Is Promotional Raffle Permissible?

Issue/Inquiry

The Bank would like to organize a promotional raffle for an item valued at $500 at only one of its branches. Anyone over the age of 18 can enter the raffle, and no account opening or purchase is necessary. There are no other conditions. Is there anything prohibiting the Bank from having this raffle?

Response Summary

The raffle would not be considered a lottery under Federal or New Jersey law. As such, there is nothing that would prevent it from being held. In addition, the giving of a prize would not be considered a bonus under Regulation DD. The Bank should obtain information on the winner if the filing of a Form 1099-MISC is required.

Response Detail

RSK offers the following comments regarding the proposed drawing:

1. Under the Federal Deposit Insurance Act, an insured state bank is not allowed to deal in lottery tickets, deal in bets used as a means or a substitute for participation in a lottery, or announce, advertise, or publicize the existence of any lottery or the winner of any lottery. 12 USC 1829a(a).

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 person 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 that they have advanced, with the identity of the winners being determined by any means which include:

• a random selection
• a game, race, or contest
• 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 USC 1829a(c)(2).

Since the raffle is open to anyone without the need to advance money or credit, it would not be considered a lottery under the Federal Deposit Insurance Act.

1. Under Regulation DD, a bonus is a premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise, or any equivalent) that is given or offered to a consumer during a year in exchange for opening, maintaining, renewing, or increasing an account balance. 12 CFR 1030.2(f).

Even though the raffle prize is worth more than $10, the opportunity to enter the raffle would not be given in exchange for opening, maintaining, renewing, or increasing an account balance and, therefore, would not be considered a bonus.  In addition, in the event that the Bank advertises the raffle, such would not be subject to the requirements of Regulation DD concerning the advertising of a bonus or the disclosure of its effect on the annual percentage yield of an account.

1. Games of chance in New Jersey are subject to laws such as the BINGO Licensing Law and the Raffles Licensing Law. Under New Jersey law, a raffle is a game of chance played by drawing for prizes and through the selling of shares, tickets, or rights to participate in such a game. N.J.A.C. §47:47-1.1. The raffle proposed by the Bank would not be considered a game of chance, as such participation does not require the purchase of anything or the opening of an account.
2. The reporting threshold for issuing the IRS Form 1099-MISC is $600. While the prize in this case is $500, the Bank should obtain information identifying the winner in the event that such a person receives other prizes or compensation during the course of the year that would trigger the reporting of the prizes.

For these reasons, RSK finds the raffle permissible under Federal and New Jersey legal and regulatory requirements.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, October 28th, 2019 at 9:52 am.