PRC Approves Capital One's Negotiated Service Agreement

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The Postal Rate Commission gave the green light yesterday to a three-year Negotiated Service Agreement between the U.S. Postal Service and Capital One Services Inc., the USPS' fourth-biggest customer and its largest producer of First-Class mail.


The decision now goes to the USPS Board of Governors, which is expected to vote on the matter at its June meeting.


NSAs provide pricing incentives based on increased mail volume and other productivity gains that can save the postal service money. The agreement with Capital One, if approved, would be the first such agreement, but likely not the last.


"Numerous businesses are expected to seek to negotiate similar agreements," PRC chairman George A. Omas said in a statement. "The commission will begin immediately to develop procedures to expedite this process."


Capital One would be eligible for volume discounts of 3 cents to 6 cents per piece for the next three years if its annual First-Class bulk volume exceeds 1.225 billion pieces. The discounts rise as Capital One's volume increases.


To ensure that other mailers are not harmed, the PRC imposed a three-year limit on the discounts of $40.6 million. This was the only change the PRC made to the original filing.


Some mailers have expressed concern that similar arrangements could unfairly benefit certain mailers. However, the PRC emphasized that the USPS had committed to extending comparable discounts to similarly situated mailers.


As part of the deal, the USPS would not return undeliverable First-Class mail solicitations from Capital One. Instead, once certain volume levels are reached, Capital One would receive electronic address corrections for free, but not the returned mail pieces.


This would save the postal service 20 cents for every mail piece it does not have to return, and it expects to avoid returning 80 million mail pieces a year to Capital One during the agreement. Capital One also would be required to improve the address quality of its First-Class mail.


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