667

complaints in the fraud category. The remaining 4,691 fraud complaints, or

about 61 percent, cited no monetary losses.

For the 2,976 fraud complaints that cited monetary losses, the amounts of

money individual consumers said that they had paid ranged from less than

$1 to over $365,000. Of these complaints, about:

• 55 percent were less than $100;

• 29 percent were between $100 and $999;

• 15 percent were between $1,000 and $29,999; and

• 1 percent were $30,000 or more.

The largest monetary loss reported by a consumer was $365,432. However,

available FCS information was insufficient to describe the nature of the

consumer complaint associated with this loss.

Similarly, we attempted to determine the nature of other consumer

complaints in the fraud and chain letter categories using a random sample

of 50 complaints with comments from each category for a total of 100

complaints. For these complaints, we found that the comments were

unclear or lacked sufficient detail to provide insight into the nature of

consumers’ deceptive mail problems.

We recently learned from a Postal Inspection Service official that

additional fraud complaints were contained in a third FCS category called

“consumer complaint program.” According to the official, for the period

October 1, 1997, through March 31, 1999, the category included a total of

about 48,000 complaints, which generally involved such matters as fraud,

bad business practices, or misunderstandings between consumers and

companies. Although the Postal Inspection Service was unable to

specifically identify how many of these complaints involved fraud, officials

determined that about 4,000, or about 8 percent, of these complaints were

associated with active mail fraud investigations. The officials, however,

could determine neither the number of investigations involved nor whether

these complaints led to such investigations.
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 11 GAO/T-GGD-99-150

We obtained information from ISDBIS that focused on fraud against

consumers. For fiscal year 1998, our analysis identified a total of 1,869

ISDBIS cases, which included 1,333 cases that carried forward into fiscal

year 1998 from fiscal year 1997, and 536 cases that were opened during

fiscal year 1998. The cases involved various types of allegedly deceptive

mail marketing practices, including investment schemes, lotteries,

fraudulent charity solicitations, work-at-home schemes or plans, and

advance fee loan schemes.

By the end of fiscal year 1998, 576 cases had been closed, of which 293, or

about 51 percent, involved four top deceptive mail marketing practices or

schemes. The four were (1) lotteries, (2) telemarketing, (3) investment

schemes, and (4) work-at-home plans.

During fiscal year 1998, the Postal Inspection Service initiated various law

enforcement actions resulting from investigative cases involving the four

top deceptive mail schemes. According to ISDBIS data, a total of 911

enforcement actions were taken, which included arrests, convictions, and

other actions. Of the total actions taken, 480, or 53 percent, involved

arrests and convictions. Also, ISDBIS data for sweepstakes showed that a

total of 43 actions were taken.

For our most recent work, we obtained updated information on the two

initiatives that we discussed in our previous testimony, namely Project

Mailbox and the National Association of Attorneys General (NAAG)6

 multistate sweepstakes subcommittee. Also, we obtained updated information

from various federal, state, and local agencies and nongovernmental

organizations about their recent efforts to help educate and make

consumers more aware of the potential problems that could result from

deceptive mail marketing practices. These efforts involved activities that

were initiated by various organizations, including FTC, the Postal

Inspection Service, state Attorneys General offices, and nongovernmental

organizations, such as the American Association of Retired Persons

(AARP) and NAAG.

Project Mailbox was established to help educate consumers and

appropriately deal with organizations, companies, and individuals that

 

6

 NAAG is a professional association that was established in 1907. Its members include the Attorneys

General of 50 states and chief legal officers for other jurisdictions, such as the District of Columbia and

the Virgin Islands. The U.S. Attorney General is an honorary member of NAAG. NAAG’s overall goals

include (1) promoting cooperation and coordination on interstate legal matters and (2) increasing

citizen understanding of the law and law enforcement’s role to ensure both protection of individual

rights and compliance with the law.

