Restrictions on Financial Institutions Dealing in Lotteries and Marketing Promotions

Banks and thrifts that are considering a marketing promotion to attract new customers that involves a drawing for prizes should be aware of federal laws restricting them from dealing in lotteries. Federal law prohibits banks and thrifts from making, taking, buying, selling, redeeming or collecting lottery tickets and from announcing, advertising or publicizing the existence of any lottery or identity of any participant or winner of a lottery. State nonmember banks, click here to see FDIC Act Section 20; State member banks, click here to see Federal Reserve Act, Section 9A; National banks, click here to see 12 USC 25a; and Savings associations, click here to see the Homeowners’ Loan Act, Section 4(e).

The term "lottery" includes any arrangement, other than a savings promotion raffle, whereby three or more persons (the "participants") advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the "winners") will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes: (a) a random selection; (b) a game, race, or contest; or (c) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner. 12 U.S.C. 1829a(c); 12 U.S.C. 1463; 12 U.S.C. 339; and 12 U.S.C. 25a. Thus, one of the important points to consider in determining whether a marketing promotion crosses the line to be considered a lottery is whether participants are required to purchase something in order to participate. 

According to the OCC’s Comptroller’s Handbook, the OCC considers a lottery to have three elements: (1) prize distribution; (2) chance, or the determination of an outcome, not by skill or known or fixed rules, but by the happening of a subsequent event, incapable of ascertainment or accomplishment by means of human foresight or ingenuity; and (3) consideration, an advance of money or credit (for example, a fee) to another in exchange for the possibility or expectation that one or more but not all of the participants will receive more than the amount they advanced. If any element is missing, a contest is not a prohibited lottery. Click here to see Comptroller’s Handbook, Version 1.0, December 2016, page 2. 

When your institution develops its next marketing promotion that involves a drawing, make sure that you are compliant with the laws restricting financial institutions from dealing in lotteries. In general, it is also a good idea to have your financial institution’s attorney review your promotion plan to make sure that it is generally in compliance with all state and federal laws.