List brokers were warned in a letter from the Texas attorney general’s office dated Oct. 12 that they could be subject to billions of dollars in fines if they violate a Texas law about sweepstakes mailings that will go into effect Nov. 1.
“In May 2001, the Texas Legislature adopted a new law that applies to list brokers and other people who provide names and addresses for direct mail advertising,” the letter said in part. “The new law, found in Texas Business and Commerce Code chapter 43, prohibits many common sweepstakes practices.”
Further on in the letter direct marketers Publishers Clearing House, Readers Digest and Time Inc. are singled out as firms that emphasize sweepstakes over products.
John Greytok, the state’s special assistant attorney general, signed the letter. He did not return a call for comment.
The letter also warns list brokers that that each violation is subject to fines from $5,000 to $50,000, but that any mailing could contain multiple violations resulting in fines upwards of $1 billion.
An attorney representing direct marketers said the letter is misleading.
“Essentially, here’s the story,” said Andrew B. Lustigman, a partner with The Lustigman Firm PC, New York, and a contributor to DM News. “The attorney general is right that they have this sweepstakes law that goes into effect Nov. 1 and that there may be penalties for a list broker. But what he doesn’t tell anyone is that the statute does not apply to sweepstakes in which the largest prize is under $50,000, which is very important because most are.”
List brokers should not automatically suppress Texas for all sweepstakes mailers, Lustigman said. Instead, they need to find out if the law applies to the specific mailings a client is doing and act accordingly.
Another attorney said that the law itself is unfair.
“It’s not only unfair, it’s specifically designed to scare anybody from renting to sweeps mailings period,” said Mark Fitzgibbons, general counsel at direct mail agency American Target Advertising Inc., Manassas, VA.
He said that letters such as this are not normally sent by states when new laws are enacted.
Though it is unclear how many list brokers received the letter, Lustigman and Fitzgibbons believe it was a mass mailing and both said it was inappropriate.
“The letter from the Texas Attorney General sent to list brokers throughout the country, is highly misleading and does a great disservice to the industry,” said Lustigman.