IBA Compliance Connection

Your go to source for compliance!

As a promotion at a new facility, we would like to fill the $20 canister in the ATM with a random number of $50 bills. The promotion would be open to anyone with an electronic device card who accesses the ATM, and we would publish rules disclosing the ATM fees (including a withdrawal fee charged only to noncustomers). Would this promotion be considered an illegal lottery?

—

by

admin

No, we do not believe that this promotion would be considered an illegal bank lottery.

Under federal law, banks are generally prohibited from dealing in lottery-related activities (other than savings promotion raffles) where participants advance money or credit in exchange for the possibility of winning more than the amounts advanced. We do not believe that your bank’s proposed promotion would constitute a lottery because participants would not be advancing money or credit to your bank — they instead would be withdrawing money from your ATMs.

While your bank will charge its ordinary ATM fee to participants who are not bank customers, we do not believe that the ATM fee would cause your promotion to be considered an illegal lottery. The OCC has taken the position that a bank may limit participation in a contest to its customers without violating the federal lottery prohibition, provided that “the customer pays the normal fee for the banking service and does not pay anything extra to enter the contest.” The FDIC’s Chicago Regional Office and the Illinois Department of Financial and Professional Regulation also have confirmed that limiting a contest to customers only, where no additional fees are required for entry, would not violate the federal lottery prohibition. We believe that the same logic would apply when charging noncustomers for using the ATM, since this is your normal fee charged for providing ATM services to noncustomers.

Lotteries also are prohibited by the Illinois Criminal Code. The Illinois Supreme Court has held that three elements are essential to a lottery — (1) chance, (2) consideration, and (3) a prize — and that no lottery exists if one of these elements is missing. The Illinois Criminal Code also provides an exemption for drawings for money or prizes where no payment or purchase is required for entry. Again, participants would not be paying anything to participate in the lottery and would be merely withdrawing money and, in the case of your noncustomers, paying your ordinary ATM fees. Consequently, we do not believe that this contest is an illegal “lottery” for purposes of Illinois criminal law.

Note that the Illinois Consumer Fraud and Deceptive Business Practices Act requires you to clearly and conspicuously disclose the promotion’s material terms and conditions. Additionally, if any of the participants win $600 or more, you must issue an IRS Form 1099-MISC to those participants.

For resources related to our guidance, please see:

  • Federal Deposit Insurance Act, 12 USC 1829a (Prohibiting state nonmember banks from involvement with a “lottery,” defined as “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.”)
  • Federal Reserve Act, 12 USC 339 (Lottery prohibition for state member banks.)
  • National Bank Act, 12 USC 25a (Lottery prohibition for national banks.)
  • OCC Interpretive Letter 1153 (May 11, 2015) (“OCC precedent has taken the position that where a banking transaction is required in order to enter a contest, there is no consideration if the customer pays the normal fee for the banking service and does not pay anything extra to enter the contest.”)
  • 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. . . .”)
  • Illinois Criminal Code, 720 ILCS 5/28-1(b)(13) (exemption for drawings where money or things of value can be won but no payment or purchase is required to enter)
  • People v. Eagle Food Centers, Inc., 31 Ill. 2d 535 (1964) (“[T]here are three elements essential to the existence of a lottery, viz., chance, consideration and a prize; and . . . there is no lottery if any one of these elements or ingredients is missing.”)
  • Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2P (“It is an unlawful practice for any person to promote or advertise any business . . . by means of offering free prizes, gifts, or gratuities to any consumer, unless all material terms and conditions relating to the offer are clearly and conspicuously disclosed at the outset of the offer so as to leave no reasonable probability that the offering might be misunderstood.”)