Winners if Gambling Law Passes: Casinos, Taxpayers and Prepaid Debit Card Companies

prepaid debit online gamblingIt’s only been a few weeks since the delay in enforcing provisions of the Unlawful Internet Gambling Enforcement Act of 2006 was lifted, and prepaid debit card issuers (such as NetSpend, and others) shut off the ability for U.S. gamers to fund their gambling accounts at Internet poker rooms. If HR 2267 succeeds, U.S. gamers will be able to ante up again, using funds from debit card accounts (but not credit card accounts).

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) criminalized Internet wagers by making it illegal for banks to process Internet gambling-realated transactions using credit or debit cards. Representative Barney Frank was instrumental in obtaining a delay in the date for implementing regulations in the UIGEA. In particular, the regulations were delayed by six months, from Dec. 1 to June 1, 2010.

When the regulations went into force, a number of prepaid debit card companies took quick steps to let their users know of the change. There were reports that NetSpend Corp., for example, played a voice message on all customer service calls for at least a few days around the June 1, 2010 deadline, letting all cardholders know that NetSpend cards can no longer be used for transactions involving Internet gambling.

HR 2267 To Legalize Some Internet Gambling

Rep. Barney Frank is now sponsoring HR 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, which would create federal supervision for certain online gambling sites, effectively legalizing Internet gambling again. One of the key features of HR 2267 is the removal of certain of the UIGEA restrictions which made it illegal for payment card companies to allow their customers to engage in Internet gambling. HR 2267 specifically provides that:

No financial transaction provider shall be held liable for engaging in financial activities and transactions for or on behalf of a licensee or involving a licensee, including payments processing activities, if such activities are performed in compliance with this subchapter and with applicable Federal and State laws.

Prepaid Debit Card Companies: Big Winner?

Prepaid debit card issuers stand to be a big winner, if the current version of HR 2267 is eventually enacted. Until enforcement of the UIGEA, prepaid debit cards were a popular option of gamers to deposit and receive funds from their Internet gaming sessions. So prepaid card companies would likely see a boost in transaction volumes if HR 2267, in its original form, were passed.

However, during the House Financial Services Committee markup session, several amendments to the original version of HR 2267 were passed. Most significantly for prepaid debit card companies, Rep. Frank introduced an amendment that would, for many transactions, ban the use of credit cards. In particular, the amendment provides:

No licensee, no person operating on behalf of a licensee, and no person accepting payment for or settlement of a bet or wager who intends to transmit such payment to a person licensee, may accept a bet or wager or payment for or settlement of a bet or wager that is transmitted or otherwise facilitated with a credit card

Several exceptions to this prohibition exist, but for the majority of transactions, credit cards would be prohibited.

Taxpayers: Another Big Winner?

Advocates of HR 2267 point to the huge revenue stream such a law would bring to all levels of government. An analysis by the Congressional Joint Committee of Taxations found that regulated Internet gambling could bring in $42 billion over the first decade of the bill’s realization at the federal level. States could see a 6 percent deposit fee generate an additional $30 billion.

“Those figures assume you are starting with an industry where millions of players are already engaged,” pointed out Michael Waxman of the Safe and Secure Internet Gambling Initiative. “And with regulation, there is an expectation that many more will take up and enjoy this form of recreation. There is a strong possibility that this bill would be included in a larger legislative package as a way to offset the cost of other programs.”

HR 2267 is expected to go to the full House for a vote before the end of this session.

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