immediate release -- Tuesday, June 26, 2001.
Contact Bob Brammer, 515-281-6699
Iowa Settles With Publishers Clearing House Sweepstakes giant PCH must
change practices and
make consumer refunds
Attorney General Tom
Miller announced Tuesday that Publishers Clearing House - the giant sweepstakes
company that has long been a focus of concern, investigation and litigation
by Miller's Office - has agreed to make important and permanent reforms
in the way it conducts future sweepstakes contests.
"This has been
one of our top priorities for consumer protection in Iowa," Miller
"Our top concern
always has been that misleading sweepstakes victimize older Iowans,"
he said. "We alleged that consumers often were misled by PCH mailings
into believing they won or were very close to winning huge sweepstakes
prizes - and that making a purchase would enhance their chances of winning.
Those two misrepresentations added up to thousands of Iowans losing thousands
of dollars, and they were mostly older Iowans."
For example, Miller
said investigation by his office determined that more than 1,900 Iowans
had purchases of $1000 or more from PCH in 1996 or 1997, or possibly both,
according to PCH's own records. He said 289 Iowans made purchases of $2500
or more in one or both of those years. A survey by Miller's Office of
almost half of those Iowans revealed that 83% were age 65 or older.
PCH has agreed to
a settlement with Iowa and 25 other states. PCH will pay $34 million under
terms of the settlement. Miller said the multi-state agreement announced
today still must be approved and entered as a permanent injunction by
courts in Iowa and the other states. He said $19 million of the settlement
is earmarked for restitution to consumers as swiftly as possible.
If approved by the
courts in Iowa, the settlement will resolve a lengthy investigation by
the Attorney General's Consumer Protection Division that has involved
several judicial proceedings and an appeal to the Iowa Supreme Court.
On May 31, the Court affirmed the Attorney General's investigative powers
and ordered PCH to fully respond to a consumer fraud subpoena that sought
information about the company's highest-spending customers - a group the
Attorney General had found to be disproportionately older Iowans. The
Court required PCH to provide all of the subpoenaed information.
Miller noted that
the Supreme Court highlighted "a classic case of sweepstakes abuse"
when it issued its opinion in May backing the Consumer Protection Division's
investigative powers. The Court described the evidence relating to an
83-year-old Iowa widow who believed that the "Prize Patrol"
would soon be visiting her. She sent money to PCH for videotapes although
she had no VCR and for compact disks although she had no CD player, and
she subscribed to more than forty magazines, including Men's Journal,
PC World, Sailing, Popular Mechanics and Fortune. Like others, she had
purchased substantial amounts of merchandise for which she had no apparent
use, and such merchandise often remained unopened and unused.
"We believe this
settlement will stop that kind of situation," Miller said.
Miller said PCH has
agreed to very significant limitations and requirements for any solicitations.
"We are very hopeful that this will eliminate the abuses we discovered
that harmed older Iowans, and we will be monitoring this very closely
to be sure it actually succeeds."
Some of the key injunctive
terms of the settlement include:
solicitation must include several key sweepstakes facts messages including,
"You Have Not Yet Won. All Entries Have the Same Chance of Winning..."
and "Enter for Free. You don't have to buy anything to enter...."
and "Buying Won't Help You Win. Your chances of winning without a
purchase are the same as the chances of someone who buys something."
PCH shall not misrepresent a person's "potential winning or enhanced
status." PCH shall not misrepresent that the "Prize Patrol"
is coming to a recipient's house. PCH shall not misrepresent that a person
is receiving individualized attention in connection with winning a prize
- for example, by using documents such as simulated press releases or
simulated checks relating to the recipient, requesting information about
the person's whereabouts when a prize is to be awarded, using terms like
"tie breaker" or "guaranteed winner," or representing
that a mailing requires "urgent attention."
PCH shall not misrepresent
that a person's ordering enhances the chance of winning.
All entrants will
use the same form of entry - instead of different treatment for persons
who make orders and people who do not. All entries are to be treated equally.
In the past, customers who did not buy magazines or other products were
forced to search for a small, plain entry card among the various colorful
pieces PCH included with the contest solicitation. This practice -- now
ended forever -- led consumers inevitably to conclude that those who ordered
had a better chance to win than those who did not.
"We know of Iowans
who sat at home and waited for the Prize Patrol they believed was coming,"
Miller said. "We know of people who postponed returning to Iowa from
their winter home in Arizona because they believed the Prize Patrol was
coming. We know of people who believed that highly customized mailings
meant they were the winners. We know of people who spent thousands of
dollars thinking they were winners or very close to winning and that they
had to buy products to guarantee or enhance their chance of winning."
Miller said the agreement
also includes safeguards to protect vulnerable PCH customers who may continue
to be confused about whether buying products has any impact on their chances
of winning. "PCH will suppress from their mailing lists certain 'high
activity customers' - for example, those who paid $1250 or more between
January 1 and June 30, 2001 -- and survey them to ensure that they are
not confused about their status in the sweepstakes," he said. "PCH
also will permanently suppress customers referred by any Attorney General's
Office to them."
He said: "We
are hopeful that this new framework will resolve these serious problems
plaguing especially older Iowans. This has been a top priority for our
office. I think this will definitely help, and we will watch this very
closely to be sure it does work."
The agreement provides
for PCH paying a total of $34 million. The company must pay $19 million
for customers who were deceived by their past practices. Iowa's share
will be distributed according to a plan to be proposed by Miller's Office
and approved by the court. PCH also will pay, for the first time, civil
penalties totaling $1 million, as well as $14 million to cover the costs
associated with the states' litigation and the costs of administering
the restitution payments.
Miller said this is
not the end of focus by the States on questionable sweepstakes solicitations.
"We are dedicated to monitoring this settlement to be sure it succeeds
as we think it will," he said. "In Iowa, we will be watching
very closely to be sure vulnerable Iowans are no longer victimized by
PCH, and we will continue our work to be sure Iowans are not victimized
by other sweepstakes either."
Miller said: "I
am extraordinarily proud of our Consumer Protection Division staff for
pursuing this case with enormous skill and resolve. Their investigation
and legal work was crucial both in determining the harmful practices of
PCH and applying significant pressure that helped lead to this settlement."
The settlement with
PCH has been approved by the Attorneys General of Arizona, Arkansas, Colorado,
Connecticut, Delaware, Florida, Indiana, Iowa, Kansas, Kentucky, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, North
Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont,
West Virginia, and Wisconsin.