Consultation on gambling with credit cards points to a change in the status quo

The Gambling Commission has today launched a twelve-week consultation (ending on 6 November 2019) on gambling with credit cards, applicable to both remote and non-remote gambling.

It seems clear that the status quo will not be maintained in future because the Commission is consulting specifically on just two separate options, i.e. either:

Option A – prohibiting the use of credit cards for all forms of remote gambling (ie for remote betting, casino, bingo and lotteries) and for non-remote betting, or

Option B – introducing controls and limits on the use of credit cards, to be applied to all forms of remote gambling and non-remote betting, instead of a prohibition.

This follows its announcement (on 24 July 2019) of a forthcoming such consultation, on which we reported previously here.

David Clifton delved deeper into that announcement in his most recent Licensing Expert article for SBC News, entitled “Pondering the plastic”.

The Commission has today stated as follows on its website:

We are consulting the public and all other stakeholders on the options of either banning the use of credit cards for gambling or introducing limits and restrictions on the use of credit cards. The Commission will then take the most appropriate course of action in view of any evidence obtained by this consultation, alongside data already submitted.

The recent call for evidence provided several key interest points, including issues surrounding alternative forms of borrowing, e-wallets, and consumers’ motivations for using credit cards to gamble.

The proposals concern all sectors of the gambling industry that are currently permitted to accept credit card payments, including online betting, casino, bingo and lottery operators, along with high street bookmakers.

Alongside its consultation, the Commission has published a Summary of Responses that it received to its Call for Evidence on Gambling Online with Credit Cards that was conducted between February and May 2019. That reveals that, amongst other things:

  1. 110 responses to the call for evidence had been received from a range of stakeholders, including members of the public, debt relief charities, gambling operators, financial services and some individuals who considered that they had suffered significant financial harm from using credit cards to fund their gambling.
  2. Most members of the public were in favour of a ban and many of those respondents held the view that the benefits of banning credit cards would outweigh the risks of gamblers using other forms of borrowing in lieu of credit cards.
  3. A number of individuals responded who had each incurred between £10,000 and £40,000 debt on credit cards exclusively from gambling. They were very strongly in favour of a ban, notwithstanding the risks of people using other forms of borrowing in lieu of credit cards.
  4. Two faith groups, a number of debt-relief charities and an academic favoured a ban.
  5. What the Commission describes as “a handful of non-remote operators” responded, arguing that there should be equivalent restrictions on credit cards for remote gambling as there are already for non-remote gambling.
  6. Some charities and third sector organisations were broadly supportive of action being taken on credit card gambling but cautioned that any action must form part of wider measures to mitigate the risks of gambling on all forms of credit.
  7. One society lottery sought assurance that any intervention on credit cards would not apply to societies that only provide draw-based lotteries with no instant win products.

In terms of opposition to a ban on credit cards, most remote gambling operators and financial services who responded argued against any approach that would prohibit the use of credit cards for gambling. In general, respondents from these commercial sectors suggested the following pitfalls of a credit card ban would make any such an approach ineffective:

  1. customers would use other forms of borrowing in lieu of credit cards, but gambling operators do not have visibility of the source of a transaction that emanates from an overdraft or a loan
  2. as such, a ban would mean that operators would lose a risk indicator or ‘marker of harm’ (i.e. credit card use) that they could otherwise use in their customer interaction algorithms
  3. operators would also have less visibility over the source of funds (i.e. a ban on credit cards would be detrimental to their AML checks)
  4. prohibition could mean operators need to risk-assess funding by more intrusive means such as obtaining bank or e-wallet statements from all members of the public to confirm their (non-credit) payment method funding. This could be particularly disproportionate for infrequent and casual gamblers
  5. other forms of borrowing could be costlier e.g. the overall amount repayable from a payday loan could be greater than that for a credit card
  6. e-wallets present an opportunity for customers to circumvent any ban, because operators do not have visibility of whether an e-wallet transaction emanates from a debit or credit card (or any other means of payment that the wallet permits)
  7. customers might also migrate to the use of cryptocurrency through e-wallets, in lieu of credit cards, meaning source of funds risks are higher
  8. a ban could be circumvented by using a credit card to withdraw cash from a cash point
  9. one operator advised that they cannot distinguish credit cards from debit cards and only their processing bank can do so.

