	Proposed Legislation: Issues Related to Honesty in Sweepstakes Act of 1998

Mr. Chairman and Members of the Subcommittee: We are pleased to have this opportunity to discuss issues related to the proposed legislation entitled “Honesty in Sweepstakes Act of 1998,” (S. 2141), which was introduced on June 5, 1998, by Senator Ben Nighthorse Campbell. Also, I will provide information on our efforts to obtain similar information related to the mailing of documents that resembled cashier’s checks, also known as cashier’s check “look-alikes,” which are not the negotiable instruments that they appear to be. Extent and Nature of Consumers’ Problems With Mailed Sweepstakes Material and Cashier’s Check “Look-Alikes”

Of the 17 agencies and organizations from which we obtained information, we found that comprehensive data on the extent of consumers’ problems with mailed sweepstakes material and cashier’s check look-alikes were generally not available. We found that in 2 of the 17 agencies and organizations—namely FTC and the Postal Inspection Service—some data were available that could help indicate the nature or types of problems that consumers had experienced with mailed sweepstakes material. Regarding the first main reason for the lack of comprehensive data, officials and representatives told us that consumers often did not report problems because they were too embarrassed or did not realize that they had been victimized. FTC’s Consumer Information System Included Data That Could Indicate the Nature of Problems

In our discussions with various officials and representatives of the agencies and organizations from which we obtained information, they suggested that in order to obtain examples of such problems, in all likelihood, FTC would be the most appropriate agency to provide us with data on consumers’ complaints about sweepstakes mailings and cashier’s check look-alikes. Sweepstakes that required consumers to purchase products or services. Postal Inspection Service Has Investigated Various Cases Involving Mailed Sweepstakes Material

Postal Inspection Service officials told us that the Fraud Complaint System (FCS) is used by the Postal Inspection Service to collect and maintain consumer complaint information about various types of alleged fraudulent activities, including those involving deceptive mail marketing practices. The 16 cases most often involved sweepstakes and cash prize promotions for which up-front taxes or insurance, judging, or handling fees were required before consumers could participate in the sweepstakes. Examples of two of the more recent initiatives included (1) Project Mailbox and (2) the establishment of a multi-state sweepstakes committee, which resulted from a legal complaint involving AFP.
Why GAO Did This Study

GAO discussed the issues related to the Honesty in Sweepstakes Act of 1998, introduced on June 5, 1998, by Senator Ben Nighthorse Campbell, focusing on: (1) the extent and nature of problems that consumers may have experienced with various sweepstakes mailings; and (2) information related to the mailing of documents that resembled cashier's checks, which are not the negotiable instruments that they appear to be.

What GAO Found

GAO noted that: (1) it found that comprehensive data that could indicate the full extent of the problems that consumers experienced with mailed sweepstakes material and cashier's check look-alikes were not available; (2) the main reasons officials and representatives gave for the lack of comprehensive data were that: (a) consumers oftentimes did not report their problems; and (b) no centralized database existed from which comprehensive data could be obtained; (3) although comprehensive data were unavailable, the Federal Trade Commission (FTC) and the Postal Inspection Service were two organizations that GAO identified as having some data on consumers' complaints about deceptive mail marketing practices, which could indicate the nature of these types of problems; (4) much of the consumer complaint information, which GAO obtained in a sample from FTC's Consumer Information System, showed that in many instances, consumers were required to remit money or purchase products or services before being allowed to participate in the sweepstakes; (5) information about Postal Inspection Service cases that had been investigated largely involved sweepstakes and cash prize promotions for which up-front taxes or insurance, judging, or handling fees were required before consumers could participate in sweepstakes promotions; (6) GAO was unable to identify examples of consumers' problems with cashier's check look-alikes similar to those involving mailed sweepstakes material because such information was not readily available; (7) two recent initiatives are intended to address consumers' problems with deceptive direct mail marketing practices; and (8) the initiatives are: (a) Project Mailbox, for which various participating organizations, including FTC, the Postal Inspection Service, and 25 state attorneys general, collectively took steps to target organizations that used such practices; and (b) the establishment of a multi-state sweepstakes committee that, among other things, is designed to facilitate cooperation among various states in dealing effectively with companies that attempt to defraud consumers through the use of mailed sweepstakes material.