March 29, 2017

Prize-Linked Bank Accounts Are One of Georgia Lawmakers' Few Fresh Ideas

Georgia Report

State Sen. David Shafer (R-Duluth).

One of the most frustrating aspects of covering Georgia’s legislature is that you find yourself writing the same stories about the same set of issues, year after year.

There is a group of stale ideas that are endlessly recycled as “solutions” to all our civic problems: a balanced budget constitutional amendment, a flat tax, health savings accounts, zero-based budgeting, drug tests for food stamp applicants. These proposals will get a new bill number every two years when a new legislative term starts. They have been around the block so many times that reporters could easily write about them in their sleep.

We do see some new ideas crop up from time to time, but not all of them are useful. A few years ago, there was a bill introduced that would have made it illegal to clone man-animal hybrids. It was certainly an innovative concept, but most people would agree that man-animal hybrids are not really a pressing problem in this state.

There was also the time when a couple of legislators introduced bills that would have made it a crime to implant a microchip in a person without their consent. As it turned out, neither lawmaker could identify a single instance where a Georgian had ever been microchipped against their will. Neither bill made it into law.

There is a bill in this year’s session that not only represents a new idea, but might actually accomplish a worthy goal. Sen. David Shafer (R-Duluth) introduced a bill that would allow banks and credit unions to offer “prize-linked savings accounts.” These are accounts that don’t pay interest, but make the depositor eligible for periodic cash prize drawings held by the financial institution. The more money you deposit and keep in your account, the more chances you have to win one of these raffles.

“For some time I've been concerned about the low rate of savings in this country,” Shafer said.  “There’s a large percentage of people who could not pay an unexpected $400 expense without selling an asset or borrowing money.”

For more than 50 years, the British government has offered consumers the opportunity to buy “Premium Bonds.” The more government bonds you buy and keep in your account, the more chances you have of winning regularly scheduled drawings for cash prizes. “I thought that was an interesting way to encourage people to save,” Shafer said.   

Several states have already amended their banking laws to allow these kinds of accounts, including Michigan, Nebraska, North Carolina, Washington, Maryland and Rhode Island.

Ben Iverson, an assistant professor of finance at Northwestern University, has done research into these types of accounts. He says they “offer an attractive alternative to a particularly financially vulnerable population—those with no savings who are one large medical bill or car wreck away from fiscal disaster—while decreasing overall spending on lotteries, where the vast majority of people reap no benefit.”

Shafer said several ideas for legislation that would encourage more people to save money were presented to officials of the state’s banks and credit unions. Prize-linked savings accounts “was one they embraced,” particularly the credit unions, he said.

Shafer said these prize-linked accounts might have some appeal for working-class people who would normally spend their disposable dollars on lottery tickets. “Most people would lose the drawing, just like they lose the lottery, but when they lose the drawing, they would still have their savings,” he said.

Shafer’s legislation, SB 134, was passed by the Senate and received a favorable recommendation from the House Banks and Banking Committee. There’s no way of knowing if it will pass the House before the General Assembly adjourns. It may turn out that lawmakers don’t want to mess with the Georgia Lottery’s customer base by authorizing these kinds of savings accounts.

Whatever happens to the bill, at least it’s a new idea to think about.