[105 Senate Hearings]
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                                                        S. Hrg. 105-820




                               before the


                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION


                           SEPTEMBER 1, 1998


      Printed for the use of the Committee on Governmental Affairs


                       U.S. GOVERNMENT PRINTING OFFICE
 51102 cc                     WASHINGTON : 1999
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                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                       Lynn L. Baker, Chief Clerk



                  THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
DON NICKLES, Oklahoma                ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
                   Mitchel B. Kugler, Staff Director
               Ann C. Rehfuss, Professional Staff Member
               Linda J. Gustitus, Minority Staff Director
                      Julie A. Sander, Chief Clerk

                            C O N T E N T S


Opening statement:

    Senator Cochran..............................................     1
    Senator Levin................................................     2
    Senator Collins..............................................     5

                       Tuesday, September 1, 1998

Hon. Ben Nighthorse Campbell, a U.S. Senator from the State of 
  Colorado.......................................................     6
Ken Hunter, Chief Inspector, U.S. Postal Inspection Service......    10
Hon. Robert A. Butterworth, Attorney General, State of Florida...    13
Stanley F. Pruss, Assistant Attorney General in Charge, Consumer 
  Protection Division, Michigan Department of Attorney General, 
  State of Michigan..............................................    17
Richard A. Barton, Senior Vice President, Direct Marketing 
  Association, Inc...............................................    26
William E. Arnold, Director of Gerontology, Arizona State 
  University.....................................................    32

                     Alphabetical List of Witnesses

Arnold, William E.:
    Testimony....................................................    32
    Prepared statement with charts...............................    89
Barton, Richard A.:
    Testimony....................................................    26
    Prepared statement...........................................    82
Butterworth, Hon. Robert A.:
    Testimony....................................................    13
    Prepared statement with attachments..........................    59
Campbell, Hon. Ben Nighthorse:
    Testimony....................................................     6
    Prepared statement...........................................    43
Hunter, Ken:
    Testimony....................................................    10
    Prepared statement...........................................    47
Pruss, Stanley F.:
    Testimony....................................................    17
    Prepared statement...........................................    77


The New York Times article dated July 28, 1998, entitled 
  ``Sweepstakes Pit Gullibility and Fine Print,'' by Douglas 
  Frantz.........................................................   102
Letters to Senator Campbell from:
    Howard M. Metzenbaum, U.S. Senator (Ret.), Chairman, Consumer 
      Federation of America, dated Aug. 24, 1998.................   109
    Susan Grant, Vice President for Public Policy, Director, 
      National Fraud Information Center, National Consumers 
      League, dated July 17, 1998................................   110
Letter from Senator Levin to:
    Richard A. Barton, Direct Marketing Association, dated Sept. 
      4, 1998, with attachments..................................   112
Letter to Senator Levin from:
    Richard A. Barton, dated Dec. 23, 1998.......................   163
List of other names used by the debtor in the last 6 years.......   165
Additional copy submitted for the record from Senator Levin......   171
National Association of Attorneys General Resolution, 
  ``Establishment of Sweepstakes Subcommittee,'' adopted at 
  Summer Meeting July 13-16, 1998, Durango, Colorado.............   178
GAO Report entitled, ``PROPOSED LEGISLATION, Issues Related to 
  Honesty in Sweepstakes Act of 1998 (S. 2141),'' by Bernard L. 
  Ungar, Director, Government Business Operations Issues, General 
  Government Division, GAO/T-GGD-98-198..........................   180
``Synopses of Sweepstakes Complaint Letters'' provided to the 
  Subcommittee by the Florida Attorney General Bob Butterworth...   207
Magazine Publishers of America, Inc., prepared statement.........   216



                       TUESDAY, SEPTEMBER 1, 1998

                                     U.S. Senate,  
                Subcommittee on International Security,    
                      Proliferation and Federal Services,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:25 p.m. in 
room SD-342, Senate Dirksen Building, Hon. Thad Cochran, 
Chairman of the Subcommittee, presiding.
    Present: Senators Cochran, Levin, and Collins.


    Senator Cochran. The committee will please come to order.
    We are pleased to have all of you here for our hearing 
today. We are considering at this hearing a subject that 
aggravates and frustrates many Americans, the use of mass 
mailings that confuse and sometimes defraud consumers. We will 
examine some government look-alike mailings and sweepstakes-
type solicitations and try to determine what Congress can do to 
discourage the use of these fraudulent and misleading mailings.
    Each year the Postal Service receives thousands of postal 
customer complaints regarding the legitimacy of these mailings. 
A New York Times article on July 28 disclosed that from a 
contest at Reader's Digest Magazine in 1962, there now are over 
300 firms mailing more than 400 million sweepstakes offerings 
annually. Sweepstakes offers can result in big profits for the 
companies involved; in fact, consumers are four to five times 
as likely, we are told, to buy a product if a sweepstakes offer 
is involved.
    Since scheduling this hearing, our Subcommittee has been 
deluged with stories of consumers who have lost thousands of 
dollars--sometimes their life savings--to deceptive mailings. 
It is not just the sweepstakes offers that lure consumers into 
opening mail. Some mailers imply an association with the 
government. Other mailers cleverly entice consumers to join and 
contribute to or support organizations, or to buy unneeded 
products and services.
    In 1990, President Bush signed into law the Deceptive 
Mailings Prevention Act, a bill which was specifically designed 
to crack down on government look-alike mailings. Nevertheless, 
consumers continue to receive a lot of mail looking 
suspiciously like government documents, or offering services 
already provided by the government.
    We really have no way of finding out how many people have 
been taken in by deceptive mailings or the amounts of money 
they have lost or spent, but estimates for both of these are 
very high. According to the Federal Trade Commission, 52 
percent of the complaints they receive on their Consumer 
Information System are related to sweepstakes, and over $40 
billion is lost to consumers annually as a result of 
telemarketing and sweepstakes scams, with telemarketing scams 
often originating in the mailbox.
    Over the years the Federal Trade Commission, the Postal 
Inspection Service, and State Attorneys General have joined 
forces to crack down on prize promotion operators. Just last 
year, three Federal agencies, 25 State Attorneys General, and 
numerous local law enforcement agencies formed a strike force 
to collect and review direct mail. Project Mailbox resulted in 
190 actions against companies that use the mail to con 
    This afternoon we will hear from three sets of witnesses. 
The first will be the distinguished Senator from Colorado, the 
Hon. Ben Nighthorse Campbell. He is the sponsor of S. 2141, the 
Honesty in Sweepstakes Act of 1998.
    Our second panel includes Ken Hunter, Chief Inspector of 
the U.S. Postal Inspection Service; the Hon. Robert A. 
Butterworth, Attorney General for the State of Florida; and 
Stanley Pruss, Assistant Attorney General for the State of 
    The third panel will be Richard A. Barton, Senior Vice 
President of the Direct Marketing Association, and Dr. William 
Arnold, Director of Gerontology at Arizona State University.
    We are very pleased to have the cooperation and the 
assistance of this distinguished group of witnesses. We have 
also received some written statements from interested persons, 
and we are including those statements in our hearing record.\1\
    \1\ The two prepared statements referred to appear in the Appendix 
on pages 207 thru 219.
    Before welcoming and recognizing our friend from Colorado, 
let me yield to my distinguished colleague on the panel, the 
Senator from Michigan.
    Senator Levin.


    Senator Levin. Mr. Chairman, thank you for holding these 
hearings. It is a subject that I and my staff have devoted a 
tremendous amount of time to, and it is important that this 
Subcommittee take up this subject.
    ``You are a guaranteed cash winner.'' ``You are a 
guaranteed winner.'' ``Guaranteed winner notification.'' Those 
phrases and others like them are used in millions of deceptive 
mail solicitations every year to get unsuspecting consumers to 
spend money to collect their hoped-for prizes. Not only are 
they told in black and white that they are winners, they are 
told that they are guaranteed winners of cash, cars, vacations, 
or other prizes. All the recipient has to do, according to many 
of these so-called sweepstakes offers, is paste the right 
color-coded sticker on the right envelope and send it to the 
right address at the right time, and Ed McMahon or some company 
representative or a ``prize patrol'' will be at the consumer's 
doorstep to present the winnings.
    Is such a guarantee real? No. It's a deception. The odds of 
winning some of the major sweepstakes, such as the Publishers 
Clearinghouse and American Family Publishers, range from 120 
million to 1 to as much as 600 million to 1. With these odds 
and deceptive practices, it's not surprising that sweepstakes 
complaints account for more than 50 percent of the Federal 
Trade Commission's Consumer Information System complaints, and 
are one of the top problems reported to the U.S. Postal Service 
and State Attorneys General.
    Deceptive language and complex prize package solicitations 
are received by unsuspecting consumers every day. In fact, one 
response to a sweepstakes solicitation usually guarantees that 
a person will get dozens more. The more you buy from a company 
offering the sweepstakes, such as magazine subscriptions, 
gardening supplies, or jewelry, the more sweepstakes 
solicitations you're going to receive. Sweepstakes 
solicitations often include two envelopes--one if you place an 
order to buy a product promoted by the company, and one if no 
order is placed. The envelopes have different addresses, or 
require different color-coded labels to identify those entries 
that contain orders from those that do not. Because of this, 
consumers are led to believe that they have a better chance of 
winning if they buy something, although current law prohibits 
different treatment between customers and non-customers.
    Unfortunately, the elderly are the most vulnerable to the 
deceptions. Senior citizens are inclined to read their junk 
mail more than the rest of the population, and often live alone 
and on limited incomes. The thought of winning a big prize to 
give them resources for a better, less lonely lifestyle and to 
provide an inheritance to their children or grandchildren is 
very appealing. In the extreme cases--and there are far too 
many of them--senior citizens can spend so much money on 
sweepstakes promotions that they can no longer pay the rent. 
Frequently, a family member or a caregiver must step in.
    State Attorneys General throughout the country receive 
thousands of complaints about deceptive sweepstakes promotions 
from the elderly. In Florida, a judge in the Guardianship 
Division wrote the Attorney General of Florida regarding the 
exploitation of the elderly by the sweepstakes industry. He 
said, ``Several times a week it is necessary for our Court to 
determine the capacity of a senior citizen and to protect their 
assets from these types of sweepstakes exploitations.''
    Solicitations are cleverly presented--the color, print 
size, and graphics of the solicitation. The materials are 
assembled in a way to deceive the mind and the eye.
    Take a look at this solicitation up here. The big print is 
that--it's an ``Official Notification, Guaranteed and Bonded 
Sweepstakes.'' Big print: ``The judging is now final. Mr. Bruce 
[last name] is one of our $1,666,675 winners.'' Boy, you can't 
miss that if you're that Mr. Bruce whatever your last name 
    \1\ The information submitted by Senator Levin appears in the 
Appendix on page 172.
    And then look at the next big print. ``It's confirmed. Mr. 
Jack Sears and Mr. Bruce so-and-so have both won that prize.''
    Well, if you look at the print--which nobody can read--but 
if you get a magnifying glass, you'll see a little tiny line 
under that green line. That's the hook. That little line says, 
if anybody ever pauses to read it--and if you can't read it, if 
you don't have a magnifying glass--``If you have and return the 
grand prize winning number, we'll officially declare that it's 
confirmed that Jack Sears and Mr. Bruce have both won 
    Now, that to me is about as deceptive as you could possibly 
even conceive of. That little line, unreadable, is what takes 
these deceptive practice schemes off the hook under current 
law, and that's one of the things we've got to change. There 
are a number of proposals that would do exactly that.
    One of our witnesses, an expert in gerontology and 
communications, will have more to say on that later.
    In Michigan we have one company, Michigan Bulb Company, 
that relies heavily on sweepstakes to attract and keep 
customers of its gardening supplies. It uses offers such as a 
guarantee of winning $250 in cash. Well, when you read the 
small print on the back of those kinds of offers, you will see 
where the hooks are and where the qualifications are.\1\
    \1\ Letter to Richard A. Barton from Senator Levin, dated September 
4, 1998, with attachments appear in the Appendix on page 112.
    Look at the small print. That's what now, under current 
law, lets these folks get away with the kind of scams that 
they're doing. It's those kinds of rules that nobody can read 
because they're so tiny, and no one would--after they've been 
told that they've won these huge prizes.
    Recently, 32 Attorneys General and the District of Columbia 
got American Family Publishers--50 percent owned by a 
subsidiary of Time-Warner, by the way--to agree to stop certain 
deceptive sweepstakes practices. American Family Publishers 
also agreed to pay the States $1.25 million as a result of a 
promotion that had induced a number of people to actually fly 
to Florida to claim a $11 million prize. You've got people 
flying to Florida with money they don't have to claim a prize 
they haven't won because of these deceptions.
    But at the same time that action was being taken against 
American Family Publishers, another deceptive mailing was being 
sent out by Guaranteed and Bonded Sweepstakes, that's a 
subsidiary of Time-Warner, guaranteeing that the recipient was 
a confirmed winner of $1.6 million. That's the one we referred 
to. So often, when an action is taken against one company, 
another company springs up under a different name and continues 
the same practice.
    The Chairman has referred to Project Mailbox, which AARP 
has run, to go after some of these phony prize awards, and what 
it showed was just the extensive nature of this scam.
    Now, we have some laws on the books that prohibit the 
fraudulent or deceptive use of the mails. They just simply do 
not go far enough. Several of our witnesses will have 
suggestions for ways to strengthen current law and, hopefully, 
stop these abusive practices.
    Here are a few suggestions that I think are serious and we 
ought to adopt:
    One, give the Postal Service subpoena authority.
    Two, make specific deceptive sweepstakes marketing 
techniques illegal.
    Three, increase the fines. A $10,000 fine for violation of 
an order doesn't do much. That's petty change for these scam 
    We've got to have civil and administrative fines without 
first going through the order process. We ought to be able to 
have a fine, as we do in other laws, for violation of the law 
without first having to get an order of the FTC or the Postal 
Service, that in turn is violated. That's one step too many. 
It's unnecessary. We don't do it in other laws and we shouldn't 
require it here.
    So we've just simply got to take the profit out of the 
sweepstakes scams so that we can shut down these deceptive 
operations. Congress has made efforts in the past to stop the 
scams, but they continue unabated. And in this cat and mouse 
game it is time for the government to stop acting like a 
pussycat, and instead become a tiger against the scammers who 
so shamelessly prey on the vulnerable with such deception and 
    Again, my thanks to you, Mr. Chairman, for scheduling this 
    Senator Cochran. Thank you, Senator Levin.
    We're glad to have with us our distinguished colleague from 
Maine, Senator Collins.


