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Casinos Cope with Credit Card Crackdown

So it's no surprise that while new regulations restricting the use of credit cards for online gambling are severely hampering some online casinos and sports books, others are hardly missing a beat.

Credit cards have increasingly become an easy and popular way for gamblers to establish betting accounts so they may gamble online.

But also increasing have been the number of incidents where online gamblers using credit cards have suffered heavy gambling losses and then refused to pay their credit card debts.

To combat this explosion of deadbeat online gamblers, credit card companies and the banks that issue the credit cards have recently made moves restricting the use of credit cards for online gambling.

An investigation by RGT Online, however, reveals that while online casinos and sports books that only accept credit cards have seen business plummet, casinos and books that also accept funds other ways have seen no significant drop in business.

MasterCard Changes Its Policy

Two months ago, to deter online gambling among its cardholders, MasterCard instituted a new policy that made it harder for online gamblers using credit cards to collect their winnings, according to MasterCard spokeswoman Catherine Murchie.

Previously, online gambling winnings could be credited back to a credit card holder's credit card account, up to the amount that was originally charged to the card. So if a gambler deposited $200 at a casino and then later cashed out when she had $100 left, that $100 could be credited back to her card. If her winnings drove the account up to $500, only $200 could be credited back to her card and the other $300 would have to be sent to her by other means.

Now even that limited ability to charge back to the credit card has been forbidden by MasterCard.

On October 2, MasterCard issued a directive to all its cardholders which read: "Effective immediately, MasterCard prohibits Internet casino merchants from applying credits to MasterCard card accounts for winnings or unspent electronic chips. To pay winnings or unspent electronic chips to the customer, the Internet casino merchants must use a method of payment other than a credit to a MasterCard card account, such as check, money order. . . ."

Visa and Some Banks Follow Suit

Visa, America's other major credit card company, then also got into the act, as did the banks that actually issue the credit cards.

Visa and the banks don't want cardholders using their credit cards for online gambling, so Visa and the banks recently worked together to come up with a new policy on the issue, said Visa spokeswoman Casey Watson.

"Before a bank will approve a credit card transaction online, the online merchant now has to identify what type of business it is," Watson explained. "If it's an online casino, the bank can refuse to approve the transaction."

Asked whether all banks that issue Visa cards are now rejecting online gambling transactions, Watson replied: "Visa has relationships with over 21,000 banks so I can't say if all of them are. But most are."

Visa also carries an "Internet gambling advisory" on its Web site (www.visa.com) warning consumers about using credit cards for online gambling, Watson said.

The statement reads: "Internet gambling may be illegal in the jurisdiction in which you are located, including locations within the United States. Visa cards may only be used for legal transactions. Display of a payment card logo by an online merchant does not mean that Internet gambling transactions are lawful in all jurisdictions in which the cardholder may be located."

In addition, some of the banks that issue the credit cards on MasterCard's and Visa's behalf --- like Wells Fargo --- have recently warned their customers explicitly not to use their credit cards for gambling via the Internet.

In a directive issued to its MasterCard and Visa cardholders on Dec. 1, Wells Fargo stated: "Effective 12/1/00, the following has been added to the deposit agreement: Your Wells Fargo ATM/ATM & Check Card or Instant Cash/Cash & Check Card must not be used for any unlawful purpose. For example, funding any account set up to facilitate online gambling. You agree you will not use your card or account for any transaction that is illegal under applicable law." [This apparently applies to all Wells Fargo MasterCard and Visa cards.]

Some Sites Hurt by the Changes

The directives are having mixed results, RGT Online learned from speaking to a number of online casinos and sports books throughout the world.

For online casinos and sports books where a credit card is the only way to open up a betting account, business is down by as much as 40 percent as customers reluctant or unable to use their credit cards go elsewhere online to gamble.

But for online casinos and sports books that also accept and pay out funds via other methods --- such as Western Union, Federal Express or bank wire --- the new credit card regulations are having little or no impact on business.

A source at LasVegasStrip.Net, a company which runs four Costa Rican online casinos and sports books (Club Mardi Gras Casino and Sports Book, Club Regal Casino and Sports Book, eWorld Casino and America's Online Casino), said his business has definitely been affected.

"These new credit card regulations are causing a lot of problems for us," the source said. "Credit cards are the only way we allow customers to open betting accounts, so our business is down 30 to 40 percent in the last month."

