Senate OKs Bill to Stop Sweepstakes Fraud

The Senate on Monday approved a consumer protection bill that targets deceptive sweepstakes mailings after it heard tales of one woman who delayed surgery to wait for the “prize patrol” and another who spent $30,000 on merchandise because she thought it would boost her chances of winning a large cash award.

The measure, which passed by a 93-0 vote, would establish for the first time federal standards over such mailings, including requirements for contest sponsors to clearly state consumers’ chances of winning prizes. It also would give the U.S. Postal Service broad powers to investigate and impose fines of up to $1 million for first-time offenders.

Despite rising complaints about deceptive practices and lawsuits filed by several states, the sweepstakes business continues to be a prime marketing tool. Congressional officials say four major prize companies alone send out more than a billion pieces of mail annually, and an industry group reports that one-third of all new magazine subscriptions come from sweepstakes.

In backing the bill to bring federal oversight to the contests, senators said the elderly are frequently targeted by sweepstakes companies and often fall victim to marketing techniques that appear to link purchasing merchandise to the chances of winning a contest.

“Sweepstakes in this country, for many Americans, have become a cruel joke,” said Sen. Carl Levin, (D-Mich.), a chief sponsor of the bill. He added, “These companies prey on the most vulnerable among us.”

The measure received backing from a coalition of diverse interests, including consumer rights organizations, advocates for older Americans and the Direct Marketing Assn., which represents such sweepstakes giants as Publishers Clearing House and American Family Publishers.

Jerry Cerasale, the marketing association’s senior vice president for government affairs, said the companies hoped the bill would weed out the sponsors of fraudulent sweepstakes and boost the public’s trust in contests organized by legitimate groups.

“We want the federal government to set a standard,” Cerasale said, noting that response rates to sweepstakes have been dropping recently. The decline was partially due to increased concern over their fairness, he said. “We know that there are some people who are confused.”

The issue will now go to the House, where a subcommittee is scheduled to hold hearings on similar legislation Wednesday. Backers of the Senate bill said they hope President Clinton will sign a version of the plan into law in the fall.

The measure would bar sweepstakes sponsors from indicating that consumers are winners of prizes if, in fact, they are not. It would also require mailers to display:

* A statement that no purchase is necessary to enter the contest and that purchases will not improve the chances of winning.

* The odds of winning, the estimated value of any prize and the schedule of any promised payments over time.

* The name of sweepstakes’ sponsors, as well as their addresses, so consumers can contact them if they have concerns over the mailing.

In addition, the bill would prohibit mailings that imply a connection to the federal government. Sponsors of the proposal said some of the most deceptive sweepstakes involve documents containing insignias that suggest government endorsement.

To enforce these provisions, the bill would grant the postal service subpoena power to investigate alleged violations and the authority to stop a mailing nationwide when abuses are detected.

Supporters said these tools, combined with the new fines for first-time violations, are especially necessary to combat the multitude of small sweepstakes companies that operate with numerous names and addresses, which make them difficult to track and then shut down in cases where fraud is detected.

“They depend on working in the shadows, under the radar of federal investigators,” said Sen. Susan Collins (R-Maine), a sponsor of the bill.

Collins is chairwoman of a governmental affairs subcommittee that investigated cases of senior citizens who had squandered their life savings and Social Security checks to pay for unwanted magazines, videos and other merchandise.

“They were enticed by the bold promises on sweepstakes’ mailings,” Collins said. “But, unfortunately, their dreams did not come true.”

Consumer advocates, who have long called for tougher regulations of sweepstakes, embraced Monday’s measure. “This bill is a good recipe for cleaning up practices,” said Mark Silbergeld, a spokesman for Consumers’ Union, the consumer rights advocacy group.