They also argued that, aside from the risks of a prohibition being ineffective, such a move would be inappropriate because not all of those who use a credit card for gambling are at risk of harm

Some noted that the risks of members of the public using illegal money lending may be overstated, as there is a wide availability of other legitimate sources of borrowing. There was a view expressed that further analysis is required to quantify the risk in this area and that it wouldn’t be practical to impose a prohibition whilst the unintended consequences are still uncertain.

In addition, a small number of respondents (mainly members of the public and a couple of smaller remote operators) suggested that there should be no regulatory intervention at all in respect of gambling with credit cards. They argued that:

  1. the existence of potentially higher cost forms of borrowing is a reason to retain credit cards as a ‘least worst’ form of borrowing to fund gambling
  2. it should be the responsibility of lenders (i.e. banks and card issuers) to conduct more stringent affordability checks on what their customers could repay, thereby making access to credit more difficult, rather than a policy intervention at the gambling (merchant) level
  3. it should be the responsibility of the customer to manage their own levels of borrowing once they have been granted a credit card
  4. there are risks of overseas customers being unable to access other payment methods to finance their gambling
  5. credit cards provide a benefit to customers who wish to mask their gambling transactions when applying for a mortgage (i.e. itemised gambling transactions on a current account statement, which a mortgage lender will typically ask for, might affect the applicant’s chance of a successful mortgage application; but mortgage lenders would not routinely ask to see itemised credit card statements).

In terms of alternative measures to limit harm from gambling with credit cards, the most common suggestions for limiting or restricting credit card use, predominantly made by gambling operators, were:

  1. limiting customers to only one active credit card per gambling account at any one time
  2. providing cooling-off periods i.e. credit card deposits could not be used for staking until a period of time had elapsed after the transaction
  3. no acceptance of sub-prime or credit-building cards which are issued to customers whose credit rating is weak and who are trying to build up their rating through management of a credit card account
  4. providing customers with warning messages about the charges that might be levied by their card issuer.

Other suggestions included:

  1. facilities to allow customers to set limits on their credit card spend e.g. weekly or monthly limits, and limits on deposit size and frequency. There could also be mandatory limits set by operators, including for example preventing the use of a credit card during weekend early hours
  2. reality checks to warn customers of their cumulative credit card spend
  3. promoting the use of banks’ transaction blocking facilities (i.e. those produced by Monzo, Starling and Barclays and being followed up by other banks)
  4. affordability checks conducted by gambling operators on their customers, with the registration of a credit card on the gambling account being a heightened risk indicator.

Non-commercial organisations such as faith groups and third sector bodies suggested more far-reaching controls such as:

  1. a six-month block before a newly registered customer can use a credit card
  2. block under 30’s from using a credit card
  3. a national public health campaign on the risks of gambling with borrowed money
  4. a credit card customer must be required to opt-in to use their card for gambling; the opt-in process could involve the customer contacting their card issuer to make a specific request to use the card for gambling, with an ability to set limits on gambling transactions via their card issuer.

Arising from the above responses, the Gambling Commission describes its current position as follows:

We are persuaded that there are risks of harm associated with using credit cards for online gambling and that we need to act to protect consumers. We are therefore now consulting specifically on two separate options of either banning or restricting the use of credit cards for all forms of remote gambling ie betting, gaming and lotteries.

We would like to obtain further evidence about consumers’ motivations for using credit cards to gamble, and any specific benefits of using them. The call for evidence uncovered very little in this regard, but we must take account of the extent of any impact that a ban or restrictions may represent for gamblers who are not experiencing harm.

