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Karl A. Racine
Office of the Attorney General for the District of Columbia

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Reader's Digest Agrees to Pay $6.1 Million in Consumer Refunds In Settlement with 32 State Attorneys General and DC Corporation Counsel

Thursday, March 8, 2001

DC Corporation Counsel Robert R. Rigsby announced today that his office and 32 state attorneys general, including the Attorney General of Virginia, have reached a settlement agreement with The Reader's Digest Association that requires the company to change its sweepstakes mailings and to pay $6.1 million for consumer refunds. The settlement resolves allegations that Reader's Digest misled consumers in violation of consumer protection laws.

Reader's Digest promotes a variety of magazines, books, and other products through mailings that offer consumers the opportunity to enter a sweepstakes. According to Rigsby, the company's mailings misled many consumers into believing that they were close to winning a sweepstakes prize and that they could increase their chances of winning by placing an order. Last year, for example, a Reader's Digest solicitation for Walking Magazine contained a "Grand Prize Certificate" that stated:

Only by returning your Certificate in the "YES" envelope can you be eligible for all prizes and ensure continuous delivery of WALKING MAGAZINE to your home at a guaranteed savings off the yearly cover price. Remember no purchase is necessary to qualify for all prizes, simply return your Certificate in the "NO" envelope.

Most important, to guarantee your eligibility for the $2,000,000.00 GRAND PRIZE as well as the other prizes, mail your Certificate TODAY. Why not return it in the "YES" envelope right now before you forget.

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

The state attorneys general plan to use the $6.1 million consumer fund to pay partial refunds to consumers who spent extraordinarily high amounts in response to Reader's Digest's sweepstakes solicitations during the past three years. Company records show that there were 24 District residents who, in response to Reader's Digest's sweepstakes solicitations, individually spent at least $2,500 in one or more of the company's last three fiscal years. According to Rigsby, each of these 24 consumers can expect to receive a refund of about 20% of what they spent in each year in which they spent $2,500 or more. In addition to the $6.1 million for consumer refunds, Reader's Digest will be paying the states about $2 million for their investigative and legal expenses, $75,000 of which will go to the District government.

Reader's Digest has also agreed to stop soliciting any "High Activity Customer" (as defined in the settlement) unless the company actually makes contact with the customer and determines that the customer's desire to continue buying merchandise is not based on a (false) belief that buying will help him or her to win a sweepstakes.

The Corporation Counsel's power to enforce the District of Columbia's consumer protection law was enhanced by legislation that went into effect on July 24, 2000. Among other things, the legislation created a consumer protection revolving fund to help fund the Corporation Counsel's consumer protection work. The $75,000 payment that the District government is to receive from the Reader's Digest settlement will be credited to the revolving fund.

Copies of the settlement agreement and examples of the mailings that Reader's Digest sent to consumers in the District of Columbia are available from Mr. Bennett Rushkoff, Office of the Corporation Counsel at (202) 727-5173.

MEDIA CONTACT: Leigh A. Slaughter, Special Deputy Corporation Counsel, (202) 724-5198.