    Senator Collins. Thanks very much, Mr. Chairman.
    I want to start by thanking you for holding this hearing to 
explore deceptive mail and sweepstakes fraud, including the 
legislation that has been introduced by the distinguished 
Senator from Colorado, Ben Nighthorse Campbell, who has been a 
real leader in this area.
    Deceptive mailings and sweepstakes fraud are a nationwide 
problem, and certainly my State of Maine is not immune from 
this problem. A constituent from Portland, Maine recently sent 
me one mailing that proclaimed in bold print, ``You were 
declared one of our latest sweepstakes winners, and you are 
about to be paid $833,337 in cash.'' Of course, this individual 
was not really a winner, as the fine print stipulated that the 
money was his only if he had the winning number and returned 
the grand prize winning number in time. But at least on this 
sweepstakes entry there was some fine print. Some mailings are 
even more deceptive.
    Another constituent of mine from Machiasport recently 
received a notice marked ``Urgent Delivery: A special 
notification of cash currently being held by the U.S. 
Government is ready for shipment to you.'' This looks very 
official and refers to the U.S. Government holding cash 
benefits. On the back of this, which says ``Official Notice, 
Special Notification,'' it says that the consumer has only to 
send in $9.97 in order to collect the money held by the Federal 
    I wonder, Mr. Chairman, how many innocent consumers in 
Maine and throughout the Nation received this notice, thought 
that the Federal Government did indeed hold some cash that was 
due them, and sent in the $9.97.
    Now, I realize that there are some companies that promote 
legitimate sweepstakes and do so in a responsible manner, but 
too many are engaging in deceptive and fraudulent practices to 
increase profits or make a quick buck at the expense of the 
American consumer. And as Senator Levin has pointed out, 
frequently they are targeting the most vulnerable citizens, our 
elderly, who may be living on very limited incomes.
    As Chairman of the Permanent Subcommittee on 
Investigations, the agenda of the Subcommittee has focused on a 
lot of consumer fraud areas. We heard testimony in July during 
a hearing on telephone fraud from the National Consumers League 
that sweepstakes fraud consistently ranks as one of their top 
consumer complaints.
    Mr. Chairman, we all want to make sure that we don't impose 
unnecessary regulation or legislation on private industry, but 
time and time again we hear from people who are engaged in 
deceptive practices that the consumer just has to be more 
careful, sort of the ``consumer beware'' approach. The problem 
with that is no matter how careful a consumer is, if the 
consumer is dealing with mailings that are deceptive and 
fraudulent, it is very difficult for even the most cautious and 
educated consumer to make informed and responsible choices.
    So again, Mr. Chairman, I commend you for your leadership 
in this area and I look forward to hearing the testimony of our 
witnesses today.
    Senator Cochran. Thank you very much, Senator.
    We are pleased that Senator Ben Nighthorse Campbell is here 
today to appear as the first witness on this subject.
    Senator, we welcome you and compliment you on the work you 
have done in this area, and would like you to proceed.

                   FROM THE STATE OF COLORADO

    Senator Campbell. Thank you, Mr. Chairman, and thank you 
for scheduling this hearing on S. 2141, the Honesty in 
Sweepstakes Act of 1998.
    \1\ The prepared statement of Senator Campbell appears in the 
Appendix on page 43.
    Very frankly, after hearing the comments of the Ranking 
Minority Member, Senator Levin, I am beginning to think my bill 
doesn't go far enough. But clearly it is a vehicle on which I 
look forward to working with you and Senator Levin and all 
those, including Senator Collins, who have shown a great deal 
of interest in this issue.
    But I believe the Honesty in Sweepstakes Act would be a big 
step in protecting consumers from deceptive mass mailing and 
marketing tactics. All three of you have alluded to the many 
stories you have heard from your own constituents. The letter 
that Senator Collins referred to as a constituent's letter is 
this letter, by the way; this was received by one of my staff 
members here in the Senate. It must have went out to millions 
of people, hundreds of millions of people, perhaps.
    I believe that we are long overdue in trying to protect 
people from the ploys that are done by sweepstakes companies. 
They basically prey on the hopes and dreams of people, and the 
situation is clearly getting worse. I think this bill will go a 
long way toward helping to protect our country's most 
vulnerable citizens, the susceptible people like seniors, 
perhaps those who are less educated, and certainly the poor. I 
have an education; I think I can read reasonably well; I think 
I understand generally what I am reading. But when I get these 
things in the mail, very frankly, they are so realistic, and 
there are ones that look like they are actually stock options. 
They have very flowery edges. When you first look at them, you 
think that they're negotiable, that you might be able to take 
them to the bank or somewhere and get money for them. Clearly, 
that's not true.
    The New York Times, Mr. Chairman--you alluded to the 
Tuesday, July 28 article in The New York Times. It was a front-
page article. Let me read just a couple of sentences from that 
article. This is part of it, about a lady by the name Edwards, 
an 88-year-old widow who played magazine sweepstakes and 
similar promotions passionately for years. In a 54-day period 
in 1995 she wrote 148 checks to 56 contests, and her family 
estimates that in 5 years she has spent more than $60,000 on 
magazines that she never read, and worthless prizes, without 
ever winning a dime. That's a good example.
    One part of the article talks about a man that was 
literally driven to suicide because he became destitute playing 
these sweepstakes games.
    It talks about the American Family Publishing Company that 
is involved in 26 class action civil suits and 11 suits brought 
by individuals, seeking millions of dollars in restitution.
    It goes further to talk about the kinds of things you 
mentioned, the bold print that says things like, ``It's down to 
a two-person race with $11 million. You and one other person 
were selected as the winning number. Whoever returns this first 
wins it all.'' I mean, they're really encouraging you to 
respond. Of course, the tiny print that you can't even see with 
a magnifying glass--remember, if you shrunk this thing down to 
the size you normally see in a letter, you can imagine how tiny 
that print gets that tells you you have to buy a bunch of 
magazines or do something else, jump through a bunch of hoops, 
but spend money in order to qualify as the one person that wins 
the $11 million.
    The article goes on to cover a number of other things that 
I think are just totally misleading. I won't read them all but, 
with your permission, Mr. Chairman, I would like to include 
this July 28 newspaper article for the record.\1\
    \1\ The article from The New York Times, dated July 28, appears in 
the Appendix on page 102.
    Senator Cochran. Without objection, so ordered.
    Senator Campbell. It could be anybody. Certainly, Mr. 
Chairman, you're an educated person, but if you got a letter 
saying, ``Thad Cochran, you have already won $24 million,'' it 
would probably get your interest. It does me, too. I have seen 
so many of them now that I just throw them away, but the first 
two or three of those that you get are really deceptive, and 
only careful reading of the fine print tells you that we are 
really skirting the edge on what I call the ``truth in 
advertising'' laws. We already have these in cigarettes and 
liquor and a number of other things that we think are dangerous 
for consumers, or where they might be deluded into thinking 
that they're going to get something for nothing, and we try to 
inform them. I think it's time we do that in our sweepstakes 
area, too.
    I know that some people say that this may go too far and 
may infringe on First Amendment rights. It would seem to me 
that if there is a danger of doing that, then clearly it would 
have been thrown out by the courts a long time ago in 
advertising on other products that I've already mentioned.
    But I think we do have a problem that's growing. We don't 
know the exact extent of it. The GAO is conducting a study now 
to try to find out the extent of it, but each State seems to be 
left to its own devices. In some States, the Attorneys General 
take them up if they get complaints, but their basic mission is 
not to protect everybody from every kind of abuse by different 
companies, and very often you are left to your own devices to 
go to court, and you are obviously up against a pretty big, 
well-oiled machine with a lot of lawyers, and an individual--
particularly people of limited means--simply can't fight it 
through the courts and they are left pretty much at risk.
    While drafting this bill I consulted with the offices of 
both Colorado Attorney General Gale Norton and Florida Attorney 
General Robert Butterworth. One key result of these 
consultations was the inclusion of a clause stating that 
nothing in this bill would preempt State law. This clause 
reserves the right of each State to enact its own additional 
guidelines or to take other legal action as it sees fit. I 
certainly appreciate their input and I am pleased to see that 
Attorney General Butterworth is here today and will be 
testifying a little bit later.
    With that, Mr. Chairman, in the interest of time, I will 
just go ahead and submit the rest of my testimony for the 
record because I, too, look forward to hearing some of the 
testimony. But I know, as you do, that we are far down this 
road. We need to do something about it.
    I would also like to include several other things that we 
have for the record. One of them is this letter from the 
Consumer Federation of America that endorses this bill. Senator 
Metzenbaum is very active with this group, our former 
colleague, and he also sent a letter with it, and I would ask 
that that be included in the record.\1\
    \1\ The letter from Howard M. Metzenbaum, U.S. Senator (Ret.), to 
Senator Campbell, dated August 24, 1998, appears in the Appendix on 
page 109.
    Senator Cochran. Without objection, it will be included in 
the record.
    Senator Campbell. We also have some testimony and a letter 
from the National Consumers League, also in support of this 
bill. They state, ``This legislation would be very effective in 
preventing misleading and deceptive sweepstakes 
solicitations.'' And with your permission, I would like to also 
include that in the record, too.\2\
    \2\ The letter from the National Consumers League, to Senator 
Campbell, dated July 17, 1998, appears in the Appendix on page 110.
    Senator Cochran. It will also be included in the record, 
    Senator Campbell. With that, Mr. Chairman, I thank you for 
your consideration and look forward to hearing the witnesses.
    Senator Cochran. Thank you very much for being here.
    I don't have any questions. I compliment you on your 
initiative in trying to get the Senate's attention by 
introducing this legislation. We do need to respond in an 
effective way to this crisis, and I think this will be very 
helpful to us as we consider the options for doing just that.
    Senator Campbell. Thank you, Mr. Chairman.
    Senator Cochran. Senator Levin, do you have any questions?
    Senator Levin. I just have one question, because I think 
this bill is on the right track.
    How does the Postal Service in matters like this know what 
is inside the envelope in order to implement--for instance, 
section 2 of your bill, which says that ``matters otherwise 
legally acceptable in the mail that constitute a solicitation 
or offer in connection with the sale or promotion of a product 
that uses any matter resembling a negotiable instrument shall 
not be carried or delivered by mail.'' How does the Postal 
Service check to see what is inside of that envelope?
    Senator Campbell. I'm afraid I don't have an answer for 
    Senator Cochran. If you'll let me, Senator, I may be able 
to help.
    I received one that looked just like a check the other day. 
It said, ``Pay to the Order of Thad Cochran,'' with my address 
here. That's inside the letter, but through the window you can 
see that it says that. That's what every check usually says.
    Senator Levin. And how do they know it's not a check?
    Senator Cochran. Well, then the Postal Inspection Service 
can confiscate it, I think. That's what the Campbell bill would 
do. It gives the Postal Inspection Service authority, when 
something actually clearly shows that it is a check--I think 
that's what the language says--that this falls within the 
prohibition of S. 2141. But this, apparently, is not prohibited 
by law at this time.
    This looks like an official check. Look, an eagle up here 
in the corner of the envelope; ``Buy and hold U.S. Savings 
Bonds;'' ``United States Mail;'' ``Special Notice to the 
Postmaster: Intended for delivery only to addressee. Please 
handle in accordance with postal regs.'' It sounds like this is 
a check, right? I opened it thinking that it might be a check. 
Do you know what it was? It was an offer to loan me money. ``No 
equity required. Interest may be tax-deductible. Borrow $50,000 
from us on your home as equity.''
    This ought to be prohibited.
    Senator Levin. I would love to be able to prohibit that, 
too. My question, though, is how does the Post Office know that 
it's not a check when they look at the outside? Do we want them 
to open the letter--everything that looks like a check?
    Senator Campbell. I think the probable answer would be that 
people who get these letters are the ones who open them, and if 
they are concerned about it, they then turn them in to the 
Postal Inspectors.
    Senator Levin. Some responsibility has to lie with the 
people who are getting these checks, who are being deceived. I 
don't think the Postal Service should have the authority to 
just arbitrarily open letters because they assume there might 
be some sweepstakes offer in it.
    Thank you, Mr. Chairman.
    Senator Cochran. Senator Collins.
    Senator Collins. I have no questions, thank you.
    Senator Cochran. Thank you very much, Senator Campbell.
    Senator Campbell. Thank you, Mr. Chairman.
    Senator Cochran. If our second panel of witnesses will 
please come forward, we will proceed to receive your 
    The second panel includes Robert Butterworth, Attorney 
General of the State of Florida; Stanley Pruss, Assistant 
Attorney General of the State of Michigan; and Ken Hunter, who 
is the Chief Inspector of the Postal Inspection Service.
    Mr. Hunter, I think I will call on you first and ask you to 

