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Author Wagers Prize Linked Savings Accounts Are Not Lotteries

Recently, I wrote about Senator Josh Newman's attempt to legalize prize linked savings accounts in California.  Senator Newman's bill, SB 1055, would allow a bank or credit union to offer prizes if, among other things depositors are not required to pay any fee or otherwise provide any consideration in order to enter the savings promotion.  The bill could be subject to challenge because Article IV, Section 19(a) of the California Constitution states:

"The Legislature has no power to authorize lotteries, and shall prohibit the sale of lottery tickets in the State."

SB 1055 tries to avoid this problem by declaring that a prize linked savings account shall not be considered a lottery.  

Recently, I heard from a representative of Commonwealth, a Boston based organization that claims to have worked with over 30 states to help authorize prize linked savings accounts.  He pointed out that other states had authorized such accounts notwithstanding contstitutional provisions.  For example, Delaware, which has a similar constitutional bar, recently enacted HB 31 which declares:

"A savings promotion raffle that conforms with the requirement of Section 933 of Title 5 is not gambling and does not constitute a lottery unless the chance to win a prize requires consideration.  The deposit of a specified minimum amount of money in a savings account or other savings program that results in an entry in a savings promotion raffle is not consideration."

11 Del. Code § 1408A.  The fact that Delaware and other states have enacted similar legislation is, of course, no guaranty that SB 1055 will pass constitutional muster here.  

If there is a constitutional question, is there likely to be a questioner?  Commonwealth also alerted me to an unpublished ruling in Kentucky.  In that case, Kentucky Bank and the Kentucky Bankers Association successfully sued the state's Department of Financial Institutions for a declaration that prize linked savings accounts do not violate state statutes prohibiting gambling.  Bank of Kentucky v. Commonwealth of Kentucky, Franklin Circuit Ct. Case No. 15-CI-722 (Feb. 2, 2018). 

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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