[Federal Register Volume 68, Number 196 (Thursday, October 9, 2003)]
[Rules and Regulations]
[Pages 58273-58276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25643]
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POSTAL SERVICE
39 CFR Part 111
Eligibility Requirements for Certain Nonprofit Standard Mail
Matter
AGENCY: Postal Service.
ACTION: Final rule.
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SUMMARY: In this final rule, the Postal Service adopts an amendment to
Domestic Mail Manual standards that expands eligibility for Nonprofit
Standard Mail rates by exempting certain matter soliciting monetary
donations from application of the cooperative mail rule.
EFFECTIVE DATE: November 13, 2003.
FOR FURTHER INFORMATION CONTACT: Jerome M. Lease, Mailing Standards,
United States Postal Service, 703-292-4184.
SUPPLEMENTARY INFORMATION: In a proposed rule published in the Federal
Register on May 6, 2003 (68 FR 23937-23939), the Postal Service
proposed to expand the eligibility for Nonprofit Standard Mail rates by
exempting certain fundraising mailings from the application of the
cooperative mail rule. For the reasons explained herein, the Postal
Service adopts the proposal, with minor modifications.
The proposal provided background concerning Nonprofit Standard Mail
eligibility; the traditional role of Congress in expansion of
eligibility for these rates; the history of the cooperative mail rule
and its application to fundraising mailings; recent concerns
[[Page 58274]]
raised by nonprofit representatives concerning application of the
cooperative mail rule on fundraising mail and potential effects on
nonprofit organizations; and proposed legislation to exempt certain
fundraising mail from application of the rule. The proposal also
explained the Postal Service's reluctance to propose a rulemaking on
these issues since expansion of eligibility for nonprofit rates has
traditionally been accomplished through legislation. Nevertheless, as
the proposal discussed, the Postal Service determined to embark upon
this rulemaking with the understanding that it represented the
consensus of parties with an interest in nonprofit issues, including
bipartisan Congressional support, representatives of both nonprofit
organizations and professional fundraisers, and the Postal Service;
that it was needed to assist nonprofit organizations in obtaining
support necessary to fund their programs; and that this result could be
accomplished more quickly administratively than legislatively.
The Postal Service received 67 comments concerning its proposal,
including one that was received late but was considered. The commenters
were diverse, including nonprofit organizations and organizations
representing such organizations; professional fundraisers and
organizations representing these commercial entities; Congressional
representatives; private individuals; and an organization representing
state officials that regulate charities. The comments also presented a
broad range of views. A significant majority of the comments urged the
Postal Service to adopt the rule as proposed. A small number of
comments, concerned with potential abuses, recommended limitation of
the proposed rule. Of these commenters, a small number recommended that
the Postal Service withdraw the proposal, while the remainder
recommended that it be adopted with additional restrictions. In
contrast, a lesser number of comments recommended that the exemption
from application of the cooperative mail rule be expanded even further.
Additionally, several comments recommended that the rule should be
retroactive.
One of the comments that urged withdrawal of the rule argued that
the rule would primarily benefit commercial fundraisers, rather than
nonprofit organizations, while the other spoke more generally of
potential abuse. If the former assertion were proven to be true, it
would give the Postal Service reason to consider withdrawing the
proposal. That is, the Postal Service understands that the primary
concern of Congress and the nonprofit industry in seeking changes in
this area was to benefit nonprofit organizations. Admittedly, the
Postal Service does not have independent knowledge to verify the
accuracy of the commenter's claims, since the Postal Service does not
monitor or regulate the business relationships between nonprofit
organizations and professional fundraisers. The comment did not provide
evidence to substantiate its claim. Moreover, both nonprofit
organizations and associations representing them, who obviously have an
interest in this question, urge adoption of the proposal or a modified
version of it. This suggests, and some of these comments specifically
state, that the change will benefit at least some nonprofit
organizations. Accordingly, the Postal Service does not find it
appropriate to reject the proposal, as urged by this comment.
The comments that urge the imposition of restrictions narrowing the
proposed exemption from the cooperative mail rule do so for reasons
related to those raised by comments seeking withdrawal of the proposal.
That is, although they do not urge rejection of the new policy, these
comments express concern that some professional fundraisers may use the
new rules to take advantage of inexperienced or unsophisticated
nonprofit organizations.