                       INSPECTION SERVICE

    Mr. Hunter. Thank you, Mr. Chairman. I first want to thank 
you and your fellow Senators for your interest in this issue of 
sweepstakes and government look-alike mailings. Your efforts 
here provide one more means to educate the American public to 
protect themselves. With your permission, I would like to 
submit my written testimony for the record and only briefly 
summarize it here.
    \1\ The prepared statement of Mr. Hunter with attachments appears 
in the Appendix on page 47.
    Senator Cochran. That's certainly welcomed, and we 
appreciate that. It will be included in the record in full.
    Mr. Hunter. Thank you.
    For over 200 years the Postal Inspection Service has been 
the investigative arm of the U.S. Postal Service. Our 
responsibilities include protecting postal employees, the 
mails, and the Postal Service from attack; auditing some postal 
operations; and protecting consumers from being victimized 
through the mails.
    Congress originally created the Nation's mail service to 
maintain a reliable, efficient, effective, and secure means of 
communication. A recent Harris Poll affirms that the American 
public feels significantly more confident about the security of 
the mail than the telephone, Internet, or other means of 
electronic communication.
    Postal Inspection Service employees are dedicated to 
preventing unscrupulous promoters from damaging that confidence 
in the mails.
    This hearing calls attention to sweepstakes promotions that 
may deceive the public into believing they are prize winners. 
However, there are many sweepstakes promotions which are 
forthright in their approach to the consumer and do not violate 
any postal statute. The hearing also examines other marketing 
programs that falsely imply that they are affiliated with the 
    A detailed description of the existing civil and criminal 
laws and their application to sweepstakes, lotteries, and 
government look-alike mailings is included in my prepared 
testimony, but I would like to emphasize that if those statutes 
were adequate, we would not be here today. Senator Campbell has 
introduced legislation to deal with a gray area, the guaranteed 
winner claim that appears in many sweepstakes. We support the 
concept underlying the legislation and commend Senator 
Campbell. In my written testimony I have suggested some 
possible means of making the legislation even more effective; 
perhaps we could call them the ``Levin amendments.''
    Turning to the second type of promotion, the so-called 
government look-alike mailings, I am pleased to report that as 
a result of the enactment of the Deceptive Mailings Prevention 
Act of 1990, which you referred to, we have seen a decrease in 
the number of complaints regarding these kinds of mailings. 
Nevertheless, we continue to receive too many complaints.
    At this time I would like to present to you examples of a 
sweepstakes scheme, a government look-alike scheme, and an 
awards scheme in which the Subcommittee staff expressed an 
    The first example, the ``Union Gram,'' is a sweepstakes 
solicitation. It's a notice alleging that funds were being held 
that the recipient was entitled to, and offering an additional 
redeemable documentation package in return for a $19 processing 
fee. Those who sent in the fee received a booklet of almost 
worthless discount coupons. The promoter has signed a consent 
agreement to make refunds to all customers who complained about 
the promotion, and to permanently discontinue mailing the 
    The second example, ``Cash Claims Service,'' using 
addresses at commercial mail receiving agencies in New York, 
Washington, and Arizona, mailed a series of postcards 
soliciting $9.97--Senator Collins, this is the one that you 
held up--for ``immediate delivery of up to $775 cash,'' 
allegedly being held by the government. Ultimately, the 
promoter agreed to a cease and desist order to permanently 
discontinue the scheme, return the mailed-in responses, and to 
make refunds.
    Blair Down, a Canadian using a New York address, operated a 
series of promotions using different business names, and 70 
different return mail addresses in the United States. He mailed 
millions of solicitations, many of which were sent to elderly 
recipients, representing that they had won valuable prizes. 
Those who sent in the requested fees received nothing in most 
cases. This exhibit is just one of the many solicitations that 
he used. I would like to direct your attention to the fine 
print on the bottom of the regular-sized copy you see on the 
chart, and I hope that copies were also provided to you for 
your review. As you can see, it is difficult to ascertain the 
rules of the contest, probably even with a magnifying glass.
    While Mr. Down was conducting these promotions, he was in 
fact under indictment in Seattle, Washington, as a result of 
his involvement in telemarketing and direct mail ventures.
    In February, a civil complaint was filed against Mr. Down 
alleging that he was engaged in mail fraud. The District Court 
issued an injunction allowing us to detain his mail, and an 
order freezing his bank accounts. Ultimately, a settlement was 
reached in which he agreed to forfeit $12 million in the 
Seattle case, which will be used to make partial restitution to 
the victims in both cases.
    While I am proud of our success in conventional law 
enforcement efforts, I am convinced that arrests, convictions, 
and civil judgments are only part of the way to effectively 
deal with consumer fraud. The results, unfortunately, of these 
efforts only come after the victims have lost their money and 
the con artists have spent it.
    For this reason we have been working closely with consumer 
groups and industry to develop fraud and loss prevention 
strategies and share best practices. These efforts have 
produced dramatic results in the areas we have targeted. 
Currently we are working with the Federal Trade Commission, the 
Direct Marketing Association, U.S. Attorneys' Offices, the 
State Attorneys General, the Better Business Bureaus, State 
consumer protection groups, AARP, and others to help educate 
consumers regarding prevailing money order scams. Arming the 
public with information regarding scams is a good way to reduce 
the harm these promotions can cause, because all potential 
victims must make that initial choice to participate.
    I am particularly pleased to announce here today that we 
have joined with the National Council of Better Business 
Bureaus to make possible a vision we share. We are meeting with 
other consumer and government agencies to solicit their support 
in launching what will be the most ambitious fraud prevention 
initiative ever attempted. By early spring, we plan to mail to 
every home in America--over 120 million addresses--a card 
containing valuable telemarketing fraud prevention tips and 
providing an 800 phone number to obtain additional assistance. 
The card is being designed for display by the telephone as a 
reference and prevention tool.
    My written testimony includes several possible improvements 
in the statutes used to deal with deceptive mail order 
promotions. Briefly, these include the following, as was 
suggested in part by Senator Levin.
    First, amending the false representation statute to require 
that promoters disclose their actual name and address;
    Second, at present, multiple District Court actions are 
needed to obtain injunctions where the promoters use addresses 
in more than one judicial district. We recommend allowing any 
District Court with jurisdiction to issue one order that would 
cover all addresses;
    Third, we are often frustrated by seeing con artists we 
have driven out of the mails simply continue the same scam, 
using telephones and private delivery services. We would like 
you to consider amending the law to permit the courts to issue 
civil penalties against those who follow this course;
    Fourth, we recommend that authority be established to 
impose financial penalties upon persons who mail nonmailable 
matter; and
    Fifth, as Senator Levin suggested, we suggest you consider 
providing the Postal Service with administrative subpoena 
authority, similar to that granted to other agencies, to 
improve our ability to take the prompt, effective action 
against mail order scams and lotteries. This drives at the 
issue on which you were engaged in the discussion with the 
Senator from Colorado.
    In conclusion, I assure you that the Postal Inspection 
Service will continue to combine aggressive investigations and 
widespread public awareness campaigns to rid the mails of 
fraudulent schemes. The American public's confidence in the 
mail is not only important to the Postal Service, but also to 
the many thousands of businesses that rely on the mail as an 
important marketing tool.
    Again, thank you very much for this hearing and allowing me 
this opportunity to discuss these important matters. We would 
be pleased to work with you regarding the legislative 
    Thank you.
    Senator Cochran. Thank you, Mr. Hunter, for your helpful 
testimony and your suggestions for changes in the law that 
might very well be more effective in preventing this kind of 
consumer fraud from being practiced.
    Our next member of the panel is Robert Butterworth, who is 
Attorney General of the State of Florida.
    We welcome you, Attorney General Butterworth, and invite 
you to proceed with your testimony.

                        STATE OF FLORIDA

    Mr. Butterworth. Mr. Chairman, Senators, thank you very 
much for this opportunity to appear before you today.
    \1\ The prepared statement of Mr. Butterworth with attachments 
appears in the Appendix on page 5900.
    Florida welcomes millions of visitors each year, and we are 
delighted to have them. They are very essential to our State. 
However, there is one type of visitor we'd rather not have, 
namely, those who are lured to Florida not by its climate and 
tourist attractions, but--as Senator Levin stated--by empty 
promises of instant wealth. These are the unfortunate souls who 
fall victim to the kind of cynical deception that has become 
all to common in the world of sweepstakes marketing.
    By now, most Americans are probably familiar with the 
people I am talking about. Their sad stories have appeared on 
national TV news broadcasts and in newspapers throughout the 
country. Their destination is Tampa, Florida, where entries for 
one of this Nation's largest sweepstakes operators, American 
Family Publishers, are processed. They come to claim the 
millions of dollars they are certain they have won, or are 
about to win, because a celebrity spokesman assured them as 
much in a letter. In many instances they come at a cost that 
they cannot afford.
    One young single mother of two borrowed $1,500 from her 
sister so she could fly to FLorida to claim her ticket out of 
poverty and a rough neighborhood in Baltimore. Convinced she 
was one of only two people in the running for a $10 million 
prize, she appeared at the processing center with her two 
little daughters in tow. Instead of confirmation of her good 
fortune, she received ridicule from a young office manager, who 
in essence spat on her dreams and sent her away.
    We have a working relationship with the taxicab drivers at 
the airport, as well as the Greyhound Bus Station. They will 
take the people to American Family Publishers and wait for 
them. They will then take them to our office.
    While the national spotlight has fallen on people such as 
this unfortunate young woman, they merely embody the most 
extreme symptom of an underlying problem that affects millions. 
Direct mail marketers have learned that tying the purchase of a 
product to a sweepstakes will enhance the chances of a sale. 
They have also learned that the more they can blur the 
distinction between entering a sweepstakes and purchasing a 
product, the more successful they will be in selling magazines.
    I may question the integrity of many sweepstakes marketers, 
but I do not question their intelligence. They are masters at 
devising complex and convoluted solicitations intended to 
confuse the average consumer and generate a sale.
    While American Family Publishers is by no means the only 
company to employ deceptive tactics, our experience with that 
firm illustrates what we are up against in combatting 
sweepstakes swindlers. Last February, Florida filed a civil 
complaint against American Family Publishers and its celebrity 
spokesmen, Ed McMahon and Dick Clark. We did so after months of 
discussions with the company failed to resolve our concerns 
about deceptive marketing practices. It was during those 
discussions, which included Florida and many other States, that 
American Family Publishers launched a particularly deceptive 
solicitation--while they were negotiating with us, 30-some-odd 
States, they then launched another deceptive solicitation. 
Because of that action and its harmful impact on consumers, we 
did not feel we could continue participating in such multi-
State talks.
    Among tactics used in the solicitation were the false 
suggestions that recipients were one of only two winning ticket 
holders competing for an $11 million prize. We've all seen 
those. The company also placed a tight deadline on claiming the 
prize, then required those who did not buy magazines to follow 
a more cumbersome and time-consuming process to enter the 
contest than those who did buy magazines. If you bought a 
magazine, you put the stamp on, you mailed it to Tampa. If you 
didn't buy a magazine, you clipped out--it says, ``very 
carefully clip out'' this little coupon, Scotch tape it--don't 
staple it, don't paper-clip it--Scotch tape it or glue it to an 
envelope, and it then goes to a non-order center in Waycross, 
Georgia. Remember, the one that gets to Tampa first wins, so if 
you put a stamp on it and order a magazine, it goes right to 
Tampa; if you decide, as you are allowed, to not buy a product, 
it goes to Waycross, Georgia. Most people think that if you 
mail it to Tampa, it might get to Tampa quicker than if you 
mailed it to Waycross, Georgia, and they're probably right.
    The objective of such tactics is to convince the consumer 
that he or she must act quickly to claim the prize, and that 
the best way to do that is to purchase magazines. Our files are 
filled with consumer complaints which prove that these and 
other deceptive tactics actually worked--not only for American 
Family Publishers and the sale of magazines, but for other 
sweepstakes operators selling a wide variety of products.
    The most disturbing of these cases involve especially 
vulnerable individuals such as the elderly, the inform, and 
those with very limited means. An elderly gentleman from 
Clearwater, Florida, who suffers from dementia spent $30,000 
with Publishers Clearinghouse in only 18 months. When we 
visited him, it was hard for us and him to get around his 
apartment at the same time, he had so many magazines and other 
things that he had purchased via sweepstakes.
    There is the 80-year-old lady from Seattle who postponed 
her scheduled surgery so that she would be home when her $10 
million check was to arrive.
    A 78-year-old woman from Winter Springs, Florida, lives on 
food stamps and Social Security, but she could not resist the 
sweepstakes offers that came into her mailbox. She is now being 
hounded by collection agencies because the purchases she made 
to enter those sweepstakes were made with worthless checks. 
Obviously, she wasn't worried about her check being worthless, 
because she was going to win $10 million.
    It would be simple to write of such cases with the axiom, 
``A fool and his money are soon parted,'' but these people, as 
we know, are not fools. They are our neighbors, our parents, 
our grandparents, all good people who have fallen victim to 
companies that have sacrificed decency and ethics on the altar 
of the bottom line.
    What is more, no one is beyond the reach of such companies. 
A couple months ago we filed our complaint against American 
Family Publishers, and a letter from the company, signed by Ed 
McMahon and Dick Clark, was delivered to my Tallahassee office. 
What I thought happened was that they were willing to settle 
their case because they thought they were wrong, but when I 
opened the letter I got a real big surprise. ``Attorney 
General,'' the letter said, ``you will definitely win the cash 
or merchandise prize that appears on your prize claim number 
    I really thought about taking action against them, but I 
didn't. And the reason why I didn't is that this really did 
come to my office on April 1, and I believe that that probably 
is the only day that that particular type of solicitation 
should be in our mailboxes. So I thought that they probably 
would have a pretty good defense against that particular suit.
    But then I learned later that I was in real good company 
because a similar letter was sent to a church in Bushnell, 
Florida, informing God that He was a finalist for a multi-
million dollar prize from American Family Publishers.
    While the merchandise being sold may differ, the deceptive 
methods used by shady sweepstakes operators to sell them are 
often quite similar.
    One hallmark of the deceptive solicitation is a degree of 
complexity for submitting a free entry that would turn an IRS 
tax code writer green with envy. All but lost in that 
deliberate complexity is the message that no purchase is 
necessary to enter the sweepstakes. Not only is that message 
obscured or given little or no prominence; it is often 
contradicted by the content of the solicitation piece.
    As Senator Collins stated, they use such terms as ``special 
handling'' and ``rush orders,'' often used to create the 
illusion of urgency, even though all orders are obviously 
handled in the same fashion.
    False deadlines are designed to elicit immediate responses, 
even though a sweepstakes might not close for more than a year.
    Our investigation of American Family Publishers revealed 
that people who purchased magazines through a sweepstakes often 
received two invoices, just days apart. This is sometimes a 
second part of the scam. Once they get you to buy the magazine, 
they will then send you a bill, and then a few days thereafter 
you will get another bill. Many people, believing that they 
didn't pay the first bill, will pay the second bill. Such 
tactics are intended to mislead consumers, especially the 
elderly, into paying two, three, or four times. You would 
assume that if you pay two or three times for the same year, 
what you'll end up doing is getting some money back. That's not 
what happens. You end up getting that magazine maybe 2, 3, 4, 
or 5 years in the future, and many children and grandchildren 
are finding out that their parents or grandparents had paid-up 
subscriptions well into the next century. The reason for that 
problem, we believe, is that the solicitation company will 
receive about 80 or 90 percent of the actual billings the first 
year. Subsequent billings, they may not get any percentage on 
at all, so the more up-front money they can get, no matter for 
how many years, and we believe that a large percentage of the 
profit is there.
    We have to actually strike at these and other deceptive 
practices. There are reforms that we would like to see.
    First, there should be a clear separation between the 
process for entering a sweepstakes and the process for buying a 
product. In that same vein, any inferences that purchasing a 
product will enhance a consumer's chance of winning should be 
    Claims that a consumer is already a winner also should not 
be allowed unless that consumer is in fact an unconditional 
winner. The same holds in those instances when a sweepstakes 
operator declares every solicited consumer a guaranteed winner, 
then sends those who respond a worthless trinket. In addition, 
phony claims that the consumer has become part of an elite 
group still vying for the grand prize, when in fact they are 
not, should be prohibited.
    The number of solicitations sent to a single consumer for 
any particular sweepstakes should be limited to prevent 
exploitation of especially vulnerable individuals. You may very 
well get the fourth entry on the same sweepstakes; if you keep 
sending back cards, you will keep getting the solicitations.
    Along the same lines, there need to be restrictions on the 
sale of lists containing the names of sweepstakes players. 
These are so-called ``mooch lists'' and they are pure gold in 
this particular business because these are people who have 
already been defrauded. The companies will sell these lists 
from one company to another.
    The odds of winning a sweepstakes, which in some instances 
can be as high as one in hundreds of millions, should be 
clearly and prominently disclosed.
    Envelopes and letters designed to look like official 
documents should not be allowed.
    Safeguards to prevent multiple billings, and to prevent 
overpayments from being used to extend subscriptions without a 
consumer's permission, should be put in place.
    Sweepstakes promoters should include in their solicitations 
a toll-free phone number for consumers to call for more 
information about a particular contest.
    And finally, promoters should also provide a toll-free 
number that consumers can use to call to have their names taken 
off the company's mailing list, and those requests should be 
    The task of reforming the sweepstakes marketing industry 
cries out for a comprehensive nationwide approach. You have 
acknowledged the wisdom of that approach, and we certainly 
appreciate what you are doing here today.
    I would like to put into the record a resolution from the 
National Association of Attorneys General which we adopted at 
our summer meeting just a couple months ago, which established 
a Sweepstakes Subcommittee. It is chaired by Attorney General 
Jeff Modisett out of Indiana, and we would be glad to work with 
you, Senators, in this particular legislation.\1\
    \1\ The referenced resolution appears in the Appendix on page 178.
    Senator Cochran. Thank you very much, Assistant Attorney 
General Butterworth. We appreciate your testimony and your 
involvement in this effort to try to put a stop to this kind of 
fraud that is going on in our country. The resolution that you 
identified will be made a part of the record.
    Mr. Butterworth. Thank you, sir.
    Senator Cochran. Let us now turn to Stanley Pruss, who is 
Assistant Attorney General in the State of Michigan.
    We appreciate your being here, Mr. Assistant Attorney 
General. You may proceed.


