Attorney General Lockyer Announces Settlement With the Reader's Digest Association to Provide Improved Sweepstakes Disclosures

(SACRAMENTO) – Attorney General Bill Lockyer today announced that California, 31 other states and the District of Columbia have reached a settlement with The Reader's Digest Association, Inc., one of the nation's largest sweepstakes mailers, to require dramatic changes in what it tells consumers and provide refunds to "high activity" customers.

"Responding to sweepstakes mailings, some consumers are lured into buying magazines and other products with the mistaken belief they are improving their chances of winning," Lockyer said. "Through this and other recent settlements with sweepstakes companies, consumers will be able to clearly see that buying products will not improve their odds of winning."

The Reader's Digest Association, Inc. (RDA) sends out millions of pieces of mail annually, most of which offer consumers the opportunity to enter a sweepstakes. As part of the sweepstakes mailers, consumers are offered subscriptions to Reader's Digest and other magazines, as well as the opportunity to buy books, audio tapes or video tapes sold by RDA. The sweepstakes offers at times have been combined with skill contest offers that require the recipient to buy something to enter the skill contest.

The agreement provides more than $6 million for refunds to "high activity" sweepstakes customers, which includes about $1.5 million for California. An estimated 1,890 California consumers will be eligible for refunds, having made purchases of more than $2,500 in any of RDA's fiscal years 1998, 1999 or 2000. The company will contact consumers eligible for refunds. In addition, RDA will pay more than $2 million for attorneys' fees and the costs of the investigation.

The terms of the settlement with Reader's Digest requires that all sweepstakes mailings provide a clear and conspicuous "Sweepstakes Facts" disclosure notice to consumers. The Sweepstakes Facts will include a statement that buying won't help the consumer win the sweepstakes, that the consumer has not yet won, that the consumer doesn't have to buy anything to enter the sweepstakes and the odds of winning a prize.

"One of things that we wanted to make certain is that consumers who receive sweepstakes mailings understand they don't have to buy anything to have a chance to win and that buying will not help their chances of winning," Lockyer said. "We believe the Sweepstakes Facts disclosure notice will help consumers do this."

Under the terms of the agreement, RDA will not be able to 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 mailing has been sent by special courier or a special class of mail, if it has not been.

Attorney General Lockyer noted that RDA has agreed to not continue soliciting any future "high activity customer" who meets one of three threshold purchase amount tests, unless RDA actually makes contact with that customer to protect against inappropriate purchases. Reader's Digest also has agreed to establish a "Do Not Contact List" which requires RDA to stop sending consumers on the list new sweepstakes or skill contest solicitations.

The settlement requires RDA to identify and send special letters to individuals who spend more than $1,000 in a six month period telling them they are not required to make purchases in order to have a chance to win the sweepstakes, that making a purchase will not improve their chances of winning and that all entries have the same chance to win whether or not the entry is accompanied by a purchase. RDA also has agreed:

*future mailings will contain separate entry forms for skill contests and sweepstakes contests, that nothing on the sweepstakes entry form will refer to the skill contest and that there will be a clear and conspicuous statement telling consumers that they can enter the sweepstakes without also entering the skill contest

*to clearly disclose to consumers if automatic renewals are being used for any subscriptions made. The company also will provide advance notice to consumers that the renewal will take place unless the consumer cancels, and provide a notice with the first billing that a consumer can still cancel and receive a full refund.

*to severely restrict its use of "customer only" sweepstakes.

The multistate settlement is the fifth entered into with major sweepstakes companies since public hearings the Attorneys General held into sweepstakes sales activities, policies and procedures during the Spring of 1999 in Indianapolis. Settlements requiring increased consumer notices through the use of sweepstake fact sheets and refunds to high activity customers were reached last year with US Sales Corporation (also known as USPE), Time Inc., American Express Publishing Corp., and Publishers Clearing House.

The other states involved in the settlement are Alabama, Alaska, Arkansas, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington and Wyoming.