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. 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 (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 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 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 which the methods of initial contact with consumers were identified. 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.