Postal Inspection Service’s

Investigative Database

Efforts by

Organizations

to Address Deceptive

Mail Problems and

Educate Consumers

Project Mailbox
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 12 GAO/T-GGD-99-150

attempted to defraud consumers through the use of mass mailings. In

fiscal year 1998, FTC, the Postal Inspection Service, and Attorneys General

offices for various states initiated 203 law enforcement actions that

targeted specific organizations, companies, and individuals that allegedly

attempted to deceive, mislead, or defraud consumers through various mail

marketing practices. The practices included a wide range of schemes,

including not only sweepstakes, prize promotions, lotteries, advance fee

loans schemes, and government look-alike mail, but also such schemes as

guaranteed scholarships, vacation and travel packages, and fraudulent

charity solicitations.

For the 203 law enforcement actions, FTC, the Postal Inspection Service,

and various state Attorneys General offices provided us some information

on 101, or about 50 percent, of the actions, which provided perspective on

these actions. These federal and state organizations estimated that a total

of about 841,000 consumers had purchased products and/or services from

the organizations, companies, or individuals that were the targets of the

law enforcement actions. Also, an estimated total of about $424 million

was identified as sales to consumers or funds consumers had paid to the

targeted organizations, companies, or individuals. We have no information

on the extent to which deceptive mail problems may have been involved

with the total number of consumers identified and the payments made.

However, FTC, the Postal Inspection Service, and various state Attorneys

General offices estimated that about 10,400 consumer complaints led to or

initiated the 101 law enforcement actions.

In February 1999, NAAG’s Subcommittee on Sweepstakes and Prize

Promotion convened a hearing in Indianapolis, Indiana. The purpose of the

hearing was to gather information about sweepstakes promotions and

create consensus on the best approaches for deterring and punishing those

who participate in fraudulent sweepstakes activities. Witnesses at the

hearing included representatives of the direct mail marketing industry,

individual consumers from various states, federal government

representatives, and experts from the academic community.

Based on information discussed at the hearing and lessons learned from

years of investigations and litigation, the subcommittee generally

recommended that the sweepstakes industry adopt specific voluntary

practices to ensure that consumers are not misled. Some of the

recommended practices included (1) clearly disclosing the odds of winning

the sweepstakes or contest, (2) not representing or implying that ordering

a product increases a consumer’s chance of winning, and (3) having a

NAAG Multi-State

Sweepstakes Subcommittee
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Deceptive Mail: Consumers’ Problems Appear Substantial

Page 13 GAO/T-GGD-99-150

standard, simple, uniform means for entering sweepstakes both for

consumers who place orders and those who do not.

FTC, the Postal Inspection Service, and various state, local, and

nongovernmental organizations have either completed or initiated efforts

to help educate consumers and raise their awareness about problems that

could result from deceptive mail. These efforts range from the

establishment of a national toll-free hotline to the publication of consumer

awareness articles.

FTC has initiated or participated in activities to help consumers deal with

deceptive mail marketing practices. For example, FTC:

• established, on July 7, 1999, a national toll-free hotline (i.e., 1-877-FTCHELP or 1-877-382-4357) that consumers could use to file complaints on

various topics, including deceptive mail. According to FTC, the hotline is

intended not only to make FTC more accessible to consumers who wish to

file complaints but also to make consumer complaint data available to law

enforcement agencies in the United States and Canada.

• maintains a website through which consumers may obtain information that

can help them address potential problems associated with deceptive mail.

This information covers topics ranging from prize offers to magazine

subscription scams to receipts of unordered merchandise.

In addition, FTC officials told us that FTC has continued to work with

other organizations, such as NAAG, to encourage these organizations to

share consumer complaint information with FTC, so that more

comprehensive data on consumer complaints can be centrally collected

and maintained in FTC’s Consumer Information System (CIS). CIS fraud

consumer complaint data are made available to various law enforcement

organizations through FTC’s Consumer Sentinel website.

