A Watchful Eye Cast Toward Online Sweeps

It may just be a matter of time before online sweepstakes draw the same scrutiny as their direct mail counterparts.

And as the number of Web promos skyrockets, with marketers using such tactics to build customer and prospect databases, so too do the concerns about privacy and fraud.

“Most of the complaints we receive relate to offering a prize and then asking recipients to pay for it,” says Paul Luehr, assistant director of the Federal Trade Commission. “But that’s slowly changing” to include other complaints.

While most sweeps operators request detailed information from contestants including name, address, income level, age and interests, one of the problems arises when that data is sold to a third-party marketer without the contestant’s knowledge or consent, Luehr says.

Last year, the FTC took its first action against an online company using contests and prizes to collect personal data from children, he says.

The FTC settled with Liberty Financial Cos. Inc., Boston, which operates the Young Investor Web site (www.younginvestor.com), targeting children and teens interested in issues relating to money and investing. The FTC alleged that the site falsely represented that personal information collected from children in a survey would be maintained anonymously, when in fact it was kept in an identifiable manner, the FTC says. The site used prizes and contests to entice children to provide financial information such as types of financial gifts received, spending habits and family finances. The site also allegedly reneged on its promise to send an e-mail newsletter to survey participants.

The consent order prohibited Liberty Financial from making false statements about the use of personal information and to obtain “verifiable parental consent” before collecting data from children under age 13.

The National Consumers League in Washington ranks online sweepstakes scams as its 15th most prominent complaint out of 40, says spokeswoman Holly Anderson. She says not receiving prizes and being asked to pay for prizes are the most frequent complaints.

“Con artists are not stupid people,” she says.

The NCL refers all complaints to the FTC, the National Association of Attorneys General and local law enforcement agencies.

A recent Jupiter Communications survey of online customer acquisition methods found that 76% of sites surveyed ran a sweepstakes in the previous six months. “Whenever there’s so much economic activity, there’s bound to be fraud,” Luehr says.

Experts agree that the number of complaints about online sweeps remains small but is growing. They’ve yet to attract the same attention as mail order sweeps operators, whose alleged fraudulent practices led to passage of the federal Deceptive Mail Prevention and Enforcement Act last December.