The UIGEA, approved as part of George Bush’s so-called “midnight drop,” comes into effect today and is meant to be implemented by financial entities no later than December 1st unless it is repealed before that. The American Banking Association dreads the extra burden this will place on the already stressed American banking system.
As of today, credit card companies and other financial institutions must start designing and implementing measures to block all transactions related to “illegal Internet gambling,” even though the exact scope of what is and is not legal has not yet been clarified.
One of the biggest issues that complicate implementing the UIGEA is the lack of a clear definition for which activities are deemed illegal, leaving the banking system amid an often contradictory set of state laws and tribal regulations. Although the rules are not as strict and demanding as initially expected, the American Banking Association – representing credit card issuers and other banking entities – still dreads their implementation. Steve Kenneally, vice president of the American Bankers Association, declared, “It’s not a good thing for banks. Instead of getting hit on the head with a telephone pole, we’re getting hit with a baseball bat. It still hurts.”
The final UIGEA regulations, issued on November 12, 2008 and effective as of today, include the following aspects:
- The law does not target the players; it targets the financial institutions and the gambling sites themselves.
- The systems over which UIGEA rules are: credit card systems, check collection systems, money transmitting businesses, wire-transfer systems and automated clearing house systems.
- Most payment systems must screen new accounts and reject those likely to be involved with online gaming. This is a reduction of what was initially implied, and a relief to the banking industry, which feared it would have to examine every existing account and monitor every transaction.
- Credit card operators “have a harder job” according to Kenneally, since they will have to assign a merchant category code to online gaming merchants, and monitor constantly for changes of activity in merchants.
Several organizations have been organizing the public and rallying against UIGEA; most prominent among them is the Poker Player’s Alliance, led by former New York Senator Alfonse D’Amato. Democratic U.S. Rep. Barney Frank of Massachusetts has also been at the forefront of the fight to legalize and regulate online gaming, pushing forth several bills meant to overthrow or limit the scope of UIGEA. While not a player himself, Frank believes this rule impinges on personal liberties and places an unnecessary burden on the banking system: “This midnight rulemaking will tie the hands of the new administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee.”
But in spite of the good will and great efforts of these lawmakers and organizations, the American Bank Association recommends immediate action to its members; as stated by Kenneally: “”It could be that things change. We don’t want to say ‘never.’ But I think banks need to be focusing on the Dec. 1 deadline, making sure they’re compliant with the law rather than hoping that a white knight will ride in and save the day.”