According to Postal Inspection Service officials, the Inspection Service’s

efforts to educate consumers are important to its continuing fight against

deceptive mail marketing practices. These efforts range from national to

local activities that are designed to help consumers avoid being victimized

by deceptive mail marketing practices. For example, the Inspection

Service:

• mailed out postcards in May 1993, to about 210,000 households in the

United States, informing consumers that they had won prizes and asked

consumers to call a telephone number. However, when consumers called

Other Consumer Education

Activities of Federal, State,

Local, and

Nongovernmental

Organizations

FTC Activities

Postal Inspection Service

Activities
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 14 GAO/T-GGD-99-150

the number, they reached the Inspection Service and were warned against

responding to the postcards because similar solicitations are often used by

companies to scam consumers.

• is developing another postcard mailing to alert consumers to potential

problems that could be caused by deceptive mail and telemarketing and

identify a national hotline through which consumers may file complaints.

The postcards are to be distributed to about 114 million households

nationwide in October 1999.

• distributed in December 1994, a video news release that was sent to

various television news stations throughout the United States. The video

included information on how consumers could identify whether elderly

relatives were having problems in handling mailed material from

organizations.

• is developing a video that will include information to help consumers avoid

both problems with deceptive mail and other types of deceptive marketing

practices via the telephone. The video is scheduled for distribution to

about 16,000 public libraries around October 1999.

In addition, according to Postal Service field officials, the Service has and

continues to help educate consumers and raise their awareness about

deceptive mail practices. In many instances, postal field personnel work

with their local postal inspectors to prepare news releases and make

presentations before consumer groups.

Officials in the state and local organizations that we contacted cited the

following examples of their efforts to help educate consumers about

deceptive mail.

• Representatives from the Connecticut Office of the Attorney General have

conducted half-day consumer education sessions for groups of senior

citizens to provide them information about deceptive mail. Since January

1, 1999, the office has sponsored 4 sessions with about 1,000 consumers in

attendance.

• Since January 1999, staff from Florida’s Division of Consumer Services

have spoken to consumer groups, many of which involved senior citizens,

about fraud-related issues. These efforts focused on telemarketing fraud,

but have also involved discussions about deceptive mail, including

sweepstakes.

State and Local Activities
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 15 GAO/T-GGD-99-150

• In April 1999, local consumer affairs staff from Montgomery County,

Maryland, conducted an adult education class focusing on consumers’

rights and responsibilities, but information was also provided on

sweepstakes and fake award notification letters.

• In the spring of 1999, the administrator of the Office of Consumer Affairs

in Alexandria, Virginia, made a presentation on pyramid schemes received

through the mail that pay commissions for recruiting distributors, not for

making sales. The presentation was made to both staff in Alexandria’s

Office of Aging and local consumers.

Various nongovernmental organizations, including DMA, AARP, and

Arizona State University, reported that to help educate consumers, these

organizations offered conferences and seminars as well as distributed

information on deceptive mail marketing practices. Representatives of the

organizations identified several examples, which included

• DMA prepares and distributes action line reports on deceptive mail

problems, as well as other marketing issues. These reports are distributed

to approximately 800 to 900 consumer affairs professionals and press

contacts who are encouraged to share the reports with consumers. A

recent action line report, dated July 11, 1999, established a special

Sweepstakes HelpLine, which is intended to help various caregivers, such

as adult children, who care for elderly relatives; consumer affairs

personnel; and social service professionals address problems some people

may have with sweepstakes.

• AARP has conducted 26 training seminars throughout the United States

that were attended by about 1,300 law enforcement professionals. The

seminars were held during 1998 and provided the professionals with

information on deceptive mail, including sweepstakes, prize promotions,

and foreign lotteries.

• Arizona State University, in cooperation with AARP and the Office of the

Arizona Attorney General, hosted a conference entitled “New Directions:

Seniors, Sweepstakes and Scams.” The conference, which was held in

October 1998, was designed for individuals who have been and continue to

be involved in consumer education and awareness efforts. Among the

conference attendees were representatives from FTC, the Postal

Inspection Service, and NAAG. Information on deceptive mail marketing

practices was presented and attendees were encouraged to share this

information with consumers.

