Testimony

Regulating Private Mail Boxes

By Edward L. Hudgins
October 19, 1999
Subcommittee on Small Business
United States House of Representatives

Thank you for the opportunity to testify today on the problems of the U.S. Postal Service’s new regulations on commercial mail-receiving agencies (CMRAs) that offer private mail boxes for rent.

The sloppy, capricious and arbitrary manner in which the Postal Service has made and implemented those regulations have harmed small businesses and customers of those businesses alike. But the Postal Service not only is exempt from all taxes and most regulations to which its private competitors are subject, it is exempt from most federal regulations to which other federal agencies are subject. For example, it is not subject to Title 5, Chapter 7 of the U.S. Code which grants citizens an appeals process for actions that are “arbitrary and capricious.” The new regulations on CMRAs illustrate why the Postal Service, a government monopoly with regulatory powers that it can use against its competitors, at minimum, should be made subject to the Paperwork Reduction Act, Regulatory Flexibility Act, the Results Act, and other federal statutes meant to protect citizens against abuses by government agencies, and why the new regulations on private mail boxes should be repealed immediately.

When the government uses its power to restrict the freedom of citizens or to impose upon them financial burdens, it must make the case why this is absolutely necessary for the protection of the lives, liberties and property of the citizens. The burden of proof is on the peoples’ servant, the government. The Postal Service has failed in its responsibility to make the case for the new regulations on private mail boxes. Let us review the Postal Services actions.

Ignoring the Public Will

The Postal Service has ignored the will of the people concerning the new regulations. It opened its initial mandatory thirty-day comment period on those regulations on August 26, 1997. It also held an additional thirty-day comment period from November 24, 1997 to December 24, 1997.

There were 8,107 comments registered. All except ten opposed those regulations. Further, it appears that some of those positive letters were in fact solicited by the Postal Service. Yet despite the overwhelming opposition to the proposed regulations, the Postal Service decided to implement them anyway.

Failure to Demonstrate the Magnitude of the Problem.

The Postal Service has failed to demonstrate the magnitude of the problem it seeks to alleviate through its regulations. It maintains that those regulations on private mail boxes are meant to deal with problems of mail fraud. While this is a legitimate concern, the USPS did not establish the nature and magnitude of the problem. Such a demonstration is necessary if the Postal Service is to show the compelling public interest that requires its actions. If no such interest exists, the regulations are unnecessary.

A November, 1998 Inspector General report found that between October, 1997 and September, 1998 there were 9,642 convictions for mail-related crimes. Of those, the largest number, 3,874 or 40.2 percent were for mail theft by non-employees of a business, e.g. thieves stealing from home mail boxes. The next largest number, 1,672 or 17.3 percent were for sending illegal substances, mainly illegal drugs, through the mails. Some 1,533 of cases, or 15.9 percent, involved mail fraud. The Inspector General did not report how many of those cases involved the use of private, CMRA mail boxes as opposed to homes and office boxes, or PO boxes. The Postal Service has failed to supply this information, but it seems that the new regulations are meant to deal with about 1,500 cases annually at most.

Failure to Show How the Regulations Will Solve the Problem.

The Postal Service has failed to show exactly how its new regulations will deal with the mail fraud problem, or how much of the problem the regulations will eliminate. For example, it maintains that eliminating the use of the address designation “suite” or “apartment” for mail that goes to private mail boxes will reduce mail fraud. But what studies does the Postal Service have indicating how many cases of mail fraud involve unscrupulous individuals using private mail boxes with the “suite” or “apartment” designation? The Postal Service cannot even define the magnitude of the problem. Thus it is difficult for it to show how effective its new regulations might be.

Failure to Balance Costs and Benefits.

Because it has failed to show the magnitude of the problem, the Postal Service has not examined what the costs of its new regulations might be, and whether those costs in fact outweigh the benefits, that is, whether it is using a cannon to kill a fly.

Figures by Rick Merritt, published by the Cato Institute, find that the costs in changing addresses on stationary and business cards, the time wasted by CMRA managers and customers alike in trying to figure out what the new regulations mean and to comply with them, as well as other expenses could be $1 billion. If, say, two-third of the 1,500 mail fraud convictions each year involve private mail boxes, that works out to $1 million to prevent each case. Is that too costly? Maybe no; probably yes. But because the Postal Service did not conduct a cost-benefit analysis, we do not know what the burden of regulations will be.

Failure to Consider Alternative Approaches.

