Major sweepstakes company agrees to reform, pay $4 million

4 states sued American Family Publishers over alleged deceptions

May 29, 1999|By NEW YORK TIMES NEWS SERVICE

ORLANDO, Fla. -- American Family Publishers, one of the nation's two largest sweepstakes promotion companies, agreed yesterday to extensive changes in its practices and a $4 million settlement of civil charges by four states that the company deceived consumers.

Under the agreement, the company will stop telling recipients of its mailings that they are winners or members of a group of finalists or semifinalists unless that is true. It will also send notices to customers who buy large numbers of magazines in a year, reminding them that no purchase is necessary to enter the sweepstakes.

The settlement resolved lawsuits charging deceptive practices filed against the company in Florida, Indiana, South Carolina and West Virginia. The states had accused American Family Publishers of selling magazines by tricking customers into thinking they had won a sweepstakes prize or falsely suggesting that they had to buy something to win.

A year ago, the company entered into a similar agreement with 32 other states. A lawsuit by Connecticut is pending.

Robert A. Butterworth, the attorney general of Florida, said: "Unlike millions of sweepstakes entries sent out by American Family Publishers, this agreement is definitely a winner. It is intended to eliminate consumer deception in the future while holding the company responsible for past abuses."

American Family Publishers, based in Jersey City, N.J., and owned in part by Time-Warner, the world's largest entertainment company, did not admit any wrongdoing.

Susan Caughman, the chief executive of American Family Publishers, said in a statement that the agreement demonstrated the company's commitment to consumer protection. "This multistate agreement represents a major step forward for American Family Publishers and, potentially, our entire industry," she said.

People who bought magazines through the company's sweepstakes promotions in the four states will share $3 million from the settlement, though a formula has not yet been devised. The remaining $1 million will cover the cost of the investigations by the states.

The company will also make two donations of $10,000 each to the Muscular Dystrophy Foundation in the names of Dick Clark and Ed McMahon, its two celebrity spokesmen who had been named defendants.

About a third of all new magazine subscriptions are sold through sweepstakes, which offer contests with multimillion-dollar prizes to persuade people to buy magazines. Consumer advocates have long accused American Family Publishers and the other major sweepstakes company, Publishers Clearing House, of using official-sounding language and gimmicks to lure people into purchases. The companies have said their contests are not deceptive and follow state and federal laws.

Jeffrey A. Modisett, the attorney general of Indiana, said the revised practices accepted by American Family Publishers had moved the states a step closer to developing minimum standards for the direct-mail industry.

Last week, the Senate Governmental Affairs Committee unanimously approved a bill intended to prevent misleading sweepstakes mailings by imposing new disclosure guidelines on contest entries and raising civil penalties to $2 million.

The legislation, sponsored by Sens. Susan M. Collins, a Maine Republican, and Carl Levin, a Michigan Democrat, is expected to go to the full Senate for a vote this year.

Collins said the bill would provide new authority for the U.S. Postal Service to investigate and stop deceptive mailings, while protecting the ability of states to impose tougher requirements on sweepstakes companies.

Elderly people have been the most visible victims of what the state attorneys general described as deceptive practices. Advocates for the elderly say they are often more vulnerable to official-appearing documents and to the promises of Clark and McMahon.

Many people have complained that elderly relatives spend thousands of dollars on subscriptions to magazines they never read because they mistakenly believe they must buy magazines to have a chance to win.

Some have traveled to Tampa, Fla., where the customer service operations of American Family Publishers is, in the mistaken belief that they have won because their entry form says they have.

The practices that American Family Publishers agreed to are intended to protect all vulnerable consumers, officials of the various states said.

In addition to notifying people who buy large numbers of magazines that no purchase is necessary, the company agreed to clearly and conspicuously print on forms that no purchase is necessary and that a customer's chances of winning are not enhanced by previous purchases.

Also, sweepstakes rules must be printed in type that is at least one-ninth of an inch high.

Pub Date: 5/29/99

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