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Gambling online becoming a tougher bet to make

Before you go surfing around on the Web to ante up for some online gambling, be aware that using your credit card could very well cost you more than what you could loose. Some credit card companies have put the kibosh on cyber-casino transactions, not to mention taking a piece of the pot on transactions they do allow.

At least two of the country's major issuers are refusing customers who want to set up gambling accounts via the Internet. And their competitors, if not blocking accounts, are taking notes on what goes on between e-bettors and digital dealers.

This despite the fact that banks make substantial profits on gambling-related credit card activities, including high interest rates on the cash advances used to open accounts and extra charges for chips, lottery tickets and the like.

Banks bailing despite profits
Still, gambling online is such a legal hot potato that some banks are shedding the risks altogether, even though the profit potential is preposterously high.

"We do not authorize charges from Internet gaming establishments," says Marc Loewenthal, senior vice president of San Francisco-based Providian Financial Corp., which has 13 million card carriers. "That's not behavior we want to encourage. The bigger issue is whether this is responsible use of a credit card."

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Wachovia Bank is also busting up bingo games. Rather than ride along on dubious legalities, the Atlanta- and North Carolina-based Visa card issuer decided to quit granting customers credit lines for games of chance. The bank mailed notices last year to about 5.5 million card customers.

"The laws vary so widely from state to state that it's difficult to determine what is legal," says bank spokesman Jay Reed. "It is much simpler to decline the online gaming transactions."

Playing it cool
MasterCard and Visa, the franchise companies that set the rules for lenders who dispense their cards, are trying to cover their backsides with warnings to consumers, banks and playing parlors, although their logos are seen at hundreds of licensed Internet casinos around the world.

MasterCard requires gambling sites to tell prospective bettors to determine whether the activity is legal in their jurisdiction, and to keep a record of where customers are located. The company wants issuers to be notified of electronic wagering transactions and says they will be coded for identification. Visa is warning consumers that just because they see the Visa symbol blinking at the lottery in Liechtenstein doesn't mean it's legal for the bettors to participate from a PC in California.

Visa and MasterCard did not respond to questions about the implications of these Adviseries for consumers.

Customers who get burned by seedy offshore casinos or rack up big gambling debts on the Internet might find it harder to take advantage of consumer protections such as dollar limits on liability and the right to stop payments to a merchant, says Howard Strong, an attorney and author of What Every Credit Card User Needs to Know.

"I think you're taking a hell of a chance that a credit card company is going to tell you to drop dead and force you to get a lawyer to fight it," he says. "It doesn't mean they are right to do it. You're going to find it much tougher to get credit card companies to honor them, even if they are in effect. I think they are extremely concerned about this kind of stuff."

Laws and loopholes
The sturdiest legal leg against Internet gambling is arguably a shaky one. The federal Wire Communications Act prohibits interstate wagering over phone lines, but was written in 1961, long before the global e-village's tentacles began to spread. Nevertheless, it was threatening enough to send gaming entrepreneurs scurrying to the Caribbean, Costa Rica, Australia and Asia to run licensed businesses and avoid prosecution in the United States.

The Wire Act is also the backbone of several class-action lawsuits filed within the last couple of years on behalf of people who posted stakes online with credit cards and lost. Plaintiffs' attorneys argue that issuers who authorize the charges violate federal law, as well as state laws that deem gambling debts uncollectible.

Providian got stung three years ago by a sore loser from California. The woman sued the issuer, as well as MasterCard and Visa, after she gambled away $70,000 on plastic. Providian's Loewenthal said the casinos ate those charges. "We didn't forgive the debt because we weren't able to identify that that's what she was doing," he says.

But ever since, Providian has been compiling a database of gaming merchants' authorization codes, enabling the company to identify them and bar customer requests for gambling loans.

With the House of Representatives' rejection last year of the Internet Gambling Prohibition Act, these loopholes are intact -- which means consumers probably do not have to worry about being collared by the feds.

Even if Congress eventually bans the use of bank instruments such as credit cards for virtual wagering, or prohibits it altogether, the games will go on. Other e-payment methods such as smart cards and software to set up cyber borders are being developed to accommodate gamblers' thirst for chance.

"Right now, the politicians are looking for a pressure point," says Philip McGuigan, a Chicago attorney specializing in e-commerce. "It should be regulated and taxed, but it ain't going to be stopped."

But the real hazard of gambling for consumers is the cost. Ninety percent of online gaming accounts are opened with cash advances from credit cards. Banks typically charge interest rates of 20 percent or more for such loans and there is no grace period.

Furthermore, most issuers charge an extra 3 percent for casino chips, lottery tickets and other bets. That means if you open a $500 gambling account -- whether at a brick and mortar casino or a virtual one -- the bank tacks on $15.

As one cyber-gaming foe put it: "Internet gambling means you can lose your home without leaving it."

Libby Wells is a freelance writer based in Florida

-- Updated: June 4, 2001

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