Newly proposed laws aimed at cutting off the money supply to online casinos have targeted credit cards. Mastercard online gambling restrictions have been increased on US citizens attempting to make deposits at online casinos.

The legality of online gambling has been long debated. The act of making a deposit at an online casino may fall under the Federal Wire Act of 1961. The Federal Wire Act was created to illegalize using telephones for the purpose of placing bets. The telephone had allowed people who lived in areas where gambling was illegal to begin gambling in areas where gambling was legal. Online gambling deposits are required to be coded with a sic code of 7995 so that they can be identified. Many online casino operators use sic codes that are designated for other online purchases to avoid having deposits declined. Mastercard transactions using both the correct and incorrect sic codes have begun being declined at an unprecedented rate. The action sends a signal that Mastercard is preparing for the enforcement of America’s Unlawful Internet Gambling Enforcement Act (UIGEA). This act is designed to ban the facilitation of online gambling by the banking industry.

Congress has unsuccessfully attempted to stop internet gambling in the past. The taxation of online gambling is extremely difficult. Congress views online gambling as a loss of income. Voters see online gambling as a personal choice. This has made it very difficult to get legislation passed. In 2006 the UIGEA was put through as an attachment to a Homeland Security bill.

Online casinos operate outside of the jurisdiction of the US government and therefore it will be difficult to enforce the UIGEA. In reality the UIGEA could only be enforced in the most serious cases. It would be impossible to investigate all suspicious transactions. The real success of the UIGEA will be in creating financial barriers for new online casinos and making it more difficult for online casinos to accept deposits. Ultimately new businesses that will “launder” deposits by acting as middlemen will arise.

The long term prospects for the online gambling industry probably lies in debit cards. Currently you will have a better chance of completing an online gambling transaction using a debit card than a credit card. This is because using credit is essentially borrowing the money to gamble from a bank. With a debit card you are removing your own cash from your bank account. This reduces the banks exposure. Prepaid debit cards are funded ahead of time and can only be used for the amount that was funded.

Many experts then started believing that credit cards would disappear as a means of funding online gambling transactions, as they believe that the solution lies in some type of debit card. Currently, the odds of completing a gambling transaction with a debit card are better than with a credit card. This is because using a credit card is equivalent to borrowing money from the issuing bank. With a debit card, money is instantly taken from your account. This in turn reduces the risk to the website and bank. Still at this point the only legislation passed against online casinos acting outside of the US is in the banking. Online gambling has not been outlawed.

By Dave Daniels
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