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In a complaint filed last week with the Postal Regulatory Commission, Capital One claims that the US Postal Service is breaking the law by refusing to agree to a Negotiated Service Agreement similar to the deal it implemented with Bank of America earlier this year. The Bank of America deal was criticized for using ten year old industry average data as a baseline to measure improvement. Capital One claims that when it attempted to open discussions with the USPS on a “functionally equivalent” arrangement for itself, the USPS refused:

Over the past year, Capital One Services, Inc. (Capital One), faced with the competitive advantage conferred on Bank of America by the NSA, has repeatedly asked the Postal Service for a similar NSA. Indeed, it has even proffered a substantively identical agreement “to use the vast array of the specified processes on the vast majority of its qualifying mail for the full NSA term, as done by BAC.”10 The Postal Service, however, has refused, and has insisted on mailer-specific baselines and reduced per-piece discounts in an attempt to enforce true “pay-for-performance” conditions that were never imposed on Bank of America.

Capital One submitted what it claims to be an proposal identical to the BAC agreement, which the complaint says was rejected by the USPS. When asked to specify which provisions of the proposed NSA needed to be changed, Capital One’s Director of DM Operations, Ben Lamm, says the USPS declined, and suggested a face to face meeting. Lamm says he met with USPS VP Stephen Kearney on June 9:

During that meeting, Mr. Kearney explicitly stated that the Postal Service would not offer the same NSA to Capital One that it offered to Bank of America, and, more specifically, that, rather than the 1998 industry-average baselines offered to Bank of America, Capital One would have to use mailer-specific baselines. In addition, the per-piece discount rates would have to be reduced to reflect that Capital One was not the “first” adopter. Mr. Kearney argued that the changes in the baselines and discount schedules were justified by changes in circumstances. When asked whether those changes had occurred since the date of implementation (April 1, 2008), he said that they had not.

If there is any benefit to the Postal Service from Bank of America’s adoption of the technologies specified in its NSA, those same benefits should accrue if Capital One is given the opportunity to participate in a similar NSA. If not allowed that opportunity, however, our Company is placed at a real competitive disadvantage, making it relatively more expensive for us to conduct our business by millions of dollars.

Capital One has asked the PRC to expedite the processing of its complaint, contending that the information to decide the case already exists in the record. The PRC has opened docket C2008-3 to consider the complaint.

Press release:

The Postal Regulatory Commission today issued its Opinion enabling the Governors of the U.S. Postal Service to provide a final review of the proposed Negotiated Service Agreement between the Postal Service and the Bank of America Corporation (Docket No. MC2007-1). “While the Commission found the agreement in compliance with the requirements of the Postal Accountability and Enhance Act (PAEA), we also found that the agreement could cost the Postal Service anywhere from $25 million to $45.8 million should the Governors move forward with the agreement,” said Commission Chairman Dan G. Blair.

“We hope the Governors will carefully review the findings in the Commission Opinion in making its final decision on whether to adopt the agreement,” said Blair. Under the proposed agreement, Bank of America would use improved address barcode technology in exchange for discounted postage rates. A principal feature of the proposal would be the commitment by Bank of America to use the Intelligent Mail Barcode (IMB) system, and other new systems, designed to facilitate mail acceptance and processing.

The Postal Service expects IMB to play a critical role in the measurement of the service standards it is developing in consultation with the Commission. Because the PAEA requires the Commission to report annually on how well the Postal Service is meeting its service standards goals, testing IMB and other advanced programs now will benefit all postal customers. Both these benefits and the potential financial losses from this proposed agreement will be weighed by the Governors.

The Commission found that claimed savings of $5.5 million produced by this agreement were based on 1999 read/accept rates. The Commission proceedings uncovered more recent read/accept rates from 2006 and 2007. When the more recent information is used, it shows that the Postal Service stands to lose $25 to $45.8 million should the agreement be implemented.

“Congress, through the PAEA, granted the Postal Service greater autonomy to set its own rates and enter into NSAs. The Act requires that such agreements either improve the net financial position of the Postal Service or enhance its operations. The Postal Governors will have to make the final decision of whether this agreement makes good business sense for the Postal Service,” concluded Blair.

The Commission noted in its Opinion “…that read/accept rates have improved to such an extent that Bank of America will not have to make any improvements in barcode readability to receive all available mail processing performance discounts.” The Commission also cautioned that because the Postal Service will require “…the use of IMB for all automation discount mail in the near future, incentives under this Agreement would be paid to Bank of America while other mailers may be being required to adopt the same mailing practices without similar incentives.”

The Commission’s Opinion was issued on a 4-1 vote, with Vice Chairman Dawn Tisdale dissenting. Attached is the summary of the Opinion, concurring opinion by Commissioner Ruth Goldway, and Vice Chairman Tisdale’s dissent. The Opinion is available on the Commission’s website at www.prc.gov.

Postalmag.com asks “What Has Capital One Been Doing With Its Negotiated Service Agreement?”, and answers by providing a laundry list of web sites and news stories about the company’s less than savory business practices.

Coincidentally, yesterday’s mail brought me no less than three separate letters from Capital One. I’ve probably received a hundred of these things in the last year. As a postal employee, I’m glad we’re getting all that revenue. As a consumer, though, I’d be concerned that Capital One thinks I fit their “bottom feeder” customer profile, except for one thing- all the offers use the unique address on my web site registration. Which means that the company apparently is mining web site registries for business addresses to spam.

Exactly why the company thinks it makes sense to continue sending me offers year after year when they get no response is mystifying, but I guess it’s what you’d expect from a company that needs to send billions of letters to get its discounts.

What Has Capital One Been Doing With Its Negotiated Service Agreement?