Banks, Credit Unions Balk at Ban on Gaming Fund Transfers
Depository institutions around the country are expressing deep concerns about the potential consequences of the Unlawful Internet Gambling Enforcement Act (UIGEA), which took effect June 1.
The new law, which online gaming sites have been preparing for since President George W. Bush signed it 2006, is designed to combat online gambling by preventing the fund transfers between credit card companies, banks, and online gaming sites running “unlawful Internet gambling.” It requires financial service providers to enforce the law by blocking transactions from gambling Web sites.
The law has drawn heavy criticism from these institutions.
‘Unprecedented Delegation of Responsibility’
"Punting the enforcement obligation to the banking industry and the other participants in the U.S. payment system is an unprecedented delegation of governmental responsibility with no prospect of practical success in exchange for the burden it imposes," said Wayne Abernathy of the American Bankers Association.
Partly as a result of this criticism and technological limitations, the law faced numerous delays. Some in Congress—led by Rep. Barney Frank (D-MA)—worked to halt its implementation altogether. Even after the Bush administration issued a “midnight” rule to implement it, many in Congress opposed it.
Technological limitations of the country’s main electronic payment clearinghouses—The Automated Clearing House network (ACH)—also slowed down implementation. One reason was that the clearinghouses can’t distinguish between gambling transactions and other transactions.
In addition, a free-trade dispute between the Caribbean nation of Antigua and the United States through the World Trade Organization (WTO), further delayed implementation.
Antigua argued in implementing UIGEA the United States would be violating its WTO treaty obligations by limiting access to the U.S. market by Antigua’s online gaming companies. The United States appealed the WTO’s initial ruling in favor of Antigua but eventually settled the case by granting concessions on other trade issues.
Unrealistic ‘Honor System’
Some problems with the ACH have yet to be fixed.
"The Federal Reserve's most recent payment study reported that more that 93 billion payments were processed by financial institutions in 2006,” said the ABA’s Abernathy. “Additionally, the system does not even take the names of account owners into consideration when moving funds in the automated programs. The proposed rule relies primarily on Internet gambling businesses to commit to an honor system whereby they would voluntarily identify themselves to credit card networks to deny themselves payments. This is hardly a realistic expectation.”
Depository institutions have also argued “unlawful gaming” is not well defined in UIGEA.
‘Unreasonable Policing Requirements’
In a letter to Frank, Chairman of the U.S. House Financial Services Committee, Credit Union National Association President Dan Mica wrote, “UIGEA and regulations proposed by the Department of Treasury and the Board of Governors of the Federal Reserve System would impose a set of unreasonable policing requirements which will prove difficult, if not impossible for financial institutions to meet.… In short, these new burdens would without question divert credit unions from their intended purpose for providing financial services to their members.”
Mica told FIRE News, “We do not condone illegal Internet gambling or want to see it continue or grow. However, the statute and implementing proposal represent an inappropriate and overly burdensome compliance issue which causes us great concern.”
Many online gambling sites have moved their businesses out of the country in reaction to the UIGEA. Despite the exodus, online gambling has increased in the United States since UIGEA was passed.
John Pappas, executive director the Poker Players Alliance, said UIGEA has not reduced the overall number of gamblers paying and playing online.
‘Poor Public Policy’
“Since passage of UIGEA in 2006, we've actually seen an increase in the number of people playing online poker,” said Pappas. “From what I've heard from players since June 1st, there have been few if any disruptions to their ability to deposit and withdraw funds on the online gaming sites.”
He added, “The UIGEA is poor public policy, pure and simple. If UIGEA supporters really want to protect consumers, they need to support efforts to license and regulate online gaming.... Bring it out of the shadows instead of forcing it underground.”
Matthew Glans (firstname.lastname@example.org) is a legislative specialist in financial services for The Heartland Institute.