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A Credit Crisis for Web Casinos

21 January 2002

NEW YORK -- As reported by the New York Times:``Mining the margins of legality, operators of Internet casinos assumed their big worry was regulators and law enforcement agencies.

``Lately, though, it seems that the online casinos have a more immediate problem: the growing number of credit card companies and banks that are refusing to process payments for Internet gambling.

``Although demand by bettors remains brisk, whether they are wagering on sporting events or online games like roulette and blackjack, the credit card companies are concluding that the business is more trouble than it is worth.

``Internet gambling is illegal in many states, and some types of wagering are barred by federal laws. But beyond that, customers frequently deny having placed bets or simply refuse to pay their credit card bills after running up large gambling debts.

``That can pose trouble for credit card companies — as when a California woman lost more than $100,000 but argued in court that gambling debts were not enforceable and had her debts wiped clean in a court-ordered settlement. And so, in many cases, the credit card companies and banks simply refuse to approve a transaction if they know it is for a gambling site.

``Some Internet casino owners say four of every five transaction requests are now denied. As a result, some gambling sites, particularly those serving the United States market, where 8 of every 10 wagers originate, have seen revenue fall at least 30 percent. Analysts who cover the industry say the liquidity crisis has already forced some operations to close.

``...late last year, Visa USA started auditing Internet casinos to make sure they were accurately identifying transactions as wagers. The idea behind the audit was to make sure that casinos did not try to report gambling activity as another type of transaction ...to trick a bank into approving the transaction.

``Casinos have increasingly turned to third-party credit card processors like SureFire or PayPal, another major processor of Internet gambling...

``...MasterCard International has put a crimp in that activity with a policy that specifically forbids the use of its card at third-party processors for purposes of Internet gambling.

``The steps by Visa, MasterCard and the banks that issue their cards are catching up with the policies of American Express...

``...some casino operators complain that the banks are acting too much like the police..."

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