Regulating Private Mail Boxes

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Thank you for the opportunity to testify today on the problemsof the U.S. Postal Service's new regulations on commercialmail-receiving agencies (CMRAs) that offer private mail boxes forrent.

The sloppy, capricious and arbitrary manner in which the PostalService has made and implemented those regulations have harmedsmall businesses and customers of those businesses alike. But thePostal Service not only is exempt from all taxes and mostregulations to which its private competitors are subject, it isexempt from most federal regulations to which other federalagencies are subject. For example, it is not subject to Title 5,Chapter 7 of the U.S. Code which grants citizens an appeals processfor actions that are "arbitrary and capricious." The newregulations on CMRAs illustrate why the Postal Service, agovernment monopoly with regulatory powers that it can use againstits competitors, at minimum, should be made subject to thePaperwork Reduction Act, Regulatory Flexibility Act, the ResultsAct, and other federal statutes meant to protect citizens againstabuses by government agencies, and why the new regulations onprivate mail boxes should be repealed immediately.

When the government uses its power to restrict the freedom ofcitizens or to impose upon them financial burdens, it must make thecase why this is absolutely necessary for the protection of thelives, liberties and property of the citizens. The burden of proofis on the peoples' servant, the government. The Postal Service hasfailed in its responsibility to make the case for the newregulations on private mail boxes. Let us review the PostalServices actions.

Ignoring the Public Will

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

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

Failure to Demonstrate the Magnitude of theProblem.

The Postal Service has failed to demonstrate the magnitude ofthe problem it seeks to alleviate through its regulations. Itmaintains that those regulations on private mail boxes are meant todeal with problems of mail fraud. While this is a legitimateconcern, the USPS did not establish the nature and magnitude of theproblem. Such a demonstration is necessary if the Postal Service isto 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 betweenOctober, 1997 and September, 1998 there were 9,642 convictions formail-related crimes. Of those, the largest number, 3,874 or 40.2percent 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, mainlyillegal drugs, through the mails. Some 1,533 of cases, or 15.9percent, involved mail fraud. The Inspector General did not reporthow many of those cases involved the use of private, CMRA mailboxes as opposed to homes and office boxes, or PO boxes. The PostalService has failed to supply this information, but it seems thatthe new regulations are meant to deal with about 1,500 casesannually at most.

Failure to Show How the Regulations Will Solve theProblem.

The Postal Service has failed to show exactly how its newregulations will deal with the mail fraud problem, or how much ofthe problem the regulations will eliminate. For example, itmaintains that eliminating the use of the address designation"suite" or "apartment" for mail that goes to private mail boxeswill reduce mail fraud. But what studies does the Postal Servicehave indicating how many cases of mail fraud involve unscrupulousindividuals using private mail boxes with the "suite" or"apartment" designation? The Postal Service cannot even define themagnitude of the problem. Thus it is difficult for it to show howeffective its new regulations might be.

Failure to Balance Costs and Benefits.

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

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

Failure to Consider Alternative Approaches.

The Paperwork Reduction Act wisely requires that governmentagencies, when making regulations, consider which regulations areleast costly and intrusive for small businesses. Unfortunately, thePostal Service is not covered by this Act and thus is free to actwith reckless disregard for the effects of its regulations onsmaller private enterprise or to consider alternative approaches todealing 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 privatemail box helps facilitates mail fraud and, thus, the newregulations would ban such designations. But many CMRAs are nolonger allowing new customers to use such designations. In otherwords, the market in part seems to be taking care of this problem.Further, those individuals who have had private mail boxes for someyears and have used the "Suite" or "Apartment" designation are notlikely to be the quick hit-and-run con artists misuse private boxesto defraud others. In addition, large credit card companies andother such enterprises that might be in doubt about an address canconsult a currently available data base that will tell them whetheran address is a CMRA. Finally, CMRA operators do not want theirboxes used for fraud, and, thus, perhaps better education by localpostmasters of CMRA managers, done in a spirit of cooperationrather than confrontation, would help head off mail fraud.

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

Postal officials might argue that a minimalist approach is not100 percent full-proof. That is true. But the Postal Service hasnot shown that its approach is perfect either. Further, it istypical of government bureaucrats to argue that in the name ofperfection, of dealing with that final 5-10 percent of a problem,that extreme measures are necessary. This is the kind of discussionthat should go on in the cost-benefit analysis stage of theregulation-making process. Unfortunately, the Postal Service isexempt from this process.

Reckless Disregard of Privacy.

The USPS posted in the Federal Register on March 25, 1999 itsintention to impose the new CMRA regulations. It stated that as ofJune 24th, all CMRA operators had to collect from their customersfilled-out copies of the new Form 1583, with copies of two forms ofidentification, one a photo ID. Customers were asked on that formif they planned to use their boxes for doing business with thepublic. The Postal Service instructed CMRA operators that"information required to complete this form may be available to thepublic if `Yes' in block 5, Form 1583 is checked." This includeshome addresses and phone numbers. In other words, CMRA businesscustomers might have personal information made available to thepublic.