Activities of Nongovernmental

Organizations
Statement

Deceptive Mail: Consumers’ Problems Appear Substantial

Page 16 GAO/T-GGD-99-150

Mr. Chairman, this concludes my prepared statement. I would be pleased

to respond to any questions you or the members of the Subcommittee may

have.

For future contacts regarding this testimony, please contact Bernard L.

Ungar at (202) 512-8387. Individuals making key contributions to this

testimony included Gerald Barnes, Anne Hilleary, Lisa Wright-Solomon,

Anne Rhodes-Kline, and George Quinn.

Contact and

Acknowledgment
Page 17 GAO/T-GGD-99-150
Attachment I

Scope and Methodology

Page 18 GAO/T-GGD-99-150

In developing the scope and methodology for our work, we first obtained a

general description of the term “deceptive” as it could be applied to mailed

material. According to FTC, mailed material would generally be

considered deceptive if the material included a representation or practice

or if the material omitted information that caused a consumer to be misled

and eventually suffer some loss or injury, despite the fact that the

consumer behaved reasonably under the circumstances.

Both FTC and the Postal Inspection Service identified various types of

mailed material that have been used to induce consumers to remit money,

pay upfront fees, or purchase goods or services through deceptive means.

However, in many cases, the promised goods or services were not

delivered or were not of the quality that consumers may have reasonably

expected to receive. Some examples included

• lotteries from foreign countries or from states that did not have authorized

lotteries.

• chain letters that required consumers to remit payments to participants in

the chain letter scheme for which substantial financial returns were

promised but never delivered.

• mailed material that involved various types of consumer credit schemes,

such as loans, credit repair offers, and credit card solicitations, for which

advance fees were required.

• requests for charitable donations from organizations that were not

legitimate charities.

• mailed material that looks as if it has been distributed or endorsed by a

government agency, also referred to as government look-alike mail.

In some instances, mailed material may be illegal in that it violates specific

postal or other statutes. For example, chain letters that request money or

other items of value and promise a substantial return to the participants

are generally illegal. Such letters are considered a form of gambling and

sending them through the mail violates section 1302 of Title 18 of the

U.S.Code, the Postal Lottery Statute.

To obtain updated information about the extent and nature of consumers’

problems with deceptive mail, as well as consumer education efforts, we

attempted to contact the 17 federal, state, and local agencies and

nongovernmental organizations that we contacted for our September 1998
Attachment I

Scope and Methodology

Page 19 GAO/T-GGD-99-150

testimony. In our earlier work, we identified these agencies and

organizations as those which had been involved in dealing with consumers’

complaints about questionable or deceptive mail marketing practices

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

The 17 agencies and organizations included 2 federal agencies—FTC and

the Postal Inspection Service—as well as other state and local government

agencies and nongovernmental organizations such as

• state attorneys general offices for such states as Florida and West Virginia;

• local government offices that handled consumer protection issues; and

• various nongovernmental organizations including (1) American

Association of Retired Persons; (2) National Consumers League, which

established National Fraud Information Center; and (3) Direct Marketing

Association.

Based on our most recent work efforts, we obtained information from 12

of the 17 agencies and organizations, which are listed in attachment II to

this statement. At the 12 agencies and organizations, we interviewed

officials and reviewed documents to obtain available information about the

extent and nature of consumers’ deceptive mail problems and consumer

education efforts. Also, we obtained and analyzed consumer complaint

data from FTC and Postal Inspection Service databases. In addition,

during the course of our work, we obtained from FTC, the Postal

Inspection Service, and 45 state attorneys general offices information on

specific law enforcement actions involving organizations, companies, and

individuals that attempted to defraud consumers through the use of

deceptive mail.1

To obtain information about the consumer complaint process at the Postal

Service, we interviewed postal headquarters officials in the Postal

Inspection Service and the Postal Service’s Office of Consumer Advocate.

Also, we interviewed postal officials at various field locations in different

parts of the country who were knowledgeable about the consumer

complaint process. Specifically, we spoke with consumer affairs and

marketing officials in postal district offices and inspectors in Postal

Inspection Service offices located in the metropolitan areas of Dallas,

Texas; Los Angeles, California; and Washington, DC. In addition, to obtain

 1

 According to FTC, for Project Mailbox in fiscal year 1998, five states did not identify such actions.

