Reader's Digest makes $8 million sweepstakes settlement with 32 states

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Reader's Digest will pay $8 million and revamp its direct-mail sweepstakes disclosures in an agreement announced yesterday with 32 states and the District of Columbia.


Under the agreement, Reader's Digest will pay $6 million in restitution to consumers who made purchases of $2,500 or more from Reader's Digest Association, Pleasantville, NY, during the company's fiscal years of 1998, 1999 and 2000. Approximately $1.5 million of the $6 million will go to California, where an estimated 1,890 consumers qualify for restitution, according to California Attorney General Bill Lockyer's office.


In addition, Reader's Digest will pay $2 million to the states to cover legal and investigation expenses.


Under the terms of the agreement, Reader's Digest must include clear "Sweepstakes Facts" disclosures to consumers in future direct-mail prize promotions, including a statement that making purchases won't improve the consumer's chances of winning. Reader's Digest must also state the odds of winning and clearly disclose that the consumer has not yet won anything and that making a purchase is not required for entry into the sweepstakes.


Reader's Digest may not represent that sweepstakes mailings were sent by special courier or special class of mail. Furthermore, Reader's Digest agreed to cease solicitations to "high activity consumers," defined by three threshold purchase tests, unless the company makes contact with the consumer to protect against inappropriate purchases.


The company has agreed to establish a "do-not-contact" list. Reader's Digest must identify and send special letters to consumers who spend more than $1,000 in a six-month period and tell them that purchases are not required for the sweepstakes.


Future mailing must contain separate forms for skill contests and sweepstakes contests. Reader's Digest must clearly disclose to consumers if automatic renewals are being made for subscriptions and must "severely restrict its use of 'customer only' sweepstakes," according to Lockyer's office.


There was no immediate comment from Reader's Digest.


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