FTC Testimony Addresses Mailing of Deceptive Materials Relating to Sweepstakes

The Commission recognizes that the practice of mailing deceptive materials relating to games of chance is detrimental to American consumers and ... will continue to use the full range of investigative techniques, targeted law enforcement actions, and consumer and business education to attack this problem," said Federal Trade Commissioner Orson Swindle in delivering FTC testimony today before the House Committee on Government & Reform Subcommittee on the Postal Service considering deceptive sweepstakes mailings. The Subcommittee is reviewing the necessity of amending Chapter 30 of Title 90 of the United States Code, which addresses the ability of the U.S. Postal Service to curtail the mailing of certain materials. The Commission believes that the goals of the two bills currently pending before the Committee -- H.R. 170 and H.R. 237-- appear consistent with the FTC's enforcement work in this area.

The FTC testimony to the Postal Service Subcommittee notes that the Commission has a long history of using its authority under Section 5 of the FTC Act to challenge deceptive mail promotions. The testimony highlighted some of the Commission's efforts and activities, such "Project Mailbox," a joint federal-state initiative focusing on the deceptive use of sweepstakes, prize promotions, premium awards, and other misleading marketing techniques in mail solicitations, unsolicited facsimiles, and unsolicited commercial e-mail. Through "Project Mailbox," Commissioner Swindle stated, the Commission coordinated law enforcement efforts with 47 states, as well as other federal and local law enforcement agencies, to bring more than 200 actions challenging such practices. The U.S. Postal Service contributed significantly to that effort.

The Commission uses both law enforcement and consumer education efforts to combat this type of fraud. To support efforts such as Project Mailbox, the testimony noted, the Commission systematically collects and analyzes consumer complaint data collected from the FTC's Consumer Response Center (CRC). The CRC receives nearly 7,000 consumer calls, letters and e-mails per week -- up significantly since the FTC introduced a new toll-free consumer hotline (1-877-FTC-HELP) in June of this year. CRC staff puts this information in the FTC's database, which currently contains more than 423,000 consumer complaints and inquiries. Commission staff uses the information in the database in various ways: to spot trends, to identify companies that should be targeted for law enforcement action, and to locate witnesses. The Commission also sponsors and operates Consumer Sentinel -- a secure Internet website -- which law enforcement agencies throughout the United States and Canada use to access the database. Consumer Sentinel is a joint project of the FTC and the National Association of Attorneys General, in cooperation with Canadian partners Canshare and PhoneBusters. The database includes complaints not only from the FTC and other law enforcement agencies in the U.S. and Canada, but complaints from private entities such as the National Fraud Information Center, Better Business Bureaus and the AARP.

Through its consumer and business education component, the Commission works to raise the public awareness of the dangers of deceptive sweepstakes promotions by publishing and distributing consumer alerts and brochures. The Commission also distributes a number of publications designed to help legitimate businesses that use prize promotions comply with the law.

In commenting on the bills under consideration, the testimony states that the bills focus primarily on the authority of the U.S. Postal Service and would not directly affect the Commission's continuing activity, under its existing authority, against the deceptive use of sweepstakes, prize promotions, premium awards, and other marketing techniques in direct mail and other media. "The Commission believes that if enacted either of these bills could have a positive impact," Swindle said.

According to the FTC testimony, both bills require disclosures of information similar to that required by the FTC's Telemarketing Sales Rule (TSR). Many deceptive telemarketers use the mail to solicit consumers to call and hear a pitch. It is a violation of the TSR for telemarketers, whether they use the mails or not, to fail to disclose all material information, including total cost, and any material restrictions or limitations on the use of the product or service being sold via telephone. In any prize promotion, including sweepstakes, the testimony notes, the TSR requires telemarketers to disclose:

• the odds of being able to receive the prize;

• that no purchase or payment is required to win or to participate in the prize promotion;

• instructions on how to participate in the prize promotion without purchasing the product or making a payment; and

• all material costs or conditions to receive or redeem a prize that is the subject of the prize promotion.

Both bills being considered require that any sweepstakes-related solicitation include some of these disclosures. "The bills now pending are consistent with that approach taken in the TSR," the testimony states, "since they would require business to provide consumers with material information about the nature of sweepstakes-related promotions. Such legislation should lead to fewer deceptive sweepstakes mailings and a better informed public," the testimony concluded.

The Commission vote to approve the testimony was 4-0.

Copies of the full text of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 1-877-FTC-HELP (1-877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.