WASHINGTON (10/31/13)--Federal legislation that would allow credit unions and other financial institutions nationwide to offer prize-linked savings accounts (PLS) was introduced in the U.S. House and Senate this week.
A 1960s law that bans banks from operating lotteries unintentionally precludes banks and thrifts from offering PLS products, the legislators explained. Some states have laws to allow PLS products, but federal law limits PLS accounts.
Sens. Jerry Moran (R-Kan.) and Sherrod Brown (D-Ohio) introduced the Senate bill, which the legislators said would promote savings by creating a narrow exemption for PLS products while maintaining the ban on federally-insured financial institutions from operating lotteries. By removing federal barriers to PLS products, the American Savings Promotion Act "clears the way for states to enable all interested financial institutions in their jurisdiction to offer PLS products," the lawmakers said.
Similar legislation was introduced Tuesday by Reps. Derek Kilmer (D-Wash.) and Tom Cotton (R-Ark.).
"At a time when the annual savings rate in the United States is just 4.1%, PLS accounts would incentivize personal savings by offering participants chances to win prizes based on savings account deposit activity while never putting their savings at risk," Moran said. These accounts, he added, "are proven to increase savings-rates, which empower individuals to better endure financial strain and climb the economic ladder."
Save to Win PLS accounts were created by the Michigan Credit Union League in 2009. For every $25 deposited, account holders earn entries into monthly and annual cash prize drawings. All funds deposited into the accounts, including any interest earnings, belong to the account holders.
The program has appealed to unbanked and under-banked consumers who were not previously inclined to save money. Through these products, credit union members and others can receive entries into a cash prize sweepstakes for depositing a certain amount of money into their savings accounts. Maryland, Michigan, North Carolina and Washington are among the states that allow credit unions and other institutions to offer PLS products.