Pub. 10 2015-2016 Issue 4

www.nebankers.org 16 Extraordinary Service for Extraordinary Members. For more information, contact Jeff Makovicka at Kutak Rock LLP at (402) 346-6000 or jeff.makovicka@ kutakrock.com . Makovicka is a member of Kutak Rock LLP’s banking practice group, where he concentrates on bank matters. we’re Always CLOSE BY NetWorks is the Electronic Funds Transfer (EFT) service provider that Nebraskans have used and learned to trust like family for over 30 years. Since our offices are right here in Nebraska, you can count on us to provide quick and personalized service for all of your EFT needs. Give us a call and let’s talk about how we can simplify EFT for you. You will talk with a fellow Nebraskan and not some automated system. www.netseft.com Toll Free 800-735-6833 Local 402-434-8202 • Risk Management on New Prod- ucts – Regulators require banks to prudently manage the risks associated with new, expanded, or modified bank products and services. Specifically, regulators have outlined expectations for banks’ management and boards to implement an effective risk management process when roll- ing out new products. Some banks have found themselves faced with problems because bank manage- ment underestimated its need to manage, monitor, and control the development and implementation of a product or service. Instead of boosting net income, the product caused compliance issues, litiga- tion exposure, unfavorable returns, and diminished reputation in the marketplace. Potential reputational risks and publicity in launching a new PLS program (associating your bank with a lottery-type product) should be scrutinized through the bank’s risk management policy process. • Vendor Risk Management - The use of vendors in delivery of any PLS programpresents several risks, the most prominent of which are legal, operational, and reputational. A vendor’s noncompliance with enabling laws, consumer laws, and regulations creates reputational risk for a bank, including the pos- sibility of a public enforcement action by the bank’s regulators, class action lawsuits, and negative publicity.  1 Some believe it truly became popular with premium bonds in the United Kingdom in the 1950s. Peter Tufano, Saving Whilst Gambling: An Empirical Analysis of UK Premium Bonds, AMERICAN ECONOMIC REVIEW, 2008. 2 Emel Filiz-Ozbay, Jonathan Guryan, Kyle Hyndman, Melissa Kearney, and Erkut Ozbay, Do Lottery Payments Induce Savings Behavior? Evidence from the Lab, JOURNAL OF PUBLIC ECONOMICS, March 2015. 3 The interest rates offered by PLS accounts vary from program to program. Some programs may offer relatively low interest rates, while others may ask participants to forego fixed interest payments entirely in exchange for the prize opportunity. 4 Pub.L. 113-251. 5 Bankswereevenprohibited from“announc[ing], advertis[ing], or publiciz[ing] the existence of any lottery.” See 12 USC § 25a (prohibiting national banks from participating in lottery-related activity); 12 USC § 339 (prohibiting state banks that aremembers of the Federal Reserve System from the same); 12 USC § 1829a (prohibiting state nonmember banks from the same). 6 Neb. Rev. Stat. § 9-701. 7 Id. at § 9-701(1)(b). Moreover, the “deposit of money in a savings account or other savings program, regardless of the interest rate earned by such account or program” is allowed under a PLS program and not considered an illegal entry fee or consideration. Id. at § 9-701(3)(e). 8 Id. at § 9-701(1)(d). 9 Id. 10 Id. at § 9-701(3)(e). 11 Id. at § 9-701(1)(d). 12 Id. at § 9-701(3)(c) (“An operator shall not... [f] ail to award prizes offered.”).  Counselor’s Corner — continued from page 15 13 Id. at § 9-701(3)(d). 14 Id. at § 9-701(4). 15 Even if a certain state allows PLS, there may be operational issues under state law. For example, in New York, if the total announced value of the prizes exceeds $5,000, certain requirements will apply to the PLS programunder NewYork General Business Law Section 369-e. That section requires, among other things, advance registration of the PLS programwith the New York Secretary of State.