Oregon Department of Justice

Attorney General Hardy Myers today filed a settlement with one of the country's largest sweepstakes mailers, Reader's Digest Association (RDA), requiring the company to make long-term changes in its sweepstakes mailings and to pay an estimated $150,000 in restitution to approximately 200 Oregon victims. An Assurance of Voluntary Compliance, which admits no law violation, was filed in Marion County Circuit Court.

"Reader's Digest sold a variety of magazines and other products through millions of deceptive mail solicitations containing sweepstakes promotions and engaged in questionable renewal practices," Myers said. "We are confident that this tough, far-reaching action will stop the activity."

"Oregonians were mislead by the RDA sweepstakes mailings and believed that they had a better chance of winning if they purchased product. This agreement will assist those Oregon consumers that suffered the most financially," Myers explained.

The action is part of an agreement between Reader's Digest of Pleasantville, New York and 32 states and the District of Columbia requiring the company to establish a $6,081,000 consumer restitution fund. The fund will be administered and distributed by a third party administrator to be retained by the RDA. The rate of return to consumers, who spent over $2,500 for product in fiscal years of 1998, 1999 and 2000, is estimated to be at 15 to 20 percent. Oregon residents account for l.44 percent of Reader's customers that fit into the specific spending category.

Under the settlement, Reader's Digest also agrees to reimburse the states for attorney fees. As a participating state, Oregon will receive $75,000 along with 23 other states. Approximately $2,160,000 will be divided among the states including $100,000 to each of the three negotiating states and $10,000 each to six, non-participating states.

Several key injunctive provisions of the agreement include:

• RDA must provide a clear and conspicuous "Sweepstakes Facts" disclosure to consumers that includes statements such as buying won't help the consumer win the sweepstakes, that the consumer has not yet won, the consumer doesn't have to buy anything to enter the sweepstakes and the odds of winning a prize.
• RDA cannot misleadingly state that a consumer is the winner or about to become the winner of a sweepstakes, misleadingly tell consumers that they have a better chance of winning a sweepstakes than they actually do or represent that the sweepstakes package has been sent by a special courier or a special class of mail if it has not been.
• RDA cannot continue to solicit future High Activity Customers (those that have purchased a certain amount of product) without contacting them to determine that they are not buying because they think it will enhance their chances of winning the sweepstakes
• RDA must establish a "Do Not Contact List," which requires the company to stop sending solicitations to those on the list.
• RDA is required to identify and send special letters to individuals spending more than $1,000 in a six-month period. The letter gives all the earlier required warnings about odds and that purchasing product won't improve chances of winning.
• In future mailings, RDA must send separate entry forms for skill and sweepstakes contests with all the above disclosures.
• RDA must severely restrict its use of "customer only" sweepstakes.
• RDA must, when using automatic subscription renewals, clearly disclose that the renewal will take place unless the customer cancels. The ability for the customer to cancel and receive a full refund must be repeated in the first bill following automatic renewal.

In 1997, Attorney General Myers' Financial Fraud/Consumer Protection section negotiated a letter agreement with Reader's concerning promotions that "blurred" the distinction between sweepstakes that did not require a purchase and skilled contests that did. As part of the agreement, Reader's paid investigative expenses and printed in a Reader's Digest edition the Department of Justice's "So You Think You've Won a Prize" brochure. The magazine was mailed to 250,000 subscribers in the state.

This is the third major, multi-state settlement that the Oregon Department of Justice has participated in since the 1999 public hearings on sweepstakes activities conducted by a group of Attorneys General. Attorney General Myers has settlement agreements with US Sales Corporation (United States Purchasing Exchange) and Time, Inc. using the name of Guaranteed & Bonded.

In January 2000, Myers sued Publishers Clearing House and a September 2001 court date has been set.

Consumers wanting more information on sweepstakes may call the Attorney General's consumer hotline at (503) 378-4320 (Salem area only), (503) 229-5576 (Portland area only) or toll-free at 1-877-877-9392. The Department of Justice is online at www.doj.state.or.us.