At the outset, it should be noted that the proposed rule does not
dictate the terms of the relationship between nonprofit organizations
and fundraisers. If anything, it increases the options available to the
parties. For instance, it does not prevent nonprofits from entering the
type of principal-agent relationship with fundraisers contemplated by
the cooperative mail rule. And, as urged by the numerous parties that
sought the Postal Service rulemaking in this area, it allows the
nonprofits to consider other relationships to retain the services of
professional fundraisers.
The Postal Service does not doubt that the proposed change in its
standards will provide individual nonprofit organizations the freedom
to enter agreements that, in hindsight, at least a few will conclude to
have been unwise. However, the Postal Service does not believe that
this provides the justification, at least at this time, to adopt the
additional restrictions urged by some comments. Those proposals
recommend that the Postal Service require nonprofits and fundraisers to
adhere, and certify their compliance, to a variety of conditions
concerning their relationship. The conditions suggested include: (1) A
restriction against any officer, director, principal, or fiduciary of
the party that is ineligible to mail at nonprofit rates (hereafter
``ineligible participant'') or a corporate affiliate or close relative
of the ineligible participant serving as an officer, director, or key
employee of the nonprofit; (2) a requirement that the arrangement
between the nonprofit and ineligible participant be governed by a
written contract, and that this contract be signed by a board member or
officer of the nonprofit; (3) a requirement that the donations be
deposited in a bank account under the nonprofit's exclusive control;
(4) a requirement that the ineligible participant have no ownership or
control over the list of donors responding to the solicitation, beyond
a limited contingent security interest; (5) a requirement that the
ineligible participant not retain ownership rights to intellectual
property in the fundraising package developed at the nonprofit's
expense; (6) a requirement that, in instances where the ineligible
participant extends credit to the nonprofit, the credit terms are not
conditioned upon the continued employment of the ineligible
participant; and (7) a requirement that the mailing not constitute an
excess benefit transaction as defined by the Internal Revenue Service.
As explained, the Postal Service has determined to adopt the fourth
suggestion, in part. Other than that item, for the reasons discussed
below, the Postal Service has determined not to adopt the restrictions
suggested by these commenters.
First, based on comments received by the Postal Service, it is
clear there is significant disagreement as to whether any, much less
these, additional restrictions should be adopted. As discussed above,
and in the earlier Federal Register notice, the Postal Service proposed
its rule change reluctantly, based on an understanding there was a
broad consensus among interested parties supporting it. Although there
appears to remain a general consensus in support of the proposal, there
is no consensus supporting any of the suggested additional
restrictions.
Second, even if the Postal Service found it appropriate to consider
additional postal standards in this area, it is not convinced that the
standards suggested are necessarily appropriate. The Postal Service
understands the nonprofit universe to be diverse. For example,
nonprofits may be large or small, well-established or relatively new,
relatively well-funded or not well-funded, run by a permanent paid
staff
[[Page 58275]]
or all-volunteer. It seems to us difficult to impose a set of
restrictions that should be universally applied to all of these
organizations. However, that is what the comments suggest.
Third, even if the terms suggested by the commenters are
reasonable, the need to impose them by regulation is not clear to the
Postal Service. That is, although the need to ensure that nonprofit
organizations are not subject to abuses by commercial entities is a
laudable objective, it might be accomplished, or at least attempted,
through alternatives to regulation. For example, education or training
of nonprofits may prove to be sufficient, particularly if it is true
that adherence to the suggestions is financially beneficial for the
nonprofit. There are a number of interested entities that might provide
this education and training: associations representing nonprofit
organizations; associations representing fundraisers; and government
entities that regulate professional fundraisers and nonprofits. The
Postal Service encourages these associations and government agencies to
undertake efforts to educate nonprofit organizations and to take other
appropriate measures to protect nonprofits from potential abuses. We
also encourage nonprofit organizations to utilize these resources and
to review their existing and proposed fundraising arrangements and
consider whether the terms of those arrangements are in their best
interests. The Postal Service will be happy to assist, as appropriate,
in these efforts.
Fourth, the Postal Service also has doubts that the procedures
suggested by some of the comments are administratively feasible. The
comments did not appear to suggest that the Postal Service undertake
the difficult task of independently verifying mailers' compliance with
the proposed conditions. Rather, they suggested that the parties each
sign the postage statements certifying compliance with the new
standards and that the Postal Service rely upon these statements.