The Paperwork Reduction Act wisely requires that government agencies, when making regulations, consider which regulations are least costly and intrusive for small businesses. Unfortunately, the Postal Service is not covered by this Act and thus is free to act with reckless disregard for the effects of its regulations on smaller private enterprise or to consider alternative approaches to dealing with problems such as mail fraud.

For example, USPS maintains that the use of the designation “Suite” or “Apartment” in an address on mail is going to a private mail box helps facilitates mail fraud and, thus, the new regulations would ban such designations. But many CMRAs are no longer allowing new customers to use such designations. In other words, the market in part seems to be taking care of this problem. Further, those individuals who have had private mail boxes for some years and have used the “Suite” or “Apartment” designation are not likely to be the quick hit-and-run con artists misuse private boxes to defraud others. In addition, large credit card companies and other such enterprises that might be in doubt about an address can consult a currently available data base that will tell them whether an address is a CMRA. Finally, CMRA operators do not want their boxes used for fraud, and, thus, perhaps better education by local postmasters of CMRA managers, done in a spirit of cooperation rather than confrontation, would help head off mail fraud.

All of these points taken together suggest 1) that the current regulations are not necessary, 2) that the Postal Service merely needs to take up the last-mentioned education task, and 3) that this approach might take care of 90 percent of the fraud problem. Yet this minimalist approach, which would be the least intrusive to small businesspersons either operating CMRAs or using CMRA boxes, was not considered.

Postal officials might argue that a minimalist approach is not 100 percent full-proof. That is true. But the Postal Service has not shown that its approach is perfect either. Further, it is typical of government bureaucrats to argue that in the name of perfection, of dealing with that final 5-10 percent of a problem, that extreme measures are necessary. This is the kind of discussion that should go on in the cost-benefit analysis stage of the regulation-making process. Unfortunately, the Postal Service is exempt from this process.

Reckless Disregard of Privacy.

The USPS posted in the Federal Register on March 25, 1999 its intention to impose the new CMRA regulations. It stated that as of June 24th, all CMRA operators had to collect from their customers filled-out copies of the new Form 1583, with copies of two forms of identification, one a photo ID. Customers were asked on that form if they planned to use their boxes for doing business with the public. The Postal Service instructed CMRA operators that “information required to complete this form may be available to the public if `Yes’ in block 5, Form 1583 is checked.” This includes home addresses and phone numbers. In other words, CMRA business customers might have personal information made available to the public.

But release of such information seems to violate the Postal Service’s own regulations. Title 39 of the Code of Federal Regulations concerning privacy establishes that

(b)(1) … The Postal Service will not disseminate information about an individual … unless:

(i) The individual to whom the record pertains has requested in writing that the information be disseminated, or

(ii) It has obtained the prior written consent of the individual to whom the record pertains. (p. 130)

This disregard for privacy generated political opposition to the new regulations. For example, women who use private boxes for business purposes might find unstable ex-husbands or stalkers obtaining home addresses through the new regulations. The National Coalition Against Domestic Violence, a group dedicated to helping women who face such threats, in a June 15th “Action Alert,” announced that “The impact for domestic violence victims is potentially fatal.” The Alert added that “These unnecessary regulations make it more difficult for a battered woman to effectively use a commercial postal box to keep her location confidential.”

Making Up Regulations on the Fly.

The Postal Service seemed to be making up its new regulations on the fly. For example, it seemed to have recognized that it did not in fact have the authority to release private customer information that it was asserting it had in Form 1583 and that its new regulations violated its own privacy regulations. This is seen in the fact that on June 9, 1999 in the Federal Register, the USPS posts its intention to change Title 39, U.S. Code, Part 265, the prohibition “against disclosure of information in PS Form 1583.” The Federal Register entry reads that:

Under the rule change, the recorded business name, address, and telephone number of the addressee using a … CMRA private mail box … for purposes of soliciting business with the public will be furnished to any person upon request without charge.

The Postal Service’s erratic path towards new private mail box regulations continued when, on August 26, 1999, it posted yet another Federal Register notice, this one rescinding the June 9th notice and proposing that personal information only be released “to federal, local, and state government agency requesters, including those engaged in law enforcement activities.”

The Postal Service also has changed the dates after which it said it would refuse to deliver mail to CMRA customers who had not supplied private information on Form 1583, or to refuse to deliver mail to CMRA boxes with address designations other than “PMB.” The Postal Service has had a number of meeting with critics and has proposed some cosmetic changes to the regulations, for example, allowing a number or “#” sign to be used on mail going to CMRA boxes in addition to the PMB designation. While these meetings are welcomed, the Postal Service in effect is doing now on an ad hoc basis what it should have done two years ago in its formal rule-making process, that is, think out the implications of its regulations and consider alternatives.