    Mr. Pruss. Thank you, Mr. Chairman, Members of the 
    \2\ The prepared statement of Mr. Pruss appears in the Appendix on 
page 77.
    I am the Chief of the Consumer Protection Division of the 
Michigan Department of Attorney General, and I am presenting 
this testimony on behalf of Attorney General Frank Kelley, who 
regrets that his schedule doesn't allow him to be here today.
    This hearing provides a much-needed opportunity for greatly 
enhanced public scrutiny of marketing practices that are 
becoming increasingly unfair, deceptive, and unconscionable. It 
is our sincere hope and expectation that this hearing will not 
only heighten public awareness of these practices, but lead to 
meaningful State and Federal legislative action directed at 
combatting these shameful, predatory practices.
    Primary among these marketing practices are the so-called 
sweepstakes promotions that are being increasingly used by both 
unscrupulous and legitimate members of the business community. 
We are all aware of these promotions, as we are all--to varying 
degrees--victims. These mailings are almost always unsolicited 
and unwanted; they are annoying and frustrating, yet they have 
been specifically designed by marketing experts to be 
tantalizing and alluring. The envelopes are designed to compel 
the recipient to open and examine the contents, and this is the 
hook. The most direct and effective allurement is personalized 
deception such as, ``Carl Levin, you have just won $50 
million,'' in bold 16-point print.
    Many people, fortunately, recognize this calculated 
deception to sell goods or services and, most notoriously, 
magazines. Most of us simply don't have the time to unfold the 
numerous papers inside, to choose between the Jaguar or 
Mercedes Benz from the colored, adhesive-backed perforated 
stamps to affix to the return card. Yet many of our citizens do 
have the time, and these are, disproportionally, our senior and 
disabled citizens. The deceptive language of the promotions is 
so cleverly qualified that it is reasonable for some to think 
that they have won a prize that will bring sudden wealth. The 
sweepstakes promotions are, of course, designed to suggest that 
the recipient's eligibility for the prize is directly related 
to the extent of the purchase of the goods and services: Buy 
more and you will likely win more; respond quickly and you will 
win more; and never affix the ``no'' sticker to the return 
    The effectiveness of sweepstakes promotion as a marketing 
technique is in direct proportion to the magnitude of the 
deception and the cleverness with which it is purveyed. The 
marketing experts behind these unconscionable schemes know that 
there is a segment of our population that will, most literally, 
buy into the deception. And for that segment of our population, 
sweeps promotions can be devastating. The most vulnerable of 
our citizens will write check after check in response to these 
mailings in the elusive quest to win the grand prize.
    Worse, those who fall victim to the marketing predators 
once are deliberately and knowingly set up to become victims 
again and again, when their names and addresses are sold to 
others who simply steal their money. I have with me today 
letters and testimonials from relatives of persons, typically 
senior citizens, who have come to discover that their loved 
ones have been exploited and who have lost tens of thousands of 
dollars in response to prize promotions. Some of our 
complainants inform us that their relatives have garages and 
basements full of magazines and other items from prize 
promoters and telemarketers.
    The complaints include an elderly woman from Livonia, 
Michigan, who sent more than $20,000 to prize promoters; a 
grandmother from Spruce, Michigan, who spent more than $20,000 
on sweepstakes in 1996 alone; and a woman in Michigan who has 
spent more than $200,000 on sweepstakes promotions and whose 
home and garage are filled with sweepstakes promotional 
materials. These complaints beg the question of how one could 
ever expend such sums without becoming the focus, chosen target 
of predatory sweepstakes marketeers. The answer may line in 
this verbatim complaint we recently received from an 89-year-
old resident of Owosso, Michigan:
    ``In the past I have ordered various items from Publishers 
Clearing House, have paid for some and returned others; and 
have received several notices stating I am a winner. One time a 
person called and stated that I was one of the last five people 
to win and ask (sic) if I would be home on a certain date and 
to have my family present. The last notice took the cake, they 
now have my comments, my family and my neighbors (sic) comments 
to my winning. I will soon be 90, and do not feel that I need 
this sort of harassment. It is a fraud and unfair to me and 
others that they be allowed to continue such false advertising. 
I, like any other person, would like to be a winner, but 
obviously, this will not happen. Please, help to stop this 
fraud, or help to make me a true winner.''
    You, Members of this Subcommittee, can help every senior 
citizen by putting a stop to these deceptive sweepstakes 
    In Michigan we have a horticultural company, Michigan Bulb, 
that has used sweepstakes promotions that we believed were 
unfair and deceptive and thus violated the Michigan Consumer 
Protection Act. We threatened legal action against Michigan 
Bulb and it agreed to modify its Michigan sweepstakes mailings 
to address our concerns. The problem, however, is that the 
sweepstakes promoters find ever more ingenious ways to deceive 
and mislead the public. The compliance and enforcement efforts 
of States have not been able to stem the tide of deceptive 
solicitations nor anticipate the new marketing techniques that 
are increasingly being employed by an ever-widening array of 
    Of course, there are legitimate prize promotions that are 
effectively used by the best of our business community, but 
those businesses that depend on sweepstakes campaigns have not 
been able to conform their promotions to meet reasonable 
ethical or legal standards.
    The Direct Marketing Association, a trade group that 
includes in its membership companies who use sweepstakes 
campaigns as their primary marketing practice, represents that 
these promotions are not inherently deceptive and even state 
that those who spend large sums of money on such promotions are 
``unstable.'' The Direct Marketing Association's position is 
astonishingly callous and outrageous. To suggest that these 
carefully designed and specially crafted sales promotions are 
not inherently deceptive is as outrageous and bizarre as having 
the CEOs of the tobacco companies come before this Congress and 
state that they are unaware of any evidence that tobacco is 
addictive or that it causes cancer. To state that those who 
respond to these deceptive solicitations are ``unstable'' is 
shameful, offensive, and wrong.
    There are measures that can be taken that are simple and 
may be effective. Some of these measures are already under 
consideration by this Congress. Let me suggest a few.
    Every mailing that contains a sweepstakes or prize 
promotion should have clear and distinct disclosures on the 
front of the envelope that inform the recipient that ``This is 
a sweepstakes promotion--you have not automatically won and you 
need not purchase anything to win or to enhance your chances of 
    There should be clear and distinct disclosures specifying 
the odds of winning every prize. The official rules need to be 
clearly stated on the first page of the promotion materials in 
print that is large and legible, and not like this.
    The enforcement authority should be able to seek civil 
penalties for every solicitation that fails to comply with 
these requirements.
    Additional, enhanced civil penalties should be imposed in 
cases where the evidence indicates that senior or disabled 
citizens were targeted with the solicitation.
    Last, this Subcommittee must not underestimate the creative 
faculties of predatory marketeers who design and craft these 
promotions. They will do their utmost to disguise or shadow any 
disclosure requirements that the law may impose. We will all 
have to maintain our vigilance and respond accordingly.
    Thank you for inviting Attorney General Kelley to appear 
before this Subcommittee. Our department appreciates the 
opportunity to speak out on these issues and to provide written 
testimony for the permanent record.
    Senator Cochran. Thank you very much, Assistant Attorney 
General Pruss. We appreciate your being here and your 
assistance to our Subcommittee.
    When I was responding to a question--it was Senator Levin 
who asked Senator Campbell--about how we would effectively 
prohibit sending materials that appear to be a check, for 
example, and turn out not to be. I know that this envelope and 
the enclosure, that you can see through the window--and I 
mistakenly said that it clearly had printed on it, ``Pay to the 
Order of Thad Cochran,'' but now that I look at it again it 
just says, ``To the Order of Thad Cochran.''
    Is that one of the deceptive practices that you're talking 
about, that we ought to be able to put a stop to, Mr. Hunter?
    I have a couple of other examples. Here's a staff member of 
mine who received a similar letter from someone else, and it 
appears to be a government or an official-kind of envelope, and 
the symbol over here looks like it could be on a check, and it 
says, ``To the Order of,'' and then the name of my staff 
member, a very similar kind of thing through the mail.
    I would guess that 99 percent of the people who receive 
mailings like this will open them and see what they are, and 
both of these, incidentally, turn out to be offers to loan 
money. This is no sweepstakes scam, but just a deceptive way of 
getting attention to the fact that this company is willing to 
make you an equity loan on your home.
    Is this the kind of thing that we can deal with 
legislatively? Or do we just have to continue to live with this 
kind of practice and have everybody put on notice to read the 
letters carefully and not be misled?
    What is our advice to them? Mr. Hunter, do you want to try 
an answer to that?
    Mr. Hunter. I'd be happy to.
    I think first we need, through this process and by working 
with the various entities that have an interest in it, to try 
to reach some agreement on further prohibitions on what is 
permissible, and in combination with that, to have some 
enhanced tools to quickly address suspect offers, such as the 
subpoena power that was suggested, so that when complaints 
begin to be received we can quickly go in to obtain the 
necessary information to determine whether or not it is in 
violation of the enhanced statues.
    What you held up clearly is misleading, the one that had an 
eagle on it that makes it appear more government-like in 
nature. I think that an honest company should be willing to 
clearly represent what they are offering to you, so that when 
you ultimately receive whatever it is, that you are not 
disappointed, that there is a congruence between your 
expectations and reality.
    Senator Cochran. One other example that I brought with me 
today is from a staff member as well. This appears to be an 
official Census survey. It says it is from the ``Federal 
Records Service Corporation,'' ``Do not fold,'' and it's a 
Washington address, and then you open this up and it's like a 
Census form. They want you to tell them the names of your 
children, that this is a requirement, that you have to send 
this information in--``Federal legislation requires that all 
dependents born in this tax year must be listed by Social 
Security number on your income tax return.'' Then it points out 
that your newborn child may not be registered. They are 
enclosing this information.
    Of course, it turns out not to be the Social Security at 
all, but some scam way of getting information about your 
family, sent in to this so-called ``Records Service 
    Is this legal? Or should this be prohibited by law?
    Mr. Hunter. We would have to look at that particular piece 
to ascertain whether it is legal or not, but there are many 
businesses that attempt to sell services that are available 
free from the government, such as with regards to Social 
    Another example of a disturbing, misleading piece was a 
complaint that we received that appeared to be a jury notice, 
and it was for a young man who was away at college. It was 
received at his home, where his mother lived, and she--thinking 
it was a jury notice--arranged for him to leave school to come 
home. It was simply a misleading piece to entice the recipient 
to open it.
    Senator Cochran. Would any of the pending bills or proposed 
changes in the law prohibit another example here, which I 
happened to receive? This looks like a Special Delivery piece 
of mail, entitled ``Priority Express.'' The only other 
information on it is my name. Again, this one says, ``Pay to 
the Order of William T. Cochran.'' I knew they didn't know me 
well since they didn't use Thad; they used the initial T. But 
that's my name and that's my address, but it turns out again to 
be another solicitation for an equity loan. They are willing to 
loan me $80,000 instead of the $50,000 offer that I got from 
the other company.
    Is this violative of any rule? If it isn't, should we make 
it violative of Federal law?
    Mr. Hunter. That is probably one of the most difficult 
types to address. Without looking at it personally, I don't 
believe it is in violation. It's flattering because it's 
probably a knock-off on Postal Service Priority Mail; we 
appreciate the flattery but not the misuse of that well-known 
    I think there will always be a gray area, even if we better 
define what is prohibited in terms of techniques that are used 
to entice people to open it.
    Senator Cochran. This is another one of these scams on 
raising money. On the back of it you have Ed McMahon and Dick 
Clark for the American Family Publishers, ``Win now.'' This 
came to one of my staff members, but it purports to be some 
kind of official United States mail--``Important, Confidential 
Documents Enclosed.'' So this is sort of a new twist. I had 
never seen one of these before until my staff member showed it 
to me.
    Is this the kind of thing, Mr. Attorney General, that you 
tried to put a stop to?
    Mr. Butterworth. Senator, I have not seen that one, but if 
it has Ed McMahon and Dick Clark on it, I'm sure we would look 
at it.
    Senator Cochran. On the back of it it says, ``Win now. 
Match all three dollar amounts and you could win $250, $500, up 
to $1,000, automatically. Break the bank,'' it says. Very 
    Senator Levin.
    Senator Levin. Thank you very much, Mr. Chairman.
    First, Mr. Hunter, let me ask you about the Postal 
Service's authority and how it is implemented in this area.
    If we impose requirements on how these solicitations can be 
made and how they can be policed, we should find out in advance 
whether they are practical. We have to make sure that whatever 
we do really works in the real world out there. I am just 
wondering, in terms of the proposal that something that is 
inside an envelope, if it contains something that is not 
mailable, how do you know whether it's not mailable until after 
