(FORTUNE Small Business) – Pat Cochran had been running a business for nearly three years, providing economical same-day courier service, when she received a letter several months ago from the U.S. Postal Service informing her that she wasn't charging enough. According to the postal service, All Counties Courier, based in Irvine, Calif., was in violation of statutes, dating back to 1792, that prohibited private carriers from undercutting prices charged by the USPS. The price floor remains necessary, says the post office, so that it can maintain a national mail service that includes rural areas that might not be cost-effective to serve if delivery were privatized. In response to the USPS warning, All Counties has recently doubled its rates for letters and packages up to seven ounces. Its volume has fallen by 40%, and Cochran worries that it will continue to slide because competitors who haven't been cited still charge less. "We only enforce what we're told about," says USPS spokesman Jim Quirk. Turns out that the Postal Service has just a handful of inspectors policing couriers for violations. Now, to defend the firm's $38 million in annual sales, Cochran has turned government informant, ratting out rivals who undercut USPS prices. "Everyone should be complying, but they're not," Cochran says. "It's the dirty little secret of the courier business." —KELLY BARRON