However, the Postal Service does not require all parties to sign the
postage statement at this time and, when analogous proposals have been
raised in the past, mailers have pointed out the logistical problems
they would face if required to sign postage statements for mail
prepared and entered by their agents. Moreover, even if it is not
contemplated by the commenters that the Postal Service will seek to
enforce the suggested conditions beyond ensuring that the parties sign
the postage statement, it is unlikely that the Postal Service can avoid
all other enforcement activity. For instance, if it is alleged that
parties are not in compliance, despite mailing at the nonprofit rates
while certifying they did comply, it is likely that the Postal Service
would be expected to investigate the assertions. Unlike violations of
the current cooperative mail rule, which often can be determined by
examination of the parties' contractual arrangements, some of the
proposed conditions would likely require a more extensive
investigation. For example, the restriction against officers and others
with close ties to the ineligible participant (including the close
relatives of these individuals) serving as officers, directors, or key
employees of the nonprofit would require an exhaustive examination of
the organization charts and employment rolls of each organization.
Determining whether there is a violation of the IRS excess benefit
transaction standard would require Postal Service employees to develop
expertise in these standards and to obtain the information needed to
apply them. Given the possibility of IRS investigations of the parties
under the same standard, this requirement would create the risk of
duplicative government efforts.
There is also the likelihood that the proposed conditions will
create practical, administrative hardships for some nonprofits. For
example, the requirement that the donated funds be deposited in a bank
account controlled exclusively by the nonprofit could prove difficult
for nonprofits that, because of size or other concerns, are ill-
equipped to handle such accounts. Similarly, the requirement that the
board members or officers sign fundraising agreements could create
difficulties for organizations that delegate these responsibilities to
other parties. As the Postal Service is aware from its own purchasing
procedures, it is not unusual for employees that are not officers to be
given authority to sign contracts.
Adoption of the proposed conditions also could work to the
financial detriment of some nonprofits. The proposed rule provides
additional options for nonprofits, thereby giving them additional
choices in their efforts to find the arrangement that will maximize the
benefit to the nonprofit. For instance, it may be beneficial for some
nonprofits to consider arrangements concerning donor lists,
intellectual property rights, and credit terms beyond those that would
be permitted under the proposed conditions. Limiting the choices
available to nonprofits might, in some instances, take away the option
that would be best for some organizations. Of course, it could be
argued that increasing the options available to nonprofits will
increase the likelihood that some, particularly the least
sophisticated, will make the wrong choice. However, as observed above,
the appropriate safeguard against this possibility would seem to be the
education of nonprofits to make the best choices in their particular
circumstances, rather than eliminating options that might be prove to
be the best choice for some of them.
Finally, the Postal Service is concerned that adoption of the
proposed conditions may create conflicts with state or federal statutes
and that, if such conflicts occur, mailers would be placed in the
untenable position of determining whether to comply with the statutes
or with postal regulations. Indeed, as discussed in the notice
announcing the proposed rule in 65 FR 23939 , ensuring that our
customers ``do not unintentionally violate the laws of those states
that regulate the financial arrangements between nonprofits and certain
types of professional fundraisers'' was one of the motives underlying
the rulemaking. The Postal Service is aware that all states have
agencies with oversight over charitable solicitations, including state
Attorney Generals; Secretaries of State; and Departments of Consumer
Protection, Consumer and Regulatory Affairs, Agriculture and Consumer
Services, Commerce, Commerce and Consumer Protection, Professional and
Financial Regulation, Business Regulation, or Regulation and Licensing,
or a combination of such state agencies. The Postal Service is aware
also that most states have laws regulating the relationship between
professional fundraisers and their nonprofit clients. At the present
time, it appears that at least 28 states have enacted some type of
financial distribution requirement on charitable fundraisers and, if
anything, we understand that the trend toward such state oversight is
increasing. Additionally, there are a number of federal agencies with
the authority and expertise to enact and enforce standards concerning
these relationships, such as the Federal Trade Commission, Internal
Revenue Service, and Department of Justice. Under an exemption of
fundraising mailings from the cooperative mail rule, the states and
federal agencies will be able to adopt and enforce their standards
without concern that such action might be in conflict with postal
rules.
As alluded to above, the Postal Service has determined to adopt a
condition concerning donor lists (i.e.,
[[Page 58276]]
the lists of persons contributing donations in response to the
solicitation). Under this condition, the exemption from application of
the cooperative mail rule will apply only where the nonprofit
organization is given a list of the donors, contact information for
those persons, and the amount of their donations. Based on past reviews
of fundraising agreements, the Postal Service believes that this
condition is already generally followed in the fundraising industry.