you get a complaint about it? By then most of the damage will 
be done, will it not?
    Mr. Hunter. Well, that's the issue that you were debating 
with Senator Campbell, and you're right. Of course, the 
difficulty is that on the other hand you don't want everything 
subject to inspection because then you cross over into another 
constitutional concern.
    So I think what you have to do in a situation like that is, 
you do your best first to pass laws to try to clear up the 
ambiguity, and that's a real challenge because you're up 
against some very skilled marketing techniques. But then in 
terms of the enforcement, that you have a quick way to learn 
when something like that is happening.
    One of the ideas I have that I'm working on with the Better 
Business Bureau and others--and we have to wait for the Y2K 
problem to be solved--is, I'd love to see a national capability 
to learn when complaints are received, when the individual 
Better Business Bureau receives them, the FTC receives them, 
the Postal Service receives them, the States receive them. What 
if we had an ability to store that information in a common 
fashion and tap it, so that when something happens and each of 
us receives, at first, one, two, three or four, so we probably 
don't do much, because in the scheme of things it has to reach 
a critical threshold so that we say, ``My goodness, look, in 
the Nation there are a thousand of those out there now,'' and 
then move in quickly with the tools that you were advocating 
and I was advocating, the ability to go in with that subpoena 
and immediately to determine whether or not it's legitimate, 
whether or not they have the means to fulfill the offer that 
they're purporting to make----
    Senator Levin. You don't currently have that power, is that 
    Mr. Hunter. Well, we're asking for these subpoena powers. 
Other agencies do; we do not, so that you could go in and 
require proof that they are able to fulfill the claims that 
they are making; and if they are not, then to invoke those 
other capabilities like withholding the mail until it can be 
resolved, so that you stop the bleeding, if you will, you stop 
people from being victimized. And of course, in that regard 
we're suggesting that some of those actions--because many 
companies use multiple addresses, that the action, when you 
take it in one location, would apply everywhere.
    Senator Levin. The current mail fraud statute, as I read 
it, on the administrative side provides a civil penalty if 
there is an effort to evade a postal stop order. Is there a 
penalty or civil fine of any kind, directly for violating the 
existing law, for instance?
    Mr. Hunter. No, there is not.
    Senator Levin. Now, is there any reason why we shouldn't 
add that--I'm not saying substitute it, but add it--to what we 
already have in law? There are a whole lot of areas where we 
provide, for instance, civil fines for violation of law; we 
don't have to have an in-between step that you have to have an 
administrative proceeding, a stop order or some kind of an 
order, which in turn is violated, before we can impose a civil 
fine if there is a violation of the underlying law or 
    Is there any reason why we should not provide that 
authority to you to directly seek a civil fine?
    Mr. Hunter. Through the appropriate venues with the proper 
review on the behalf of the defendant, no, I don't think there 
    Probably the thing that we debated the most in preparing 
for this testimony was what I feel is an absence of tougher 
criminal penalties in some of these areas. We, of course, are 
advocating--and you did, too--increased civil penalties, but 
you may level those against people that can't pay them because 
they've already spent the ill-gotten gain, or for whom it's 
just not a sufficient penalty. But if you also have the 
alternative of offering someone a limited diet and recreational 
opportunities through a criminal prosecution, it may have even 
more of a salutary effect.
    I don't know. We'd need to work on that one.
    Senator Levin. All right. Well, we'll work with you on that 
    I want to just ask our Attorney General and our Assistant 
Attorney General here that question in terms of Florida and 
    Is there an in-between step when you seek some kind of fine 
or administrative fine or civil penalty, that there has to be 
an order violated? Or can you go directly--through a process, 
obviously; you have to have a process before you can have a 
penalty or fine--but through that process, for the violation of 
your underlying statute?
    Mr. Butterworth. Basically in this case, with American 
Family Publishers, we just filed a civil case against them. We 
are involved in discovery now and everything else. But in some 
cases, where they are very flagrant, we've been able to work 
with the postal inspectors, in essence get stop orders, and 
they work very well with us insofar as we know that a scam is 
occurring. They will take the mail from the boxes, and we go 
through the appropriate procedures in order to take down that 
operation, and a lot of times we do go criminally against them.
    But it would help, as Mr. Hunter was saying, it would help 
us as attorneys general in working with the postal authorities.
    Senator Levin. All right. So we're talking about a couple 
of things. One is being able to go directly for civil 
penalties, as well as strengthening your criminal penalties and 
whatever civil penalties we provide, directly, or for violation 
of a stop order. Is that correct?
    Mr. Butterworth. Yes. And again, I think the biggest 
challenge is going to be how we word what is prohibited, and of 
course, there we need to hear from the third panel, the Direct 
Marketing Association, because hopefully you receive some 
agreement that legitimate members of the industry participate 
in so that we aren't fighting in a gray, ambiguous area with 
regards to whatever law there is.
    Senator Levin. All right. Thank you.
    Mr. Pruss. In Michigan--I should know the answer to this 
question--is there a requirement for an in-between step, an 
intermediate step, before you can seek either a civil fine or 
an administrative penalty or civil relief against someone who 
violates Michigan law?
    Mr. Pruss. Not really, Senator Levin. Our primary 
enforcement vehicle is the Michigan Consumer Protection Act, 
and anything that confuses a person with respect to their legal 
rights and obligations and duties and so forth is a per se 
violation of that act, and we can proceed in court for civil 
penalties, which aren't very high unless the violation is 
``knowing and persistent,'' in which case it's $25,000. But not 
per diem, necessarily, and not per event. That's ambiguous and 
    There is, however, a notice procedure. Before we file in 
court we are obligated to file what is called a ``Notice of 
Intended Action,'' an attempt to work this out consensually 
with the party. Absent that agreement, however, we can proceed 
directly to court.
    Senator Levin. Thank you. Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Senator Levin.
    Senator Collins.
    Senator Collins. Thank you very much, Mr. Chairman.
    Mr. Hunter, I am particularly concerned about the 
government look-alike mailings. Senator Cochran held up the 
example that he received at home, and when I am looking at it 
more closely I notice at the bottom it says, ``Buy and hold 
U.S. Savings Bonds.'' It has an eagle. It's the same color 
envelope that our expense reimbursement checks come in.
    I also look at what Publishers Clearinghouse sends. The 
return receipt card is so similar to the legitimate return 
receipt card that the Postal Service uses--it's a different 
color, but other than that, it's set up in an extremely similar 
    Similarly, the postcard which I brought up first, which 
fortunately you had a blown-up version of, that was sent to me 
by my constituent, ``Urgent Delivery,'' ``Official business, 
U.S. Government''--those words, used over and over again. And I 
want to read to you what my constituent wrote to me. She said, 
``This is the first time that I have known that the U.S. 
Government is holding money that belongs to me, and all I have 
to do is to send in less than $10 and I can get my money.'' 
This is outrageous. This really troubles me. And I know that 
you quickly and effectively issued a cease and desist order to 
stop this individual and to order him to make refunds, but is 
that all we're doing? Shouldn't we at least impose a fine? 
Shouldn't we have a civil penalty process that the Postal 
Service can undertake up front, rather than only if he violates 
your order?
    We just need to be much tougher on this. The reason people 
are answering is they assume that it must be legitimate, 
because how could someone do this, otherwise? How could they 
get these offers in the mail that look so official, that have 
U.S. Government on them? People understandably assume that 
we're protecting them.
    I'd like to know, did anything else happen to this 
individual, other than his being ordered to give back the 
    Mr. Hunter. Well, I think you're getting to the essence of 
what I was talking about and some of the proposals we're 
making. I think some of these civil and administrative 
procedures are not tough enough. So I agree; you have expressed 
it more articulately than I could, and the three of us welcome 
you as the most articulate member of this panel. [Laughter.]
    Senator Collins. But in this particular case, was there any 
fine imposed by anybody that you're aware of, by State 
government or by the FTC or----
    Mr. Hunter. Not that I'm aware of, no.
    Senator Collins. See, that really troubles me, because that 
means that the chances of your getting off scot-free, or simply 
just being ordered to refund the money and that being the only 
penalty, is very troubling. There has to be more of a penalty 
for deliberately deceiving people, like this woman from 
Machiasport, Maine, into sending money. There has to be more of 
a penalty than just telling the deceptive individual or 
company, ``Give the money back.''
    I would hope that all of us who are concerned about this 
issue can join together and work with you and your colleagues 
at the State level to figure out how we can toughen the laws so 
that there will be some sort of deterrent up front that will 
discourage people from engaging in these practices.
    Mr. Hunter. We would very much welcome that. Too often 
people start new schemes--I mean, recidivism in this area is a 
problem. It's just profitable enough; they make enough before 
we shut them down that they're enticed to do it again.
    Senator Collins. The final comment I will make is that I 
suspect you also see that once you shut down one scam, that the 
individual pops up somewhere else with a different scam. That 
certainly is the pattern in a lot of telephone fraud cases, and 
also securities scams, which I've held hearings on. It's so 
frustrating to see, for example, a rogue broker who has ripped 
off elderly people and essentially stolen their savings be 
discharged by his brokerage firm, and then pop up and do 
business with another one.
    I just think we need to be much tougher and make sure that 
this deception doesn't pay.
    Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Senator, for your excellent 
comments. I think you have shown us the way, and that is that 
we ought to work together to try to put before the Senate a 
plan and a strategy reflected in legislation to toughen up 
these laws. We need to put a stop to some of these scams and 
these fraudulent practices. There's no telling--and we don't 
know--how much money it is costing the American people and how 
much heartache and difficulty families are suffering because of 
these activities that we need to do something about. Thank you 
very much.
    Senator Levin. Could I just ask one additional question?
    Senator Cochran. Sure.
    Senator Levin. I will be proposing specific fines and 
penalties, administrative fines and penalties legislation, so 
that we don't have to go through this extra step which seems to 
me to be unnecessary. To go through a whole step to get an 
order, which you then have to prove is violated, before you can 
impose a fine or a penalty is just too big a loophole.
    So what I'll be proposing will be at least the option of 
going directly to the fine or the penalty without having to go 
through that step, so that you don't have to have an extra and 
unnecessary step--unless you choose to take it, for whatever 
purpose you might.
    But part of that proposal relates to the questions of, what 
is a violation? Right now, $10,000 per violation, to me, is far 
too weak. We will be toughening that $10,000 provision 
significantly. But what is a violation? If you send out 100,000 
deceptive letters, is it one violation or 100,000 violations? I 
think it's 100,000 violations.
    Mr. Hunter. It would be very good to make that intent very 
clear as you draft that legislation, whether it's each piece of 
mail or each mailing----
    Senator Levin. Well, I intend to do that, because if there 
was one deceptive letter sent to somebody that resulted in that 
person being defrauded, hopefully you would go after that 
person who sent that deceptive letter. One letter is enough to 
trigger our law.
    Well, if there are 10,000 letters, there ought to be 10,000 
violations. The only way we're going to deter these guys, it 
seems to me, is if we let them know that they're not going to 
profit from their deception. It's the only way to stop them. 
They're in it for profit. We have names there that are well-
known and still trusted by people despite all the deceptions 
which they've helped to perpetrate. We have to stop it by going 
after the profit, taking the profit out of it, and it seems to 
me we can't any longer define a violation as sending out 1 
million pieces of mail that are deceptive. That's a million 
violations to me, and I intend to make it clear that every 
letter that is deceptive, that violates our law, constitutes a 
violation in and of itself.
    Mr. Hunter. I like your thinking, and I also like your 
thinking that the losses don't need to build to a certain 
point, that there is a certain level of damage before action is 
taken. So I appreciate that.
    Again, the biggest challenge is what is prohibited, and how 
do we best word this? But I am sitting here pinching myself, 
wondering if I'm asleep. I'm not used to hearings in which 
there is so much agreement, so I appreciate this and look 
forward to working with you.
    Senator Cochran. Thank you very much for your assistance. 
We appreciate it, Mr. Hunter, and the Attorneys General who 
have been here with us today, thank you very much.
    Our next panel is Richard Barton, who is Senior Vice 
President of the Direct Marketing Association, and Dr. William 
Arnold from Arizona State University. We thank you for being 
here today to help us understand what the problems are and what 
some of the possible solutions will be for dealing with this 
ever-growing crisis that we have in our country.
    Mr. Barton, we have a copy of your statement. We will have 
it printed in the record in full. We encourage you to make such 
summary comments from that statement that you think are 
appropriate. You may proceed.


