With Americans’ saving habits in the news as the federal government considers caps on retirement contributions, financial institutions should be aware that many states are passing laws making it easier to incentivize saving.
To date, 26 states have enacted legislation that liberalizes their approaches to games of chance in support of good consumer saving practices. Prize-linked savings (PLS) accounts allow consumers that invest in savings accounts or certificates of deposit to be entered into drawings that can augment their original deposits, with the prizes funded by the interest generated. By passing laws that permit PLS accounts, states are allowing financial institutions to run lotteries in ways not traditionally permitted in order to persuade more Americans to save for a rainy day.
Traditionally, requiring a consumer to open a savings account and make a deposit in order to receive a chance to win a prize could be viewed as consideration, which, combined with the elements of chance and a prize, would constitute a lottery. All 50 states and the federal government prohibit lotteries with the exception of those run by the state and, in some states, by nonprofit organizations. State laws legalizing PLS accounts open the door for financial institutions to conduct these games of chance with prizes even though they are requiring the consideration of opening an account and making a deposit.
State laws permitting PLS accounts vary widely, with differing applications to types of financial institutions, amendments to different state laws (including gambling law and banking law), and varying requirements. For example, certain laws apply only to credit unions, while others apply to community banks, state banks, savings and loan associations, all financial institutions, or combinations thereof.
Ten states include basic savings promotion requirements. Eligible participants must have an account with the savings institution; the promotion must give entrants an equal chance of winning, and the sole consideration that may be required is a deposit in the savings account. Sixteen states impose additional savings promotion requirements, including age, prize, and disclosure requirements.
The 26 states that have enacted legislation authorizing PLS accounts in some form are: Arizona, Arkansas, Connecticut, Delaware, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, Oregon, Rhode Island, South Carolina, Texas, Virginia, and Washington. Additional legislation is currently pending in other states.