But release of such information seems to violate the PostalService's own regulations. Title 39 of the Code of FederalRegulations concerning privacy establishes that

(b)(1) ... The Postal Service will not disseminateinformation about an individual ... unless:

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

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

This disregard for privacy generated political opposition to thenew regulations. For example, women who use private boxes forbusiness purposes might find unstable ex-husbands or stalkersobtaining home addresses through the new regulations. The NationalCoalition Against Domestic Violence, a group dedicated to helpingwomen who face such threats, in a June 15th "Action Alert,"announced that "The impact for domestic violence victims ispotentially fatal." The Alert added that "These unnecessaryregulations make it more difficult for a battered woman toeffectively use a commercial postal box to keep her locationconfidential."

Making Up Regulations on the Fly.

The Postal Service seemed to be making up its new regulations onthe fly. For example, it seemed to have recognized that it did notin fact have the authority to release private customer informationthat it was asserting it had in Form 1583 and that its newregulations violated its own privacy regulations. This is seen inthe fact that on June 9, 1999 in the Federal Register, theUSPS posts its intention to change Title 39, U.S. Code,Part 265, the prohibition "against disclosure of information in PSForm 1583." The Federal Register entry reads that:

Under the rule change, the recorded business name,address, and telephone number of the addressee using a ... CMRAprivate mail box ... for purposes of soliciting business with thepublic will be furnished to any person upon request withoutcharge.

The Postal Service's erratic path towards new private mail boxregulations continued when, on August 26, 1999, it posted yetanother Federal Register notice, this one rescinding the June 9thnotice and proposing that personal information only be released "tofederal, local, and state government agency requesters, includingthose engaged in law enforcement activities."

The Postal Service also has changed the dates after which itsaid it would refuse to deliver mail to CMRA customers who had notsupplied private information on Form 1583, or to refuse to delivermail to CMRA boxes with address designations other than "PMB." ThePostal Service has had a number of meeting with critics and hasproposed some cosmetic changes to the regulations, for example,allowing a number or "#" sign to be used on mail going to CMRAboxes in addition to the PMB designation. While these meetings arewelcomed, the Postal Service in effect is doing now on an ad hocbasis what it should have done two years ago in its formalrule-making process, that is, think out the implications of itsregulations and consider alternatives.

We see here a pattern of the Postal Service making regulationson the fly, stating one thing and then changing policy to somethingelse.

No Opportunity to Comment on Regulations.

Under our system of government, a government agency that wantsto promulgate new regulations must first post them for comments bythose who might be effected. The Postal Service denied thisopportunity to many enterprises that now find themselves subject tothe new mail box regulations.

Those regulations ostensibly were aimed at CMRAs. Many of thecountry's small businesses rent private CMRA boxes because theycannot afford to rent a suite in an office building. Executiveoffice suites usually provides tenants with an operator to taketelephone calls, a location for delivery and shipment of mail andpackages, and perhaps an office with access to office equipment.The only real difference between these and a private mail box isthe size of the rented space and the cost of the rent. TheExecutive Suite Association, which makes no claim to represent allsuch enterprises, has around 1,000 members, each with about 50tenants, for a minimum total of 50,000 tenants of such suites.

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

a number of non-traditional businesses that acceptdelivery of mail from the Postal Service for others, hold it forpickup, or remail it to another address... Examples of thesebusinesses are 1) Corporate Executive Centers that also offer theircustomers a small suite, office or other workspace, as well asshared office services such as mail receipt and remailing, messagecenters, FAX and computer systems, conference rooms, andsecretarial services; 2) Storage businesses that offer theircustomer's [sic] storage space and private mail box services; and3) Businesses that offer mail forwarding and message services toclients that live and travel in recreational vehicles.

The Postal Service thus decided to subject another group ofenterprises and their customers to regulations on which they had noopportunity to register their opinions during the original 1997comment periods. This is also a significant expansion of USPS powerwithout consideration by Congress.

The move to include executive suites and the like under the newregulations also cuts off a sanctuary of privacy of which smallbusinesses seeking to avoid those regulations applied to mail boxesmight avail themselves. Of course, the Postal Service has made noattempt whatsoever to show that any cases of mail fraud, the targetof the new regulations, have originated from executive officesuites or other mail forwarding services.

Inconsistent Enforcement.

The Postal Service also has been erratic and inconsistent in itsenforcement of the new regulations. For example, few executiveoffice suite managers have been contacted by the Postal Service andtold to have their tenants submit personal information under thenew regulations. This suggests that at some point those tenantsmight find that their mail is not being delivered because of theirfailure to comply with regulations of which they were unaware.

The enforcement of the new regulations seem to vary frompostmaster to postmaster. In some areas postmasters have donelittle to enforce regulations, in others they have acted in aheavy-handed manner. It is a throw of the dice for any given CMRAmanager 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 abideby the new regulations. She collected the two forms ofidentification from her customers, including a photo ID, usually adriver's license. But this was not good enough for localpostmaster, Gerea Hayman. That postmaster insisted that Ms. Zubairverify that addresses given by customers were home addresses. Inone case, for example, a police officer listed the address on hisdriver's license as a PO box. The postmaster insisted on callingmany of Ms. Zubair's customers to find out home addresses.