    Mr. Barton. Senator Cochran, Senator Levin, and Senator 
Collins, I was going to say that I am very pleased to be here 
to testify before you. I'll have to amend that a little bit and 
say, I think I'm very pleased to be here to testify before you 
to discuss with you the Direct Marketing Association's members 
and the legitimate sweepstakes--and the fraudulent sweepstakes, 
which we really want to make a clear, fine line distinction 
between the two when we are discussing that today, and what we 
as an industry can do to resolve both the problems that we've 
been discussing about fraudulent sweepstakes, defrauding 
people, and about what we consider--and we can discuss this 
later on--inappropriate or bad responses to what we consider 
legitimate sweepstakes, and what we can do to reduce those, 
    \1\ The prepared statement of Mr. Barton appears in the Appendix on 
page 82.
    First, a short description of the Direct Marketing 
Association. We are a trade association with 4,100 members 
internationally, 3,700 domestic corporations, involved in every 
form of direct marketing--not only mail, but also telephone, 
growing marketing on the Internet, and any kind of direct 
response marketing. We estimate through WEFA studies that total 
direct marketing comes to about $1.2 trillion in terms of total 
revenues, and about $390 billion of that--these are not 
sweepstakes, Senator Levin--about $390 billion of that, 
however, is through the mail. So we are dealing with what we 
consider a significant segment of the American economy, of 
which the sweepstakes are a part; not $390 billion, but an 
important part that we would like to discuss with you.
    Every fact that we have been able to put together over the 
past 30 or 40 years or so of legitimate sweepstakes shows that 
people like them, that they respond to them, and that in most 
cases they respond to them in a positive way. We estimate that 
probably more than a billion sweepstakes promotions--legitimate 
sweepstakes promotions--are sent out every year. It may even be 
more than that; we don't have precise numbers, but it's a lot.
    Roper Surveys indicate that 29 percent of all American 
adults respond to one sweepstakes a year, at least one 
sweepstakes a year, and some of them respond to even more. 
That's 29 percent, or about 55 million Americans. Of those, 
about 38 percent of the 29 percent made a purchase by 
responding to the sweepstakes, and 62 percent did not make a 
    And finally, just to give you some idea of the significance 
of this to the economy, we estimate that approximately one-
third, for example, of all magazine subscriptions in the 
country are sold through sweepstakes promotions.
    We recognize with you definitely that the series of 
problems that you are talking about are of great concern to us. 
The first is that fraudulent sweepstakes are a growing problem, 
and they are simply a growing problem because of the popularity 
of those legitimate sweepstakes, and there are many knock-offs 
of the current legitimate sweepstakes. In fact, the Michigan 
Attorney General mentioned one which involved the Publishers 
Clearinghouse, which in fact was a fraudulent scam knock-off of 
Publishers Clearinghouse that was making the telephone calls. 
But we are very concerned about these fraudulent outfits 
because not only do they defraud people and cause people a lot 
of money, but they also cast aspersions upon a legitimate 
    I have to emphasize throughout this entire conversation 
that we're having with you that the hallmark or the actual 
cornerstone of successful direct marketing is the trust of the 
American public, because we're dealing at arm's length with the 
process. You don't go into a store and talk to an owner or a 
clerk whom you know; you're dealing with an arm's length 
process, and it is absolutely essential that people trust the 
process, trust us, and we have been very supportive of 
legislation and activities on the part of many of the people 
who are here today to try to eliminate fraud and even 
questionable promotions which don't cross the line of fraud.
    The fraudulent sweepstakes, as you point out, are often 
aimed at the elderly. Legitimate sweepstakes generally are not 
aimed at anybody except a broad cross-section of the American 
public. They often look like legitimate sweepstakes to the 
point that they even copy the logos in many cases, but--and 
this is a very big but--in all cases, in one way or another, 
the fraudulent sweepstakes require some sort of payment before 
you can receive a prize or whatever they're offering, and that 
is absolutely not the case with legitimate sweepstakes. If 
anyone--and we use this in all of our literature--is asked to 
pay to receive a prize or a consideration from a sweepstakes 
promotion, that promotion is illegal, is a scam, and should not 
be responded to in any way other than to turn materials over to 
law enforcement officials.
    This association, certainly in the 20 years that I've been 
associated with it and longer than that, has been involved in 
many activities to fight fraud. We deal on an almost daily 
basis with the Chief Postal Inspector, Ken Hunter, and his 
people in the Postal Inspection Service. We deal very closely 
with the Federal Trade Commission, with the State Attorneys 
General, and in what is usually a positive relationship with 
other law enforcement agencies. In fact, I have a pamphlet 
here, ``Sweepstakes Advertising: A Consumer's Guide,'' which is 
a piece that the Direct Marketing Association sponsors in 
conjunction with the Postal Inspection Service to describe how 
to spot fraudulent sweepstakes operations and what legitimate 
sweepstakes are all about.
    We also work--and I'm going to make an offer today to 
increase that work, including with you--with consumers' 
organizations, such as the National Consumers League, on a 
regular basis; the National Fraud Information Center, which is 
a very growingly important method of fighting fraud; and the 
Council of Better Business Bureaus.
    We also have an Ethics Committee. In fact, we have two 
Ethics Committees; I think we're the only trade association in 
the world that has two Ethics Committees. They consider cases 
against companies or against promotions which people think are 
deceptive, are unethical, and/or illegal. We have an extensive 
process in which we confidentially hear cases against 
companies, and we make a very strong effort within that process 
to resolve those differences, to get the companies to stop 
their unethical promotions, that we would consider unethical. 
In most cases we are quite successful with this.
    It used to be a confidential process. The board has now 
agreed, overcoming some problems with antitrust laws, that we 
are going to begin to publicize that process, and in every case 
that we have companies that do not agree to follow the ethical 
guidelines of the association, we will publicize their names 
and even bring action against them in appropriate cases, before 
our own board, to have them dismissed from the Direct Marketing 
    Senator Levin and Chief Inspector Hunter were discussing 
the possibility of stronger laws against fraud, and we have 
generally--the history of the association is to support 
stronger fraud laws. We can discuss a little bit later the work 
that we did with the Postal Inspection Service and with 
Congress in tightening up the laws against government look-
alike envelopes around 10 or 12 years ago, I think it was, 
which we thought was important, and the difficulty you might 
have in expanding that law. But we are in favor of stronger 
laws to get more tools to the Postal Service and other law 
enforcement agencies, such as the Federal Trade Commission, to 
fight scams and frauds.
    But we also think that there are a lot of laws on the books 
now, and that we can have even more vigorous enforcement both 
by law enforcement agencies and also by consumer organizations 
and our own association to more vigorously fight fraud.
    Now, let me make a few points here about what I am going to 
call ``legitimate sweepstakes.'' The legitimate sweepstakes--
some of the companies which you've been discussing here today--
always, there cannot or there certainly should not be any 
deviation from this, certainly as far as our code of ethical 
business practice, which I have here and which has been 
available to the Subcommittee--never require a purchase to win. 
If there is any sweepstakes that requires a purchase to win and 
does not say that they don't require a purchase to win, it is 
not a legitimate sweepstakes. There is full disclosure in all 
sweepstakes that a person has not necessarily won. We can 
discuss and argue over sizes of type and placement, which is a 
fine thing to do, but it should be very clear to the American 
public and the people here that a person who receives a prize 
notice has not necessarily won that prize.
    Also, and this can be proven by statistics, that the people 
who do not have equal chances as people who do order to win 
sweepstakes. In fact, as we've shown here today and can show 
anywhere, most people who win sweepstakes prizes do not order 
from the sweepstakes companies.
    Now, that being said, I want to underline here that this 
association and the members of the association and the 
companies we have been discussing are very concerned about the 
comments that were brought up by the two Attorneys General and 
by the Members of the Subcommittee about, frankly--it's true, 
we do consider most of the highly-publicized cases of people 
who have been hurt by their response to these sweepstakes, by 
what we would call inappropriate responses to the sweepstakes. 
Not all, but a lot of them are. And we're dealing with a 
situation which, as a matter of fact, frankly, concerns us very 
much and baffles us a little bit, because it should be clear 
that in fact people don't have to perform in the way they do--
for example, get on airplanes and fly down to Tampa, or to make 
a payment which would be illegal to get a sweepstakes, or to 
buy huge amounts of material in order to enhance their chances 
to win. We think that some people are actually misled, perhaps, 
by some of the promotions that we do, and we need to look at 
those carefully to be sure that in fact they do not mislead 
people, without affecting the important advertising message of 
those sweepstakes promotions and the advertising message in 
    But we are very concerned about that. We believe, and we 
came to a conclusion some months ago, that the industry needs 
to make a redoubled effort to work not only with law 
enforcement officials, but also with the Congress and with our 
own members and with the companies in order to be able to 
assure, as much as we can possibly assure, that people are not 
misled and people do not inappropriately respond to legitimate 
    But--and this is a big but--we think that the proposed 
legislation, and we're talking about Senator Campbell's S. 
2141, which we've discussed with him at some length, is not the 
answer. I'm not rejecting all the other proposals that have 
been discussed here from the Postal Inspection Service and from 
Senator Levin. It's quite possible we can support those, or 
some of those, although I would have to go back to our people 
and see what we can do with that.
    But the proposed legislation very simply says that in very 
large type you will have on the front of the envelope--and on 
the first page, I believe it is, of the material in the 
envelope--very large type, which is 16-point type inside, and 
I've forgotten what it is on the front of the envelope, saying 
something to the effect that ``you haven't necessarily won.'' 
That is absolutely true. We believe that that should be clear 
in any kind of promotion, that you have not necessarily won. 
But to do it the way that Senator Campbell's bill does it, we 
believe very strongly would reduce the sales response to the 
sweepstakes to such a radical point that it would conceivably 
put a lot of them out of business.
    And it's a very simple thing. This is almost an advertising 
truism: If you have on the front of an envelope any negative 
kind of thing--we even look at it in view of certain colors, 
which are sort of perceived as negative--any kind of major 
negative language, they will not open the envelope. And opening 
the envelope is what we have to get people to do before they 
will even consider the product. It is the same concept as space 
advertising in the newspaper, getting people to come into the 
store. This is getting the people to come into our store, and 
if you have any kind of negative advertising--negative 
statements on the front; not even advertising, but negative 
statements on the front--the tendency will be that people will 
not open the envelope. Even the Federal Trade Commission 
recognizes that much can be resolved once you open the 
envelope; the issue is clear.
    The second thing is that while we completely agree that 
disclaimers must be clear, and it should be clear that a person 
has not necessarily won, if you put that on the top of an 
envelope in 16-point type--and I think you can see in my 
testimony how large 16-point type is, and you saw some of it up 
there in terms of some of the signs that we had up there--that 
at the top of the envelope you will have the same negative 
thing. It would be like putting at the top of a political 
advertising piece or a political letter that you send out to 
get people to go vote, ``These are the views of the candidate 
and they may or may not be true,'' 16-point type across there, 
and then you're not going to get your envelope opened, either. 
And that envelope opening is going into yours and our store, 
going to the voting booth.
    If this is a matter of advertising, to dictate the kind and 
size of type and the precise message--which is a negative 
message--on an envelope and inside in this nature, we think it 
would very, very substantially reduce our spots.
    Now, that being said, there are many other things, we 
believe, that Senator Campbell and this Subcommittee are moving 
in the right direction on, in expressing concern and trying to 
do something about many of the things that are happening. We 
are willing to work with you all on language for any kind of 
legislation. And more importantly, as I will describe, to close 
a strong industry approach to improve this situation.
    What can we do? Well, I've already outlined very briefly 
our current ethics process. We are making a commitment here at 
this hearing, right now, as an industry to do several things 
right away, to move on as quickly as possible.
    First, strengthening our sweepstakes guidelines, which are 
included in our ethical business practice, to provide and 
require even clearer explanations of sweepstakes programs and 
what they do and do not do.
    Second, in developing company programs to identify quickly 
high activity respondents, such as we've been discussing here, 
so that we can go to them and inform them that they need not 
buy and that no purchase is necessary. In fact, some of our 
companies already do that, and to very good effect, I think, in 
many cases. And, if necessary--which it often would prove 
necessary--removing them from the mailing list. Someone here 
mentioned requirements that people be removed from the mailing 
list. We have a national program to do that, and it's also 
going to be a requirement of our members that they remove 
people from mailing lists when asked, beginning in 1999, or 
they will not be able to be members of DMA. So we think it 
would be appropriate to identify some of these high-level 
respondents who are responding inappropriately and remove them 
from our mailing lists, and discuss the issue with them.
    We want to have a better program of training customer 
service representatives in companies to identify problem cases; 
to work with relatives, which we do sometimes; provide name 
suppression, cancellations, and refunds, where necessary. We 
are committing ourselves to developing a coordinated national 
consumer information program to educate consumers about the 
operation of sweepstakes and how consumers can detect 
fraudulent sweepstakes. And we are willing to serve as a 
clearinghouse for consumer complaints, which we already do to a 
certain extent through our mail-order action line about 
sweepstakes, and pass the complaints to law enforcement 
officials as we do already, and also to pass on the other 
complaints, if necessary, to our Ethics Committees or to 
resolve them on the spot, which is what we would prefer to do; 
and to establish a more effective relationship with the 
consumer organizations that we already have a relationship with 
to improve the information that they have about legitimate and 
fraudulent sweepstakes.
    The conclusion here, really, is that we are as concerned as 
you are. You are in some ways, frankly, describing an industry 
of legitimate sweepstakes that I am not familiar with because 
of the characterization of this industry in rather unflattering 
terms as people who are out to grab a dollar and do nothing 
else. That's not the industry that I work for, and it is also 
not an industry which in fact is going to succeed over a long 
period of time because people will lose trust and confidence, 
and we want to build and maintain that trust and confidence.
    So we are very strongly interested in working with you, 
Senators Levin, Collins, and Cochran, and Senator Campbell, in 
working out solutions to these problems, in which we think a 
good bit can be done by increasing our activities as an 
industry in ethical guidelines and consumer education.
    Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Mr. Barton, for your testimony.
    Dr. Arnold, Professor of Gerontology, from Arizona State 
University. Welcome. You may proceed.


