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Consumer News Release

For immediate release -- Tuesday, June 26, 2001.
Contact Bob Brammer, 515-281-6699

Miller: 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 said.

"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:

Every sweepstakes 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.

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