Contest Considerations

The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter: 

Contest Considerations

By: Rob Rutkowski, Esquire

Consider the following hypothetical situation:

Steve Sharpe is the marketing director of Anthrax Research Federal Credit Union. Steve remembers that the credit union has not held a contest in a while. The credit union recently acquired a community charter for all of Anthrax County. Steve decides to mail the following information to all county residents on a postcard:

“Enter to win a car at Anthrax Research Federal Credit Union! All you need to do is sign up for a new credit union product in the next 30 days such as a Visa card, a car loan or a home-equity loan. You can also enter by depositing $10,000 in a CD!”

Steve tells his boss, Hugo Bostonian, about the contest after he sends the mailer to all of Anthrax County’s 10,000 residents. Hugo looks at Steve and says, “Did you run this by legal?”

Credit unions love raffles and prize promotions. There’s a lot of confusion, however, with respect to regulatory compliance as to what the credit union can and cannot do. As a rule of thumb, when you put contest advertising in the mail or charge money to enter the contest or require the member to use a product or service to enter the contest, many compliance issues come into play.

From a state law perspective, most states regulate raffles and drawings as lotteries or gambling. A credit union compliance officer should look at whether a credit union giveaway runs afoul of state statutes. This can be complicated. Essentially, though, many states regulate giveaways where a person risks something of value in a contest of chance or in a future event not under his or her control with the understanding that he or she might receive something of value given a certain outcome. Again, this varies from state to state.

All credit unions, however, should be aware of 39 U.S.C.A. §3001 et seq. In April of 2000, Congress amended The Deceptive Mail Prevention and Enforcement Act. This act imposes various requirements on sweepstakes mailings. There is also a name removal notification system required under the act. Severe penalties may result for violating this federal law. Among other things required by the statute, the credit union would need to make certain affirmative disclosures, create prohibitions on certain practices and representations and establish a name removal notification system.

Suffice it to say that Steve Sharpe, in the example above, is in a world of trouble. At the very least, the requirements of making a member sign up for a new product or service in order to enter the contest might violate state law concerning lotteries or gambling. Also, there are privacy issues involved with sending postcards to credit union members and there is no way that the meager disclosures provided on the postcard comply with federal law concerning sweepstakes. (Also, federal credit unions can’t refer to share certificates as CDs).

When your credit union decides to run a promotion that seems to involve a drawing or game of chance, please take the time to review the promotion for compliance with state and federal law.

Rob Rutkowski is the Managing Partner of WWR’s Credit Union department and is based in the Brooklyn Heights operations center. He can be reached at (216) 739-5004 or


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