    Mr. Arnold. Thank you, Chairman Cochran, Senator Collins, 
and Senator Levin. I guess Mr. Barton and I will be disagreeing 
a little bit here in a few minutes over some of the things that 
have been said, just to spice things up a little bit.
    \1\ The prepared statement of Mr. Arnold appears in the Appendix on 
page 89.
    I'm not going to read my remarks. I am going to make three 
points. I have a couple of stories to begin with. I want to 
talk briefly about the research that I did, and then make some 
    I got this on Friday: ``Express Document, Rush Priority, 
Rush to Addressee, Extremely Important.'' It has the eagle on 
there; maybe we ought to put a tiger on it instead. That might 
slow things down. And then some more ``Rush'' on the other 
side. No mention of the name of the company that sent it; it 
turns out to be a mortgage company that wants me to subscribe.
    I got that catalog from Michigan, Senator, and I wondered 
if I had won, so I'm glad to know that you're working on that.
    I got a call about 3 weeks ago on a radio program from a 
person in Iowa whose mother lives in your State, and she was 
ready to hop on a plane and fly to New York to collect her 
prize, but he was fortunately able to talk her out of it.
    Those are the stories. We've heard lots of stories far 
bigger and stronger than I can make, but I want to skip over to 
page 11 of the paper that I have for you and talk about two 
pieces of research, and I think you have a document in front of 
you that describes what this study was all about.
    Essentially, in the first study I asked seniors in three 
different senior centers to respond to the statements, and the 
statements that you have are there. I gave them the statement, 
``Open at once. Prize payment guaranteed to winners inside.''
    Senator Cochran. This is the document that you're referring 
to, right here?
    Mr. Arnold. Right. And it's in black and white in the 
copies that have been given to everybody else.
    So they got that first statement, and I said, ``OK, how 
likely are you to open that document if you just see that 
single statement, `Open at once,' in red type?'' And 39 percent 
said they would open it up, and another 61 percent said not 
    So I asked then another question with the second statement 
that says, ``Notice: Postmaster, the security of this package 
is guaranteed,'' and you've got that statement. Fascinating 
results; 57 percent now said they would open it. The percentage 
increased when the statement was there from the Postmaster, and 
I think that Mr. Hunter stated very clearly why our seniors are 
responding the way they do. They have trust and confidence in 
the Post Office, so they read a statement like that and it 
suggests to them, ``This is probably OK to go ahead and open 
    I got another piece--and we'll be studying this very 
shortly--this is something new I had not seen, tamper-proof, a 
piece of tape that says ``If this seal is broken at time of 
arrival, please notify your local postal authorities.'' Again, 
it's the same kind of thing, appealing to the credibility of 
the Post Office. Quite frankly, I have not opened it, so I'm 
not even sure who it is from. But that was the kind of thing 
that increased the willingness to open the envelope if they saw 
it was from the Post Office.
    The third was a warning similar to what Senator Campbell 
was proposing. I put that on there, and I said, ``By itself, if 
you just saw that on the envelope and nothing else, how likely 
are you to open it?'' And the response was that 86 percent 
would not open the envelope. So if we took Senator Campbell's 
proposal and put that on the envelope alone, then I think Mr. 
Barton is right, people would probably throw it away.
    The next study. I combined all three on an envelope that 
looks like this, handed that to them, and then said, ``OK, tell 
me what you notice first.'' And 78 percent said they noticed 
``Open at once, prize payment inside.'' Only 9 percent even 
noticed the statement about the contents.
    So I said, ``OK, then, given that data, how likely are you 
to go ahead and open the envelope?'' What did they say? We had 
78 percent that ignored the contest and would say, ``I'm going 
to go ahead and open it; there's something in there for me.''
    Senator Cochran. You said, ignored the contest?
    Mr. Arnold. They ignored the content of this message, that 
this was a contest, their chances--I only put 80 million to 1; 
I've heard 120 million to 1 would be more appropriate. ``You do 
not have to play''--that was ignored by 78 percent.
    So what's the third and final point? It seems to me that 
legislation may work, but I think we need to do more in 
figuring out where we place this if we allow this to be on 
there alone. Do we put it on the back side, like a piece of 
tape, and say, ``This is a contest''? We're going to do that 
research because we think we need to do more. Maybe we need to 
put that in red and the other messages in the black and white.
    So that's what we're going to be doing by way of research.
    The second suggestion is that maybe we need to define what 
it means to have a sweepstakes. What does that mean to 
everybody who responds to it?
    Third, we're going to be studying--now that we've seen the 
UnionGram, and there are others that we know are patently 
illegal and should be stopped--we want to study the content of 
those versus the ones used by the legitimate marketing firms to 
see where there are differences.
    Fourth, I think we need to look at--as, again, Mr. Barton 
has pointed out--the specific type size and placement, and 
we've seen plenty of examples of things that we need to do 
there. But we need to test that along with cognitive abilities, 
attitudes towards the U.S. Government, because obviously if 
tampering is an issue, then we have a great deal of respect so 
we watch the messages that we get across.
    And finally, I guess I would call for--and what I've heard 
a lot of folks calling for--a group getting together to decide 
what kind of information we should have, what kind of 
enforcement we should have, involve gerontologist around the 
country and communications people who can look at that so that 
they can help you come up with the most effective pieces of 
    Thank you very much.
    Senator Cochran. Thank you, Dr. Arnold.
    I showed some copies of correspondence that I had received 
and my staff had received to the earlier panel, and I was 
curious to know, Mr. Barton, whether your guidelines that you 
discussed for the Direct Marketing Association would be 
violated by any of these mailings that we received.
    First of all, this government--appearing to be a government 
check, that came to me, whether there is anything in that, and 
one of my staff members had one almost exactly like it. Both of 
these turn out to be from loan companies. There's no harm done, 
I guess, if we don't take out the loan, but they both appear to 
be letters from the government containing a government check, 
payable to the addressee. Is there anything in your guidelines 
that would be violated?
    Mr. Barton. I don't know, because that would have to be a 
matter of committee study and interpretation. The closer it 
gets to look like an actual government envelope, the closer it 
comes to violating our ethical guidelines. Of course, if you 
take an actual government envelope, it's illegal. That's one of 
the things that we worked on.
    So what I've been saying is that it would at least be worth 
taking a look at. I can't say here, right now, whether it would 
violate the guidelines. However, I would point out, without 
defending what that envelope looks like or what's on the front 
of the envelope, the instant you opened it you knew what it 
was. In any direct marketing context--and I think even the 
Federal Trade Commission would say that a lot of hyperbole on 
the front of an envelope is resolved the minute you open it if 
it is in fact clear that it is not a government check, which it 
is not, and that what it is is an offer of credit.
    But in terms of that specific envelope, I really would have 
to take it and run it through--which is a quasi-legal process, 
our guidelines. I'm not sure, frankly, whether or not the 
Committee has recently taken up any of those. I will find out 
for you and give you a written statement on it.
    Senator Cochran. One other question I have about your 
guidelines relates to the enforcement. You mentioned that if 
someone did violate the guidelines, that they could be 
dismissed as members of the association. Do you have any other 
sanctions that are imposed for violating the guidelines, other 
than just no longer being able to be a member of the Direct 
Marketing Association?
    Mr. Barton. Well, from this point on we will publicize it, 
even if it doesn't come to the point of dismissal from the 
association. We will make public the names of the companies 
which we have determined have violated the ethical guidelines, 
and distribute that information to the consumer organizations 
that we deal with, and it will become public knowledge.
    We think, certainly, for legitimate companies, that that's 
a substantial problem for them. But dismissal, frankly, is 
probably going to be used more and more as a sanction, and it 
turns out that that's a pretty good sanction because most of 
the people in this business do not want to be looked on as 
pariahs. But that's really the best I can say about that.
    In terms of--this is not exactly in terms of the ethics and 
the law--also we are starting a national program to require 
companies to remove names from mailing lists when they are 
requested to, and that would include the kinds of things we're 
talking about here, with people's inappropriate behavior to 
sweepstakes, which we would determine that their names should 
be removed from mailing lists, and to use all the programs that 
we use for people who ask to get off of mailing lists. That 
would be a requirement for membership, and they would be 
dismissed, too, if they didn't do that.
    Senator Cochran. Dr. Arnold, in your judgment are those who 
are vulnerable to deceptive and fraudulent practices--can they 
be educated with tips and other advice in a way that would 
permit them to be more likely to resist falling for some of 
these scams and being duped or ripped off by them?
    Mr. Arnold. Let me make two points on that. First, I hope 
so, because I'm in the wrong business if I'm in education and 
we can't educate folks.
    But second, let me give you a specific. One of the things 
we discovered in doing the second piece of research was that 
our seniors didn't fully comprehend what bulk mail meant. I 
said, ``How was it mailed to you?'' And they said, ``Well, it 
says U.S. postage.'' I said, ``Well, what does that mean?'' 
``Well, it's bulky, and it came from someone,'' so they did not 
distinguish between what would be bulk rate, what would be 
first class, what might even be Priority Mail. So I think 
that's an issue we could look at, and I think that's part of 
the education.
    The other point that I did not make, that perhaps we ought 
to take off notices that are on letters and envelopes like this 
where the Postmaster secures from tampering--maybe that's doing 
more harm than good by having that.
    Senator Cochran. It legitimizes the mailing?
    Mr. Arnold. And they see that the Postmaster approves of 
this because it's protected from tampering. Take that off, and 
the percentage that we got would be reduced to the ``Open at 
    Senator Cochran. Senator Levin.
    Senator Levin. How many members are there of your 
    Mr. Barton. There are 4,100 companies.
    Senator Levin. There's a bankruptcy petition here which was 
filed by some company called Direct American Marketers, Inc. 
Are you familiar with them?
    Mr. Barton. I know of them, yes. They are not members of 
    Senator Levin. They operated under--it looks to me--about 
700 different names, one company.
    Mr. Barton. I know that they operated under a lot of 
different names. I don't know which ones----
    Senator Levin. I made a quick count. It looks like about 
100 per page, and there are seven pages. I doubt that any one 
of them were members of your association.
    Mr. Barton. No.
    Senator Levin. If so, what sanctions would you have taken 
against this kind of an operation?
    Mr. Barton. They were members of ours, Senator, and they're 
no longer members. We did have an ethics case against them. 
There were recommendations about dismissal, and they left 
membership in the association.
    Senator Levin. Before you dismissed them?
    Mr. Barton. I believe so. That's a while ago. I believe so, 
    Senator Levin. That will give you an idea, folks, of the 
way these companies operate. These names, using the word 
``award'' to begin with --``Award Administrator for 
Disbursements Division,'' ``Award Auditing Division,'' ``Award 
Claims Center,'' ``Award Claims Centre'' spelled differently, 
``Award Disbursement Unit,'' ``Award Notification Director,'' 
``Award Notification Services,'' ``Award Payment Determination 
Center,'' ``Award Payment''--I mean, it just goes on and on and 
on, page after page after page, one company using about 750 
different names.
    I would like to make that part of the record.\1\
    \1\ The list of other names used by the debtor submitted by Senator 
Levin appears in the Appendix on page 165.
    Senator Cochran. Without objection, so ordered.
    Senator Levin. Mr. Barton, I'd like to show you a chart 
here, if you would. Could you put the chart up there for me?
    I want to ask you whether or not, in your judgment, this 
chart complies with your ethics requirements. I know that you 
have a committee there that looks at these, but I'd like you 
just to give us your own personal opinion, not binding on your 
    \1\ The Chart referred to by Senator Levin appears in the Appendix 
on page 171.
    Mr. Barton. I can't even read the type. [Laughter.]
    Senator Levin. That's my point. I appreciate it. Next 
exhibit. [Laughter.]
    Take a look at the words, ``The judging is now final. Mr. 
Bruce''--whatever his last name is--``is one of our $1,666,000 
winners.'' \3\
    \3\ The exhibit referred to appears in the Appendix on page 172.
    Now, Mr. Bruce, with his last name, is going to see that 
pretty boldly. Here you are, one of our winners. I mean, my 
gosh, that will get someone's attention. But above that, it 
doesn't look like anything; there are some very small words. 
Can you point those words out? Above, on the official 
notification--just point to them.
    Mr. Barton. On the official notification, above----
    Senator Levin. Yes, that little line above there. Keep 
going, higher, higher, higher--lower, lower. There. [Laughter.]
    There. You got it. Now, I'm going to read that line to you 
that nobody can find; even my staff member, who is an expert on 
this subject, can't find the line.
    ``If you have and return the grand prize winning number, 
we'll declare''--that little unreadable line makes this legal 
under current law. That's not my question--we're going to try 
to make it illegal under new law, by the way. I'm saying that 
right now. But under current law, because that little 
unreadable line is there that says, ``If you have and return 
the grand prize winning number, we'll declare''--then they go 
on to say, in type this big, ``the judging is now final. Mr. 
Bruce so-and-so is one of our $1,666,000 winners.''
    Now, if that isn't deceptive, I don't know what in the hell 
    Mr. Barton. Well, I'm not going to say--I don't know 
whether the Ethics Committee would find it deceptive or not 
deceptive. It's on the edge. But it does say--so now we're 
talking about size of type, because it does say, ``If you have 
and return the grand prize winning number, we'll declare,'' and 
it does say at the bottom, ``If you have and return the grand 
prize winning number, we will officially declare it as 
confirmed,'' which is at the top of the piece on the second 
page, I believe.
    Senator Levin. But you see, your own ethics requirements 
talk about size, and that's why I want to get to your own 
ethics requirements, because Article 3 says, ``Representations 
which by their size are unlikely to be noticed''----
    Mr. Barton. Yes, but we don't determine what the size is. 
And this would, frankly, probably be one of the things that we 
