Mailers Prepare for Stricter Sweeps Regulations
The act, which was signed into law by President Clinton in December, imposes various restrictions on sweepstakes mailings, establishes a name removal notification system whereby individuals can request removal from mailings lists for sweepstakes, imposes heavy financial penalties on violators and provides the U.S. Postal Service's postmaster general with authority to investigate and stop deceptive mailings. The act goes into effect April 13, except for the notification system, which takes effect Dec. 12.
Sweepstakes promoters from a variety of businesses have spent the past few months working the new language and requirements into their materials.
"The definition of what is included in the new act is very broad and applies to the entry materials for a wide variety of promotions, such as sweepstakes in retail locations, advertising circulars, direct mailers and a wide variety of other types of entry materials," said Robert Vinson, a partner at Strasburger & Rice LLP, Dallas, a law firm with several clients that run sweepstakes promotions. "As a result, we are getting many requests about the act and what it means to our clients."
Postal officials are preparing to enforce the act as well and have published rules in the Federal Register outlining some of the agency's new powers. First, the act gives the postal service authority to subpoena any records that the "postmaster general considers relevant or material" to its investigation. Second, it gives the USPS new civil penalty powers, permitting it to issue civil penalties to any party deemed to be deceptively seeking money or property through the mail. Penalties are calculated on a sliding scale:
* $25,000 for each mailing of fewer than 50,000 pieces,
* $50,000 for each mailing of 50,000 to 100,000 pieces,
* An additional $5,000 for each additional 10,000 pieces, not to exceed $1 million.
The penalties for violating a stop order also increase on a similar sliding scale based on the quantity of the mail, up to a maximum of $2 million. Those who violate the name removal notification system are subject to civil penalties of up to $10,000 per violation. Individuals may bring a private action and recover actual damages or $500, whichever is greater.
Previously, the postal service could obtain a mail stop order against what it viewed as materials containing deceptive advertising, but it could not impose fines on those mailers. If officials deemed that penalties were warranted, they would have to bring the case before a federal judge before imposing any penalties.
The act gives the postal service power to levy significant financial penalties in the postal court -- as opposed to the federal court, which is more impartial and has a checks-and-balances system set up for discovery requests.
"All marketers should have significant concerns if they use direct mail to obtain orders," said Andrew B. Lustigman, a partner with The Lustigman Firm, New York, and a columnist for DM News. "They should consider the impact of the provisions and look at their mail pieces that way."
While the USPS has no specific mechanisms to track whether mailings are deceptive, insiders said postal employees are being prepared at the federal and local level to make sure that all deceptive mail is accounted for and to ensure that every mailer is in compliance.
The act -- though under the sole jurisdiction of the USPS -- can always be challenged by the Federal Trade Commission or state attorneys general under their general consumer-protection statutes.
Many of the larger sweepstakes mailers are confident that their mailings will comply with the act. Consumers Union, Yonkers, NY, the nonprofit organization that regularly mails raffle and nonraffle sweepstakes designed to generate charitable donations, dropped a mailing at the end of March that company officials said complied with the rules.
"We have been preparing for the act since last year, and all of our mailings are currently in full compliance with the new laws," said Cary Castle, director of fundraising at Consumers Union. "We have been very conscious of trying to make a very soft sell with our sweepstakes mailings for several years. In fact, in 1998, we tested a more promotional sweepstakes with a more sensational message on the outer envelope and the reply form, but it didn't work."