Further, in a letter dated September 20, 1999 that postmasterthreatened to refuse mail delivery to Ms. Zubair's CMRA. Ms. Zubairspent countless hours trying to abide by unclear rules andharassment by the local postmaster, confirming Rick Merritt'sestimates of the costs in time and effort incurred by CMRAoperators. In the end Ms. Zubair went from having 221 box rentersdown to 159, principally because renters resented having to turnover personal information and being harassed about their addresses.In other words, the harsh enforcement of the new mail boxregulations cost this small business operator 30 percent of herbusiness.

Attacking Competitors.

While the stated purpose of the new mail box regulations is toprevent mail fraud, it is necessary to ask whether the PostalService might have an additional, ulterior motive. CMRAs havearisen because of the inconveniences of using government PO boxes.The Postal Service will not accept delivery from private carrierssuch as Federal Express or United Parcel Service for customersrenting PO boxes. Further, the hours during which customers haveaccess to their PO boxes are limited. Private CMRAs are much moreconvenient for customers and thus attract customers away fromgovernment PO boxes.

The Postal Service plans to remain competitive in the future inpart by maintaining an integrated data base of email addresses,websites and physical addresses. For example, in May, 1998 thePostal Service proposed that it have the exclusive right to assignthe under-used Internet domain extension, .us, which then wasmanaged by the Internet Assigning Numbers Authority. And in a May17, 1999 speech in San Antonio, Texas, Postmaster General WilliamHenderson asked:

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

The Postal Service ultimately wants to map postal addresses ontocyberspace addresses, to have an email address for every physicaladdress. This, of course, would require matching private mail boxaddresses to home addresses or, better yet for USPS plans, forcingcurrent CMRA customers to use PO boxes.

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

The Future of an Unrestrained Regulator.

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

In recent years the Postal Service has begun to offer manyservices that are not part of its postal monopoly, services inwhich it competes head-to-head with private firms. We see itoffering for sale phone cards, neckties, and other such souvenirs.We see it renting out unused space in parking lots for broadcastfacilities. We see it offering a check-clearing service. And we seeit moving into ecommerce. Of course, the Postal Service pays notaxes, is not subject to most government regulations, can borrowfrom the U.S. Treasury, and has regulatory authority that it canuse against its competitors. In the future, as it moves into theseareas in competition with the private sector, we can expect moreregulatory abuses.

I note also that we can expect the Postal Service to formpartnerships with private sector service providers, coopting somefirms or siding with them against their competitors. In the currentdispute over mail boxes regulations we find the corporatespokepersons from Mail Boxes, Etc. remarkably conciliatory towardthe USPS, much more so than many for its franchisees or boxholders. This might be because it also is in partnership with thePostal Service. Specifically, the USPS allowed Mail Boxes Etc. tooffer postal services in their facilities in a number of locationsin the country where the quality of postal service has been low.And recently Postmaster General William Henderson announced that hewants to open operations in all Mail Boxes Etc. outlets. Since thisis an experimental service, the Postal Service can keep thisarrangement exclusively with Mail Boxes Etc. for the next year orso, to the exclusion of other competitors. Thus Mail Boxes Etc. nowhas a vested interest in not being too critical of the PostalService lest it destroy this arrangement.

Conclusion.

The bottom line is this. The U.S Postal Service should bebrought under all of the rules and regulations to which othergovernment agencies are subject, including the AdministrativeProcedures Act, the Paperwork Reduction Act, Regulatory FlexibilityAct, and the Results Act. Under these regulations the PostalService would be required to state exactly what goals it seeks toaccomplish through its regulations, where it gets the authority toseek such goals, how its policies are meant to obtain such goals,and what evidence it has that those goals are achieved throughthose regulations.

When it makes new regulations it should be required to showexactly what the expected benefits will be, what the expected costswill be, and how those benefits outweigh the costs. It should berequired to show that the regulations it chooses are the leastcostly compared to other alternatives and are the least burdensomefor small businesses.

Postal officials might argue that such a regulatory regime willharm its efficiency. But the Postal Service has used its regulatorypowers to harms private competitors large and small, as well asconsumers. Other countries have discovered a means to deal withthis dilemma. They are privatizing their postal services. NewZealand and Sweden already have done so. The largest mail carrierin Europe, Deutsche Post in Germany, is now under privatemanagement. It pays taxes on its competitive services and issubject to the same regulations that are imposed on otherbusinesses. Next year it makes an initial public offering of itsstock, and on January 1, 2003 its monopoly on mail delivery will beabolished.

In conclusion, the Postal Service's new regulations on CMRAshave been enacted and enforced in a sloppy, capricious andarbitrary manner. The Postal Service should be subject to the samechecks 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.

Subcommittee on Small Business
United States House of Representatives