would be working on in order to expand our ethical guidelines.
    Senator Levin. Do you think that little thing there is 
likely to be noticed? We can't even find it. My intrepid staff 
member, who is an expert, can't even find it. She probably 
knows more about that form than anybody else in the room.
    Mr. Barton. Well, in one way or another, millions of people 
do notice it, or at least do know that they haven't won.
    Senator Levin. I'm worried about the millions that don't 
notice it, by the way. I'm not worried about the few that are 
so used to these scams that they look for the ways in which 
these hooks are attempted to put into people's hides.
    I'm just asking you, as a rational and reasonable human 
being, in your judgment, given the location of that and the 
size of that, is that likely to be noticed under your own 
guidelines? Because if it is, your guidelines aren't worth 
    Mr. Barton. I don't know what we would determine in our 
Ethics Committee about the guidelines.
    Senator Levin. Would you take that up with your Ethics 
    Mr. Barton. Yes, I certainly would.
    Senator Levin. How long would it take you to let us know?
    Mr. Barton. A month or two. They meet once a month, so give 
me a little bit longer than that.
    Senator Levin. All right, if you could do that.
    Now, that's Article 3 of your ethics rules, 
``Representations which by their size and placement are 
unlikely to be noticed.'' That's one.
    Mr. Barton. Right.
    Senator Levin. Now if you could put up the official rules.
    This is on the envelope that that thing came in. Would you 
say that by the size of that, that they are unlikely to be 
understood or read?
    Mr. Barton. I think they would be unlikely to be read, 
frankly, and one of the reasons you put official rules like 
this--I mean, there are a lot of legal requirements, not in 
connection with this, that you put official statements on 
pieces of paper, and they're all in very small type, because 
you don't want to take up a lot of space from the message.
    I don't know whether we would talk about putting that in 
bigger type. I think that the important thing is not to have 
all the official rules in large type. The important thing would 
be to make it clear that in fact you have not necessarily won.
    Senator Levin. Yes.
    Mr. Barton. And I think that that kind of language, which 
you see on thousands of documents and legal documents of all 
kinds--not language, but size of type--I don't really think 
that's what we're talking about here. I think we're talking 
about, is it going to be clear to somebody that you have not 
necessarily won?
    Senator Levin. Well, it says in your Article 25 that ``the 
terms and conditions should be easy to read.'' Those are the 
terms and conditions, one of which says ``no purchase 
necessary.'' By the way, that's only because I have strong 
glasses on and read it 23 times; that's the only way I can even 
find it. And there's another one hidden in there that talks 
about your odds on this thing, which I can't even read now with 
my glasses on, but it's--well, the prize bonus here, it says 
that the first prize is $25,000. That's the first prize, 
    This is what came in that envelope, ``Judging is now final, 
and Mr. Bruce so-and-so is one of our $1,666,000 winners.''
    Mr. Barton. I would have to look at that very carefully 
because that doesn't make sense. I agree with you, it doesn't 
make sense.
    Senator Levin. OK, it would be very helpful if your 
committee could get back to us with that, plus some other 
exhibits which we will give to you--if the Chairman is willing 
to do this--to give to Mr. Barton a number of these documents 
that we have used, and ask them to get back to the Subcommittee 
with whether or not--the decision of their committee on whether 
or not these exhibits that we are using here comply with their 
    Finally--is that agreeable to the Chair?
    Senator Cochran. It's certainly agreeable, and we hope you 
will be able to help us with that.
    Mr. Barton. We will treat you as an official complainant.
    Senator Cochran. Good. Thank you. I think you got more than 
    Senator Levin. One final comment. Is there any reason why 
we should not make your ethical guidelines law?
    Mr. Barton. Well, you will have to admit that they are 
awfully vague to be put into law. [Laughter.]
    And I'm saying that in a positive way. Laws have to be very 
    Senator Levin. Well, criminal laws surely do, but I'm 
talking about civil fines and administrative fines. And when 
you say here that ``Offers should be clear, honest and complete 
so that the consumer may know the exact nature of what is being 
offered,'' ``Representations which by their size or placement 
are unlikely to be noticed,'' I think that may be clear enough 
for administrative and civil fines.
    But in any event, would you give us----
    Mr. Barton. Let us look at it. You know, the changes in law 
that you were discussing with Ken Hunter were things that I 
think that we can look at and, probably, positively respond to, 
a lot of them, and let us look at that, too.
    Senator Levin. Good. Thank you.
    I just have one question for Dr. Arnold and then I'll be 
    Your testimony was also very fascinating, I must tell you, 
because what it really is warning us of is that we can think 
we're really accomplishing something by writing a law, but we 
may not accomplish it at all. For instance, that warning about 
the Postmaster here may have absolutely no effect if at the 
same time, or in the same envelope, people read more 
prominently a red bold-faced something which tells them 
something else. So we have to really think through what we do 
and take into consideration how clever some of these folks are 
in evasion. I mean, we thought we passed a law in 1990, I 
believe, relative to government look-alikes. That was our 
effort, yet the Chairman has brought out a whole bunch of 
government look-alikes here, and others have, too. Senator 
Collins has. They are government look-alikes. We didn't succeed 
in 1990.
    So we do have to take into consideration your expertise and 
that of folks like you who have expertise in this area, and we 
would look forward to your working with us as we attempt to 
tighten these laws.
    Senator Cochran. Thank you, Senator Levin. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Barton, I was really disturbed by part of your 
testimony. You said that a lot of the cases that we're 
concerned about that have been publicized were the result--and 
I wrote it down--of ``inappropriate responses to sweepstakes.'' 
That statement really troubles me because it indicates to me a 
``blame the consumer'' mentality.
    I don't think it's unreasonable for someone who receives a 
sweepstake that says ``Mr. So-and-so, it's down to a two-person 
race for $11 million, you and one other person in Florida were 
issued the winning number,'' etc., ``and whoever returns it 
first wins it all'' to think that they've won. I don't think 
that's an inappropriate response. I think it's a very logical 
response to a very deceptive, misleading statement.
    Mr. Barton. We agree with you in general about that 
particular promotion piece. That was part of our ethics process 
and it was withdrawn, also with the Attorneys General and so 
forth, so I would agree with you about that.
    But while we're talking about response, we definitely not 
only don't want to blame the consumer because in fact the 
consumer is a very important part of us, and we think they're 
wonderful people. But I really think you'd have to say that 
when you spend $20,000 or $30,000 of money you don't have on a 
promotion, whatever it is, whether it's buying magazines or 
whatever, there is a problem there, more than the fact that the 
person might have been deceived by what we would consider a 
legitimate sweepstakes. We want to reach people who are like 
that, to say that ``You don't have to do this, and there might 
be some other problems that we want to help you with.''
    I don't want to sound condescending at all, but I think 
it's pretty clear from some of these examples that we have seen 
that they are not average, normal responses on the part of 
people who do sweepstakes.
    Senator Collins. But the fact is, this was set up to 
deceive people because if you buy a magazine, your response 
goes to Tampa, where the number is going to be drawn. If you 
don't buy a magazine, the response goes to Georgia.
    Mr. Barton. Again I say, that promotion has been withdrawn.
    Senator Collins. But this is so typical. The one I used in 
my opening statement from my constituent in Portland says, 
``You were declared one of our latest sweepstakes winners and 
you are about to be paid more than $830,000 in cash.'' It 
shouldn't be a detective game for people to figure out whether 
or not they really have won.
    Mr. Barton. No, it should not be a detective game, whether 
or not they really have won.
    Senator Collins. What I'm really trying to ask is, what 
kind of response are we talking about? If somebody just thinks 
they have won and have done nothing, as bad as we think the 
promotion might be, there's no harm done there; they just throw 
it away, or say, ``Gee, I might have won.'' If they buy a 
magazine or two, then that is not an inappropriate response, as 
I was talking about, and in fact that's the kind of thing we 
don't want to happen because we think it ought to be made 
    Mr. Barton. You're right, it ought to be made clear--that 
in fact they have not necessarily won.
    Senator Collins. The problem is that it isn't just a small 
number of unsophisticated consumers. I know Dr. Arnold's 
research shows that. There's one report in Iowa in response to 
just the Publishers Clearinghouse Sweepstakes that showed 126 
Iowans, nearly three-quarters of them over age 70, spent $2,500 
or more on magazines in response to one solicitation.
    Almost 2,000 Iowans paid the company more than $1,000 in 
1996 and 1997. I agree with you that you can't save everyone 
from making a mistake, but that assumes that they've received a 
clear and legitimate offer. That's not what's happening.
    Mr. Barton. It assumes that they believed that they had to 
buy something--you're assuming that they believed they had to 
buy something to win the sweepstakes.
    Senator Collins. Do you think they didn't believe that?
    Mr. Barton. No. I'm not saying that I didn't think they 
didn't. I'm saying that to the extent that that happens, it 
shouldn't happen, and that's not what I was talking about. I 
was talking about people who have garages full of stuff, that 
we talked about, that are truly inappropriate responses. These 
people need to be helped by us and by other people not to 
respond to sweepstakes like that. In that kind of sweepstakes, 
there should be no reason whatsoever that anybody would go in 
and spend $2,500--or even $15--for a magazine that they didn't 
want to buy, if they believe that it's going to help them win 
the sweepstakes. And we're committed to working with you to be 
sure that that happens, and that to the best of our extent, 
that the industry presents promotions that are not in fact 
deceptive in that way.
    What I am saying in a sense here is that there is a gray 
area in all of advertising of what you and I would define as 
deceptive, and what is just strong hyperbole, and we need to 
find somewhere where that line is, I guess, because there is a 
lot of strong advertising that goes on in newspapers and 
magazines and so forth which some people might consider 
deceptive and other people might consider just strong selling 
    So what we want to do is provide an ability for the 
consumer to make a wise choice, and we think most of them do. 
More than 60 percent of the people who respond to sweepstakes 
don't buy, and those who win don't buy. So we're willing to do 
    Our problem with Senator Campbell's bill is that the 
requirement for the type and placement is so negative that we 
think that it would just substantially reduce response all 
across the board, not just from the elderly.
    Senator Collins. Well, in some of these cases I would be 
happy if the consumer threw it away because of what you call 
``negative information'' on the envelope, and what I would call 
``truthful information'' on the envelope. I think we would 
perhaps be saving some consumers a lot of grief and financial 
    I realize that you are committed to working with us on 
this, and I hope that you will concede that the industry has a 
long way to go to make sure that deceptive practices like these 
do not continue.
    Mr. Barton. Yes.
    Senator Collins. I have just a couple quick questions for 
Dr. Arnold.
    Dr. Arnold, I want to follow up with you on the issue of 
who is deceived. It's my understanding--I don't know whether 
you're familiar with it--that the AARP, the American 
Association of Retired People, has found that seniors are more 
likely to be victims, and that it's not necessary the isolated 
and ill-informed senior, but rather that a sophisticated and 
well-educated senior citizen can also be snared by this kind of 
deceptive sweepstakes or pseudo-government mailing. Are you 
familiar with that study? Is that accurate?
    Mr. Arnold. Yes. I'm familiar with that, and the data that 
we have supports the same thing.
    Senator Collins. My final question that I want to ask you 
follows up on the excellent point that you made, that seniors 
are perhaps more vulnerable because they trust government more; 
and when they see something referring to the ``Postmaster'' on 
the envelope, or ``Buy U.S. Savings Bonds,'' or it's the color 
of a government envelope, or it has an eagle on it, they're 
more likely to think that the government somehow has approved 
this or that it's a legitimate offer.
    Is there also a similar factor at work with the use of 
respected, well-known celebrity spokesmen to promote 
    Mr. Arnold. The one thing that is standard in communication 
is the notion of credibility. That's something that we've known 
for 2,300 years. If you have someone who is highly credible as 
your spokesperson and that's someone that they believe, then 
they're going to be more persuaded by it. Just as an aside I 
asked, ``Well, who should we get to speak against telemarketing 
and mail fraud?'' And everybody among the seniors responded, 
``Why, Hugh Downs.'' So they are turning to another senior who 
is respected by that community to speak out against what some 
other folks are doing on the other side.
    Senator Collins. Thank you.
    Thank you, Mr. Chairman, for an excellent hearing.
    Senator Cochran. Thank you, Senator Collins.
    Senator Levin, do you have any further questions?
    Senator Levin. I just want to thank our witnesses.
    Senator Cochran. Thank you especially to the Senators who 
worked hard to prepare for this hearing. We appreciate the 
support and assistance that they have provided, and the members 
of our staff who have helped arrange and prepare for the 
hearing as well. And to all of our witnesses, we thank you, the 
Attorneys General and the Postal Service Inspector, and the 
other witnesses. We are very grateful for your assistance in 
helping us better understand the extent of this problem and 
what the options are for dealing more effectively with it. We 
think it is time for reform, for tightening up these laws and 
rules, and we are serious about doing something about it. 
Senator Campbell has laid out a proposed change in the law, the 
Honesty in Sweepstakes Act, which we have considered at this 
hearing. There are other suggestions that the Postal Service 
has made and that others have made, that Senators on the 
Subcommittee have made. We are going to consider these 
    \1\ GAO testimony, ``Issues Related to Honesty in Sweepstakes Act 
of 1998, S. 2141,'' submitted for the record, appears in the Appendix 
on page 180.
    We appreciate the fact that there is an upgrading of the 
ethical guidelines for the association that has already been 
undertaken, maybe as a result of the initiatives that we've 
seen here in this Subcommittee.
    But we look forward to working with all of you to help make 
reform a reality and not just a promise.
    The hearing is adjourned.
    [Whereupon, at 4:47 p.m., the Subcommittee was adjourned, 
to reconvene at the call of the Chair.]