USPS Seeks Fines, Beefs Up Enforcement

Andrew B. Lustigman

Source: DMNEWS

Recent complaints filed by the U.S. Postal Service against marketers have sought substantial penalties for even alleged technical violations of the law. Though the postal service was granted the power to levy fines against mailers who used false or deceptive means to generate orders in April 2000, it essentially had abstained from using the provision. Now, the USPS has drastically changed enforcement direction, seeking to fine marketers alleged to have violated the postal law.
More than a sweepstakes law. The Deceptive Mail Prevention and Enforcement Act was signed into law in December 1999 and took effect in April 2000. The DMPEA, commonly considered the federal sweepstakes law, was passed following congressional hearings on the sweepstakes industry coupled with a public outcry against the major sweepstakes marketers. The act contains numerous provisions relating to sweepstakes and skill contests.

The law also includes provisions allowing the USPS to assess monetary penalties against marketers who use direct mail to generate orders. The law amended the postal "lottery" law, a statute that, in addition to prohibiting using the mail to send lottery information and lottery tickets, prohibits false or deceptive representations made to obtain money or property through the mail.

Before the DMPEA, the postal service's primary remedy against mailings it believed contained false or deceptive representations was to initiate an administrative hearing, after which a proven violation would result in an order directing the return of mail to the sender, marked "returned for violation of the false representation statute."

However, the DMPEA amended the civil penalties section of the postal code to permit a penalty assessment for deceptive mailings of up to $1 million for the first offense depending on the volume of mail. This was unrelated to claims of violations of prior orders. The act established penalties for violations of false-advertising laws of up to $25,000 for each mailing based on quantities of up to 50,000 pieces; $50,000 for each mailing from 50,000 to 100,000 pieces, with an additional $5,000 for each additional 10,000 pieces above 100,000, not to exceed $1 million. If a mailer was violating a prior order, the penalties could be doubled.

The new enforcement power did not appear to concern many in the industry, however, as many insiders thought that it would be used against only marketers who violated the sweepstakes and skill-contest provisions. As a result, there was little, if any, industry opposition to these proposed provisions.

Surprisingly, the USPS avoided enforcing the penalty provision of the act until recently. Perhaps as revenue shortfalls might be affecting the Postal Inspection Service budget because of decreased mailings thanks to increased postage rates, overly aggressive sweepstakes laws and the anthrax scare, recent cases filed by the postal service have sought to apply the penalty provision to non-sweepstakes mailers. Challenged promotions go across the direct mail spectrum, from work-at-home promotions to continuity programs to newsletter subscriptions.

Prosecutor, judge and jury. That the postal service is seeking such penalties in new cases is significant because the USPS essentially controls the process by which fines are levied. Under the governing law, the postal service is authorized to have its attorneys file an action seeking substantial monetary penalties in a Postal Court.

The Postal Court is not a typical federal court, but rather an administrative body in which the Postal Law judge, while theoretically independent, almost always rules for the postal service. The judge recommends his findings to the judicial officer, who is also theoretically independent, who issues a final order affirming the judge's recommendation. This final order can be appealed to a federal court, but only to an appellate court, which can reverse the USPS only if the appealing party meets a very high standard.

Lien on mailer's home. The postal service claims to have obtained at least one court order for monetary penalties based on a first-offense allegation where the party defaulted on its appearance. This included obtaining a lien against the mailer's home.

The USPS also may cause marketers to challenge the structure of its enforcement division, as marketers may be unable to get a fair trial given the perceived lack of a neutral body levying fines. Meanwhile, given the potential exposure, marketers who use direct mail to generate orders should ensure compliance with the governing laws.

Andrew B. Lustigman is a partner at Olshan, New York. His e-mail address is

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