Prize Offers: You Don’t Have to Pay to

Congratulations! It's your lucky day! You have won one of the following fabulous prizes: a diamond pendant; a deluxe vacation for two; a food processor; a stereo system; or a six-foot grandfather clock.

If you receive a letter or phone call with a message like this, be skeptical about the value of these "fabulous" prizes. They may not be worth collecting.

What could be wrong with these prizes? You need to see them to understand. The diamond is probably the size of a pin-head. The vacation for two might be a certificate for inexpensive lodging. But chances are it includes so many restrictions or hidden charges that it's worthless. The food processor might be described more accurately as a hand-operated food chopper. The stereo system might be a plastic toy that fits in your hand. And the clock? It's probably made of cardboard or plastic.

Scam artists often use the promise of a valuable "prize" or "award" to entice consumers to buy vitamins, cosmetics, or other merchandise or services, or to contribute to bogus charities. Typically, they falsely describe the "prize" as being worth more than the price of the merchandise they're asking you to buy. In addition, they describe prizes deceptively to attract customers to sales meetings for land or vacation timeshares. As a rule, if you have to pay to receive your "prize," it's not a prize. You haven't won anything.

Too Good to Be True?

How can you tell if a prize promotion is on the level? The Federal Trade Commission (FTC) suggests that you listen to the pitch carefully: Under the FTC's Telemarketing Sales Rule, telemarketers who use prize promotions must tell you important information before you pay for any goods or services.

In the case of a "cold" call from a telemarketer - when a telemarketer calls you - the telemarketer must state promptly when you answer the phone that no purchase or payment is required to win a prize or participate in a prize promotion. If you ask, the telemarketer must tell you how to participate without buying something or paying anything. In every telemarketing call involving a prize promotion - whether it is a cold call made by the telemarketer or a call you make to respond to a written solicitation - the telemarketer must let you know:
  • The odds of winning a prize. If the odds cannot be determined in advance, you must be told the factors used to calculate the odds
  • That no purchase or payment is required to win a prize or participate in a prize promotion
  • How to participate without buying or paying anything
  • What you'll have to pay or the conditions you'll have to meet to receive or redeem a prize
A telemarketer who offers to sell goods or services in connection with a prize promotion must give the sales pitch before the prize description. If it's the other way around, hang up! The telemarketer is breaking the law.

The Telemarketing Sales Rule also bans misrepresenting any material aspect of a prize promotion, including the odds, the nature or value of a prize, or the fact that a purchase or payment is required to win. Prizes are free. If any payment or purchase is required, it's a sales transaction, not a prize.

How to Protect Yourself

The next time you get a "personal" letter telling you it's "your lucky day," keep these points in mind:
  • Some contest promoters use names that resemble official organizations, such as the lottery or a parcel delivery service. Others use an envelope that looks like it contains a telegram or government check. Don't be deceived by letters that look official or urgent. It's illegal for a telemarketer to misrepresent an affiliation with or an endorsement by a government agency or other third party.
  • Read the letter carefully, including the fine print. In some cases, the letter may tell you the cash value of each prize or that you must attend a sales seminar as part of the contest.
  • Think carefully before you attend a sales meeting just to win an "expensive" prize. Your chances of winning a truly valuable prize are likely to be very slim. You also may be required to pay a handling charge that is equivalent to the value of your prize. Remember, free is free. If you have to pay, it's not a prize.
  • Be cautious of contest promoters who use a toll-free "800" number that directs you to dial a pay-per-call "900" number. Charges for calls to "900" numbers may be high.
  • Before you send a check to a contest promotion company, think twice. If a company urges you to use an overnight delivery or courier service, beware! Fraudulent telemarketers sometimes use these services to take consumers' money fast - before an unwary consumer realizes he or she has been cheated.
  • Do not disclose your checking account or credit card account number on the phone unless you have a relationship with the company or know its reputation.
  • Call the Better Business Bureau and your state or local consumer protection office to check out the seller's reputation. Be wary of offers that claim to be "limited time" only and efforts to urge you "buy on the spot." Although some state laws provide cancellation periods under certain circumstances, don't count on being able to cancel and get your money back unless your right to do so is spelled out clearly in your contract.
  • Read all contracts carefully before you sign. Generally, once you sign, you are obligated. If the salesperson makes claims orally that are not in the contract, the written document counts.