The states included Alaska, Louisiana, New Hampshire, Rhode Island, and Tennessee. Also, no such

actions were identified for the District of Columbia.
Attachment I

Scope and Methodology

Page 20 GAO/T-GGD-99-150

insight into how the consumer complaint process was implemented, we

visited 15 postal field facilities, including post offices and stations, that

were located in the metropolitan areas of Dallas, Texas; Los Angeles,

California; and Washington, DC. These locations were selected mainly

because staff from our Dallas Regional Office, as well as headquarters

staff, were available to conduct face-to-face meetings with appropriate

postal field employees.

In addition, we had an outside contractor conduct a survey to obtain

opinions from the U.S. adult population about specific types of deceptive

mail. Through the survey, we attempted to determine whether survey

respondents had received any mail delivered by the U.S. Postal Service

within the last 6 months involving sweepstakes or documents resembling

cashier’s checks that the respondents believed were in any way misleading

or deceptive.

We contracted with International Communications Research (ICR) of

Media, Pennsylvania, a national market research firm, to administer our

survey question, which was worded as follows.

“We would like to ask you a question concerning mail delivered by the U.S.

Postal Service. Within the last 6 months, have you received any mail

delivered by the U.S. Postal Service involving sweepstakes or documents

resembling cashier’s checks that you believe were in any way misleading

or deceptive?”

A total of 1,014 adults (18 and older) in the continental United States were

interviewed between November 18 and 22, 1998. The contractor’s survey

was made up of a random-digit-dialing sample of households with

telephones. Once a household was reached, one adult was selected at

random using a computerized procedure based on the birthdays of

household members. The survey was conducted over a 5-day period,

including both weekdays and weekends, and up to four attempts were

made to reach each telephone number.

To ensure that survey results could be generalized to the adult population

18 years of age and older in the continental United States, results from the

survey were adjusted by ICR to account for selection probabilities and to

match the characteristics of all adults in the general public according to

such demographic groups as age, gender, region, and education. Because

we surveyed a random sample of the population, the results of the survey

have a measurable precision or sampling error. The sample error is stated

at a certain confidence level. The overall results of our survey question
Attachment I

Scope and Methodology

Page 21 GAO/T-GGD-99-150

regarding the public’s opinion about misleading or deceptive mail are

surrounded by 95 percent confidence levels of plus or minus 4 percentage

points or less.

The practical difficulties of conducting any survey may introduce

nonsampling errors. As in any survey, differences in the wording of

questions, in the sources of information available to respondents, or in the

types of people who do not respond can lead to somewhat different

results. We took steps to minimize nonsampling errors. For example, we

developed our survey question with the aid of a survey specialist and

pretested the question prior to submitting it to ICR.

We did our work from November 1998 through July 1999, in accordance

with generally accepted government auditing standards. We did not verify

consumer complaint data obtained from FTC and Postal Inspection

Service nor did we verify data provided by FTC, Postal Inspection Service,

and state Attorneys General offices on specific law enforcement actions.
Attachment II

List of Federal, State, and Local Government

Agencies and Nongovernmental Organizations

Contacted and Their Locations

Page 22 GAO/T-GGD-99-150

Name of agency/organization Location

Federal government agencies:

Federal Trade Commission (FTC) Washington, D.C.

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

State government agencies (Offices of Attorneys General):

Connecticut Hartford, Connecticut

Florida Tallahassee, Florida

Local government agencies:

Citizen Assistance (Consumer Affairs) for City of Alexandria Alexandria, Virginia

Consumer Affairs Division for Montgomery County Rockville, Maryland

Nongovernmental organizations:

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

Arizona State University (Gerontology Program) Tempe, Arizona

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

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

National Consumers League (NCL)/National Fraud Information

Center (NFIC) Washington, D.C.

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

Source: GAO.
Page 23 GAO/T-GGD-99-150
Page 24 GAO/T-GGD-99-150
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