Credit cards provide a convenient means of borrowing money to fund gambling and can facilitate high levels of gambling debt eg through maximising credit limits across multiple cards. We propose to introduce measures that will be effective in reducing gambling harms associated with the use of credit cards.The preferred option for most who responded to the call for evidence was to prohibit gambling onlinewith credit cards in order to achieve this aim. We will take the most appropriate course of action in view of any further evidence obtained during this consultation, alongside the data already submitted.

However, we also acknowledge that there could be unintended consequences if any action on credit cards is taken in isolation. We are concerned that consumers experiencing harm might use other forms of borrowing, such as overdrafts and loans, to fund their gambling in lieu of credit cards. This means that the risks might simply displace to other lending products and that some consumers will continue to experience harm. It is therefore essential that, alongside any action we take, the financial and gambling sectorswork to introduceprotections for their customers to mitigate the risks of harm from gambling with other forms of borrowed money.

We note from responses to the call for evidence that where online gambling deposits are made through some e-wallets, the operator has no means of knowing which method the payment originated from (eg whether it emanated from a debit card, a credit card or a separate balance within the wallet). Unless this current lack of transparency is addressed, a prohibition or a restriction on gambling online with credit cards could be easily circumvented by making a credit card deposit into an e-wallet instead of a direct payment to the gambling operator. We will therefore need to prevent gambling operators from accepting any payments via e-wallets unless e-wallet providers can prevent credit cards being used for online gambling through their facilities. Or, in the case of regulatory measures short of a ban, we would need to ensure that any limits or controls on gambling with credit cards can be equally applied to the use of credit cards through e-wallets. We will be writing to e-wallet providers at the start of the consultation and we encourage them to consider, and provide details of, the solutions they can deliver to facilitate any regulatory change.

We will carefully plan our approach to evaluating the impact of any regulatory change on credit card-funded gambling. We would expect an evaluation to include, for example, an assessment of how successfully the intervention has reduced the risks of harm to consumers while also minimising the impact on those not experiencing harm. We will be prepared to alter or reverse our regulatory intervention if evaluation reveals that the intervention has contributed to adverse or disproportionate unintended consequences.

We are also consulting on whether prohibition or additional controls should extend to the use of credit cards for non-remote betting. Currently, non-remote betting and remote gambling operators can accept payment by credit card where that payment is made into a customer account. The use of credit cards in all other types of gambling premises is already restricted by the regulatory framework, and a prohibition on the use of credit cards for online gambling would otherwise leave the non-remote betting sector as an anomaly. Given the risks associated with the use of credit cards, we propose that any measures introduced for remote gambling should also apply to non-remote betting.

We anticipate that we would give effect to a prohibition or restriction on gambling with credit cards through changes to LCCP, and we are therefore also consulting on specific draft conditions and codes that would deliver these measures.

We propose that any changes to LCCP arising from this consultation would take effect in April 2020, subject to reviewing evidence put forward in relation to the lead-in times that gambling operators and payment processors will require to make systemic or technological changes necessary to either prevent or control the use of credit cards.

The Commission’s proposals are outlined in more detail in its consultation paper which can be downloaded below, together with:

  • its Summary of Responses to its earlier Call for Evidence and
  • the proposed LCCP changes that would occur were either Option A or Option B (described above) to be adopted.

So what is likely to be “the most appropriate course of action”?  It seems clear from the two sole options posed in the consultation that the status quo will not be maintained in the future. Although we have to date aligned our thinking with many others who are anticipating the imposition of an outright ban (i.e. Option A), the answer may still depend on the force of respective arguments advanced in response to the current consultation so, if you have strong views yourself, you should ensure that you respond no later than 6 November 2019, using the online response form accessible here.

UPDATE: The Gambling Commission has now recorded a podcast on gambling with credit cards. You can give your views on this subject here.