IBA Compliance Connection

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We have a bank anniversary coming up, and we are considering randomly selecting 100 of our existing customers to receive a $100.00 gift card. One of those customers then will be randomly chosen to receive a $5,000.00 prize. Is there anything we should be concerned with by offering a sweepstakes like this?

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admin

In our view, your proposal is a sweepstakes that would violate Illinois and federal restrictions on lotteries if it is limited to your customers with deposit accounts.

The Federal Deposit Insurance Act defines a “lottery” as an arrangement in which participants “advance money or credit to another in exchange for the possibility or expectation that one or more” will win a prize.  The Illinois Criminal Code defines a “lottery” as “any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes . . . .” In our view, a drawing that would require participants to have a deposit account with your bank is tantamount to requiring the participants to pay or advance money to your institution. As a result, we believe such a drawing would be considered a lottery under both the federal and Illinois definitions.

If you wish to proceed with this idea, we recommend opening the drawing to all bank customers (including those without deposit accounts) as well as to non-customers. While you cannot create obstacles to participation by non-customers that are so formidable as to be impractical, we believe that providing entry forms in your branch lobbies that anyone could fill out and submit likely would be sufficient to overcome the prohibition against predicating participation on paying or advancing money.

In addition, we note that the Illinois Prizes and Gifts Act requires nine specific disclosures to be made with any written promotional prize offer, and the Illinois Consumer Fraud and Deceptive Business Practices Act requires you to clearly and conspicuously disclose all material terms and conditions relating to the prize at the outset of the offer.

We also note that an IRS Form 1099-MISC is required when the prize is valued at $600 or more.

For resources related to our guidance, please see:

  • Illinois Criminal Code, 720 ILCS 5/28-1(b) (“A person commits gambling when he or she . . . (7) knowingly sets up or promotes any lottery or sells, offers to sell or transfers any ticket or share for any lottery.”)

  • Illinois Criminal Code, 720 ILCS 5/28-2(b) (“A ‘lottery’ is any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes, whether such scheme or procedure is called a lottery, raffle, gift, sale or some other name, excluding savings promotion raffles . . .”)

  • Federal Deposit Insurance Act, 12 USC 1829a(a)

​(“A State nonmember insured bank may not—

(1) deal in lottery tickets;

(2) deal in bets used as a means or substitute for participation in a lottery;

(3) announce, advertise, or publicize the existence of any lottery;1

(4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery”)

  • Federal Deposit Insurance Act, 12 USC 1829a(c)(2) (“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 . . . .”)

  • G.A. Carney, Ltd. v. Brzeczek, 453 N.E.2d 756, 761 (Ill. App. 1st Dist. 1983) (“In determining whether consideration is required to play the ‘Daily Devil,’ we do not ‘inquire into the theoretical possibilities of the scheme, but * * * examine it in actual practical operation.’ In our judgment, the obstacles to obtaining a free entry blank are so formidable, the publisher's offer of a free entry blank must be regarded as chimerical.”)

  • Illinois Prizes and Gifts Act, 815 ILCS 525/25 (listing nine disclosures that a written promotional prize offer must contain in a clear and conspicuous statement at the outset of the offer)

  • Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2P (requires all material terms and conditions to be clearly and conspicuously disclosed)