We see here a pattern of the Postal Service making regulations on the fly, stating one thing and then changing policy to something else.

No Opportunity to Comment on Regulations.

Under our system of government, a government agency that wants to promulgate new regulations must first post them for comments by those who might be effected. The Postal Service denied this opportunity to many enterprises that now find themselves subject to the new mail box regulations.

Those regulations ostensibly were aimed at CMRAs. Many of the country’s small businesses rent private CMRA boxes because they cannot afford to rent a suite in an office building. Executive office suites usually provides tenants with an operator to take telephone calls, a location for delivery and shipment of mail and packages, and perhaps an office with access to office equipment. The only real difference between these and a private mail box is the size of the rented space and the cost of the rent. The Executive Suite Association, which makes no claim to represent all such enterprises, has around 1,000 members, each with about 50 tenants, for a minimum total of 50,000 tenants of such suites.

Until now such offices have not been treated like CMRAs. But that changed with an April 29, 1999 memo from Patricia M. Gilbert, the USPS Vice President for Retail, to other USPS Vice Presidents and operations district managers. It noted the existence of:

a number of non-traditional businesses that accept delivery of mail from the Postal Service for others, hold it for pickup, or remail it to another address… Examples of these businesses are 1) Corporate Executive Centers that also offer their customers a small suite, office or other workspace, as well as shared office services such as mail receipt and remailing, message centers, FAX and computer systems, conference rooms, and secretarial services; 2) Storage businesses that offer their customer’s [sic] storage space and private mail box services; and 3) Businesses that offer mail forwarding and message services to clients that live and travel in recreational vehicles.

The Postal Service thus decided to subject another group of enterprises and their customers to regulations on which they had no opportunity to register their opinions during the original 1997 comment periods. This is also a significant expansion of USPS power without consideration by Congress.

The move to include executive suites and the like under the new regulations also cuts off a sanctuary of privacy of which small businesses seeking to avoid those regulations applied to mail boxes might avail themselves. Of course, the Postal Service has made no attempt whatsoever to show that any cases of mail fraud, the target of the new regulations, have originated from executive office suites or other mail forwarding services.

Inconsistent Enforcement.

The Postal Service also has been erratic and inconsistent in its enforcement of the new regulations. For example, few executive office suite managers have been contacted by the Postal Service and told to have their tenants submit personal information under the new regulations. This suggests that at some point those tenants might find that their mail is not being delivered because of their failure to comply with regulations of which they were unaware.

The enforcement of the new regulations seem to vary from postmaster to postmaster. In some areas postmasters have done little to enforce regulations, in others they have acted in a heavy-handed manner. It is a throw of the dice for any given CMRA manager how these regulations are enforced.

Take the case of Sabiha Zubair who operates a Mail Boxes Etc. franchise in Fairfax, Virginia. She has tried diligently to abide by the new regulations. She collected the two forms of identification from her customers, including a photo ID, usually a driver’s license. But this was not good enough for local postmaster, Gerea Hayman. That postmaster insisted that Ms. Zubair verify that addresses given by customers were home addresses. In one case, for example, a police officer listed the address on his driver’s license as a PO box. The postmaster insisted on calling many of Ms. Zubair’s customers to find out home addresses.

Further, in a letter dated September 20, 1999 that postmaster threatened to refuse mail delivery to Ms. Zubair’s CMRA. Ms. Zubair spent countless hours trying to abide by unclear rules and harassment by the local postmaster, confirming Rick Merritt’s estimates of the costs in time and effort incurred by CMRA operators. In the end Ms. Zubair went from having 221 box renters down to 159, principally because renters resented having to turn over personal information and being harassed about their addresses. In other words, the harsh enforcement of the new mail box regulations cost this small business operator 30 percent of her business.

Attacking Competitors.

While the stated purpose of the new mail box regulations is to prevent mail fraud, it is necessary to ask whether the Postal Service might have an additional, ulterior motive. CMRAs have arisen because of the inconveniences of using government PO boxes. The Postal Service will not accept delivery from private carriers such as Federal Express or United Parcel Service for customers renting PO boxes. Further, the hours during which customers have access to their PO boxes are limited. Private CMRAs are much more convenient for customers and thus attract customers away from government PO boxes.

