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Prize-Linked Savings Accounts

"There are three essential elements to gambling," says Lipton, "Risk, consideration (the payment of money) and prize. If you eliminate one of those three elements, then it's not gambling."

Corporate contests and sweepstakes are legal because you don't have to pay money to enter them. So one way PLSAs can be made legal is with a "no purchase necessary" arrangement to enter the draws.

But is investing money that you will keep anyway really the same as purchasing? "The legality test really comes down to, 'Do you stand to lose anything?'" says Lipton. "If you stand nothing to lose, it's not gambling."

The only thing classifying PLSAs as a lottery is the loss of interest to the prize pool. Lipton suggests banks could offer two savings accounts: one at 5 per cent interest and the other at 2 per cent. The 2 per cent option is a regular interest-generating savings account; but if the customer chooses the 5 per cent interest option, 3 per cent of that is put into the prize pool and they get to keep the remaining 2 per cent interest, win or lose.

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"Under the circumstances you're not losing anything -- you still get your 2 per cent," says Lipton. "The courts have yet to determine whether losing the interest is actually a loss. If forgoing your interest in return for the opportunity to gain more money puts you in a position where you have nothing to lose, in that you get your entire principal back, then legally banks may have something."

Still a long way to go
However, the fact that a PLSA is part lottery and part banking product currently means government ministries and banking regulators have no idea how to address the legal issue. The Federal Ministry of Finance says that since prizes are involved, lottery and gaming regulations are governed by the provinces. Yet, the Ontario Ministry of Finance sees it as an issue of banking and the Criminal Code, making it the federal government's problem. Every provincial or national banking and gaming regulator contacted for this article claimed PLSAs were not within their mandate or jurisdiction and passed the issue to someone else.

"We don't discuss hypotheticals," said a spokesperson from the Ontario Ministry of Finance.

Lipton only offers one possible explanation as to why governments and regulators are wary of such a discussion: "The Canadian government has their monopoly and if you [step on their toes], they're going to be very angry and you're going to face prosecution. Giving away a lot of money attracts the wrong kind of attention."

Aaron Broverman is a freelance writer in Toronto.

-- Posted February 23, 2011
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