Moreover, compliance with this condition generally can be determined by
postal officials from review of the agreement between the fundraiser
and the nonprofit. Finally, to guard against the possibility that some
nonprofits will be better served financially if not subject to this
condition, postal standards will allow them to waive the receipt of
this listing, as long as that is done in writing.
Based on these considerations, the Postal Service has determined
not to adopt at this time the remaining restrictions suggested by some
comments. Nevertheless, they do raise significant concerns and the
Postal Service's Consumer Advocate will monitor implementation of the
rule to determine whether abuses are occurring. As promised in the
proposal, if such abuses or other unintended consequences occur after
the rulemaking, the Postal Service will consider a further rulemaking
or other administrative actions.
Several commenters, although in favor of the proposal, assert that
the rulemaking did not go far enough. They assert that the exemption
from the cooperative mail rule should also cover the sale of products
and services, at least those of nominal value, as well as a variety of
documents including brochures, thank you letters, letters confirming
the amount of donations, newsletters, and ``chase'' letters. The Postal
Service understands the latter to refer to letters that follow up on
telemarketing fundraising campaigns and remind donors that their
pledges have not been paid. Assuming that understanding of ``chase''
letters is correct, the Postal Service considers them to be a
solicitation for monetary donations within the proposal. Accordingly,
as long as they do not contain other disqualifying material, such
letters would be exempt from application of the cooperative mail rule.
The Postal Service has determined not to expand the proposal to
provide that pieces promoting the sale of products and services also be
exempted from application of the cooperative mail rule. As explained in
the proposal, the exemption is strictly limited to fundraising mailings
seeking monetary donations and does not apply to mailings promoting any
goods or services. The suggestion goes beyond the consensus agreement
that led to the rulemaking. Moreover, as the Postal Service explained
in the notice discussing the proposal, adoption of the suggestion would
create significant potential for abuse by commercial organizations and
may place small businesses and other for-profit organizations who sell
similar goods and services at a competitive disadvantage. The
suggestion that the proposal be expanded to cover only products and
services of nominal value does not alter these considerations; if
anything, it could create concerns in administering what is included
within that standard.
The Postal Service also has determined not to expand this
rulemaking to cover the other documents (e.g., thank you letters,
newsletters, confirmations of donations) identified in the comments.
These suggestions are beyond the scope of the rulemaking as well as the
consensus favoring the exemption of certain fundraising mailings from
application of the cooperative mail rule. Moreover, the need for a
rulemaking to address these documents is unclear. The Postal Service is
not aware of any general concern regarding its policies involving these
documents. Some of them may, in fact, be generally sent as First-Class
Mail, and thereby they are not eligible for Nonprofit Standard Mail
rates in any case.
Finally, several commenters suggest that the proposed policy be
made retroactive. The Postal Service has determined not to do so and,
as explained in its proposal, the change in policy is prospective only,
effective on the date of enactment. A retroactive change could open the
Postal Service to an undetermined number of refund claims.
For these reasons, the Postal Service adopts the rule as proposed
but, in addition to the condition described above, makes three minor
changes. First, the proposed revision was to apply only to nonprofit
organizations authorized to mail at the nonprofit rates. The rule is
changed to apply to all customers authorized to mail at Nonprofit
Standard Mail rates. Second, the proposed rule is revised to make clear
that the exception from application of the cooperative mail rule
applies only where the monetary donations solicited are for the entity
authorized to mail at nonprofit rates. Finally, the language is revised
to make clear that the exception is prospective only.
List of Subjects in 39 CFR Part 111
Administrative practice and procedure, Postal Service.
PART 111--[AMENDED]
0
1. The authority citation for 39 CFR part 111 continues to read as
follows:
Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 414,
3001-3011, 3201-3219, 3403-3406, 3621, 3626, 5001.
0
2. Add the following to Domestic Mail Manual section E670.5.3:
``Exception: effective November 13, 2003, this standard no longer
applies to mailings by an organization authorized to mail at Nonprofit
Standard Mail rates soliciting monetary donations to the authorized
mailer and not promoting or otherwise facilitating the sale or lease of
any goods or service. This exception applies only where the
organization authorized to mail at Nonprofit Standard Mail rates is
given a list of each donor, contact information (e.g., address,
telephone number) for each, and the amount of the donation or waives in
writing the receipt of this list.''
An appropriate amendment to 39 CFR part 111 to reflect these
changes will be published.
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 03-25643 Filed 10-8-03; 8:45 am]
BILLING CODE 7710-12-P