WASHINGTON, D.C. – Tonight, the U.S. Senate passed the American Savings Promotion Act (S. 1597/H.R. 3374) by unanimous consent. U.S. Senators Jerry Moran (R-Kan.) and Sherrod Brown (D-Ohio), members of the Senate Economic Mobility Caucus, introduced the American Savings Promotion Act in October 2013 to allow the creation of prize-linked savings accounts (PLS). 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. The legislation passed the House in September 2014 and now heads to the President.
“With broad support, Congress has sent to President Obama the American Savings Promotion Act, bipartisan legislation that clears the way for banks and other financial institutions to promote personal savings,” Sen. Moran said. “This policy will help American families become more financially secure and upwardly mobile. In passing the American Savings Promotion Act, the House and Senate have shown that good ideas may still have a chance in Washington.”
“Too many families in Ohio – and across the nation – are living paycheck to paycheck,” Sen. Brown said. “Between stagnant wages and an insufficient minimum wage, it’s hard for families to prioritize savings. That’s why this legislation is so important. Families should be encouraged and excited to save. This bill accomplishes that and I am proud to have worked with Sen. Moran to get this bill passed.”
The American Savings Promotion Act would promote savings by creating a narrow exemption for prize-linked-savings (PLS) products. By removing federal barriers to banks and thrifts offering PLS products, the legislation clears the way for states to enable all interested financial institutions under their jurisdiction to offer these valuable financial tools. Forty-four percent of American households lack the savings needed to cover basic expenses for three months, leaving families vulnerable to financial uncertainty. In 2013, the personal savings rate dipped to just 3.8 percent, down from 10.5 percent in 1963.
Prize-linked saving has been identified as an attractive way to incentivize saving by a broad range academics and financial policy professionals:
- • Stuart Butler of the Heritage Foundation and author of Boosting Economic Savings Through Prize-Linked Savings: “The dearth of savings in America, particularly among lower-income Americans, is a major obstacle to upward mobility and achieving the American Dream. The creative idea of prize-linked savings has proved to be very successful in boosting savings, but red tape blocks federally chartered financial institutions from offering these pro-savings products.”
- • In a 2011 Financial Times op-ed, former Obama OMB Director Peter Orszag advocated for PLS: “In the coming decade, we need a comprehensive effort to raise household savings. As part of that push, let’s give savings accounts linked to lotteries a chance.”
- • Tim Flacke, Executive Director of D2D Fund: “Based on our last five years of work on prize-linked savings, we believe this is a proven and promising innovation to help engage Americans to save. We applaud the leadership of Senators Moran and Brown to help expand PLS through this bill so that more Americans can experience a fun and successful way to save.”
The Pew Foundation’s Economic Mobility Project found that 71 percent of children born to high-saving but low-income parents emerge from the bottom income quintile in one generation, compared to only 50 percent of children from non-saving low-income households. While more than 40 percent of American households lack the savings to cover basic expenses for 3 months, Americans spend nearly $61 billion on lottery tickets each year.
PLS products have great promise, but a broadly-written 1960s law banning banks from operating lotteries unintentionally precludes banks and thrifts from offering PLS products. More than half a dozen states have changed applicable state laws to allow credit unions within their borders to offer PLS products, but federal law limits the expansion of this savings-enhancing tool to other financial institutions.
The legislation 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 banks and thrifts offering 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 House version of the American Savings Promotion Act was introduced by Rep. Derek Kilmer (D-Wash.) and Rep. Tom Cotton (R-Ark.).
Click here to read a one-page summary of the bill.
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