The Postal Service plans to remain competitive in the future in part by maintaining an integrated data base of email addresses, websites and physical addresses. For example, in May, 1998 the Postal Service proposed that it have the exclusive right to assign the under-used Internet domain extension, .us, which then was managed by the Internet Assigning Numbers Authority. And in a May 17, 1999 speech in San Antonio, Texas, Postmaster General William Henderson asked:

What if every physical address in the United States had an Internet address? We would own the physical address, and we would maintain it. … That would mean that all that information that you our customers have developed around a physical address could now migrate through Internet and be a part of commerce. … If you had an Internet address attached to a physical address you could reach someone by way of the Internet.

The Postal Service ultimately wants to map postal addresses onto cyberspace addresses, to have an email address for every physical address. This, of course, would require matching private mail box addresses to home addresses or, better yet for USPS plans, forcing current CMRA customers to use PO boxes.

Thus, we need to question the motives of the Postal Service when it makes places regulations on its competitors, in this case CMRAs. In any case, its regulatory power against its competitors must be strictly controlled by Congress through the various safeguards to which other government agencies are subject but from which the Postal Service is exempt.

The Future of an Unrestrained Regulator.

This latest incident gives businesses small and large a preview of what can be expected in the future. The U.S. Postal Service has been losing much of its profitable first-class mail to emails, faxes and private express carriers. In the future, with most billing and payments done electronically, the Postal Service could lose as much as $15 billion in annual revenues off of a current annual revenue base of $65 billion.

In recent years the Postal Service has begun to offer many services that are not part of its postal monopoly, services in which it competes head-to-head with private firms. We see it offering for sale phone cards, neckties, and other such souvenirs. We see it renting out unused space in parking lots for broadcast facilities. We see it offering a check-clearing service. And we see it moving into ecommerce. Of course, the Postal Service pays no taxes, is not subject to most government regulations, can borrow from the U.S. Treasury, and has regulatory authority that it can use against its competitors. In the future, as it moves into these areas in competition with the private sector, we can expect more regulatory abuses.

I note also that we can expect the Postal Service to form partnerships with private sector service providers, coopting some firms or siding with them against their competitors. In the current dispute over mail boxes regulations we find the corporate spokepersons from Mail Boxes, Etc. remarkably conciliatory toward the USPS, much more so than many for its franchisees or box holders. This might be because it also is in partnership with the Postal Service. Specifically, the USPS allowed Mail Boxes Etc. to offer postal services in their facilities in a number of locations in the country where the quality of postal service has been low. And recently Postmaster General William Henderson announced that he wants to open operations in all Mail Boxes Etc. outlets. Since this is an experimental service, the Postal Service can keep this arrangement exclusively with Mail Boxes Etc. for the next year or so, to the exclusion of other competitors. Thus Mail Boxes Etc. now has a vested interest in not being too critical of the Postal Service lest it destroy this arrangement.

Conclusion.

The bottom line is this. The U.S Postal Service should be brought under all of the rules and regulations to which other government agencies are subject, including the Administrative Procedures Act, the Paperwork Reduction Act, Regulatory Flexibility Act, and the Results Act. Under these regulations the Postal Service would be required to state exactly what goals it seeks to accomplish through its regulations, where it gets the authority to seek such goals, how its policies are meant to obtain such goals, and what evidence it has that those goals are achieved through those regulations.

When it makes new regulations it should be required to show exactly what the expected benefits will be, what the expected costs will be, and how those benefits outweigh the costs. It should be required to show that the regulations it chooses are the least costly compared to other alternatives and are the least burdensome for small businesses.

Postal officials might argue that such a regulatory regime will harm its efficiency. But the Postal Service has used its regulatory powers to harms private competitors large and small, as well as consumers. Other countries have discovered a means to deal with this dilemma. They are privatizing their postal services. New Zealand and Sweden already have done so. The largest mail carrier in Europe, Deutsche Post in Germany, is now under private management. It pays taxes on its competitive services and is subject to the same regulations that are imposed on other businesses. Next year it makes an initial public offering of its stock, and on January 1, 2003 its monopoly on mail delivery will be abolished.

In conclusion, the Postal Service’s new regulations on CMRAs have been enacted and enforced in a sloppy, capricious and arbitrary manner. The Postal Service should be subject to the same checks on its power to which other government agencies are subject. And until it can make its case in accordance with those safeguards, the new regulations on private mail boxes should be rescinded.