After the banks stopped authorizing credit card transactions for online gambling, he said, he found a way around the problem. But it didn't last.

"We had been using Firecash (www.firecash.com) as a credit card processor," the source said. "Someone who wanted to gamble with us would send money, using a credit card, to Firecash, and Firecash would send the money to us.

"The charge would show up on the customer's credit card bill as Firecash, not an online casino. Firecash processes all kinds of online purchases and transactions, not just ones involving gambling, so a charge to Firecash did not draw any attention from the banks."

However, a few weeks ago, after a degenerate gambler charged back $80,000 to his credit cards over a short period of time, the banks found out Firecash was being used to facilitate online gambling. They stopped authorizing all Firecash transactions, the source said.

"We are working on this problem right now," he said. "We are trying to change the way the (online gambling) charge appears on the credit card bill so the bank won't know what it is."

Another online gambling entity losing business because of the new credit card rules is Game Time Casino, also in Costa Rica.

Game Time Casino earlier this week sent an email to its customers about the current credit card situation.

The email, in part, states: "Dear valued customer, You may have experienced some recent challenges with our online credit card transactions. We want to keep you informed about what's going on in the online gaming industry. Perhaps you've been trying to make a Visa deposit at one of the Game Times casinos, only to have the transaction denied, but you know you haven't come close to your credit card limit.

"Increasingly, our loyal customers like you have been experiencing difficulty using Visa or MasterCard with Game Time Casino's family of casinos, as have other customers of other online casinos.

"Here's what's happening . . . A change instituted by MasterCard makes its difficult for online casinos to accept deposits using your MasterCard credit card because, according to MasterCard, no casino winnings can be credited back to your account . . . If you've been trying to use a Visa and that was not successful, it's probably because the merchant bank that issued the merchant account told the Web site [that it doesn't] have permission to accept your credit card payments online."

The email goes on to say that Game Time is developing an e-check system that it hopes will solve the credit card problem, but gives no details.

In the meantime, the email advises, if your credit card is rejected, "Try another card."

A source at Game Time Casino confirmed that business is down substantially, and said it's the same for many of his competitors that are in the same boat.

Sources at other "credit card only" online gambling outfits echoed the sentiments.

Customers Will Find a Way

But a source at Canbet, an online sports book in Australia, said his company has been affected minimally --- if at all --- by the credit card crackdown.

"We have other ways for our customers to send and receive funds," he said. "So these new credit card regulations really aren't affecting us.

"If a customer wants to open an account with us and can't use his credit card, he can send funds to us via Western Union or bank wire and we can send him his winnings the same way. If somebody really wants to gamble with us, he'll manage to get his money here somehow."

A source at Pinnacle Sports, an online sports book in Curacao that utilizes credit cards but also transfers funds via wire, said: "The credit card crackdown has not been a problem for us. Before we allowed credit cards, we used other methods to move money.

"So all we're doing now is just going back to how we used to do it, at least until a better method comes along. And it will eventually."

At other online gambling operations that used money transfer methods besides credit cards, sources confirmed that business has not dropped off.

Happy Lawyer

Barry Reed, an attorney for Zimmerman Reed -- a Minneapolis law firm that specializes in credit card litigation -- applauded the latest actions by the credit card companies and banks to restrict online gambling via credit card.

Currently litigating more than 20 separate lawsuits against credit card companies by online gamblers who lost big, Reed said the issuing of the new policies will help his lawsuits.

"By their actions, the credit card companies are admitting that what they've been doing (allowing credit cards to be used for online gambling) is not a good thing," Reed said.

Credit card companies and online gambling first collided back in 1998.

That's when Cynthia Haines of San Francisco, using MasterCard and Visa credit cards to open online betting accounts at several online casinos, racked up $70,000 in gambling losses playing online roulette and blackjack.

When she refused to pay her credit card bills, her credit card issuer --- Providian National Bank --- sued her.

In the first case of its kind, she counter-sued MasterCard and Visa, claiming online gambling was illegal in California and therefore gambling debts were unenforceable.

After she won the counter-suit and her gambling debts were absolved, a rash of similar suits from other online gamblers followed. Providian, a large California bank, told its credit card customers that they could no longer use the cards to wager online.

Efforts by financial institutions to curb the use of credit cards for Internet gambling may end up being unnecessary. Opponents of online gambling in the U.S. Congress have introduced legislation that would make it illegal to use credit cards for that purpose.

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