Some Michigan Credit Unions and Banks Are Prohibiting Credit Card Deposits to Online Gambling Sites

  • Michigan Legacy Credit Union’s CEO says online gambling deposits come with too much risk
  • Comerica Bank has prohibited internet gambling deposits since Michigan launched its industry
  • It is easy for gamblers to pile up charges month after month to the point they can’t pay their bills
  • If account holders can’t pay their balances, the bank or credit union loses money
lock and chain around credit card and laptop
The CEO of Michigan Legacy Credit Union banned transactions to and from online gambling sites when she saw 1,200 transactions totaling $83,000 in just two weeks. [Image: Shutterstock.com]

Credit union CEO made the call

Though Michigan’s online gambling industry has gotten off to a tremendous start, customers of some banks and credit unions have had trouble getting in on the action. Recently, Michigan Legacy Credit Union decided to prohibit its members from making deposits on the state’s legal gambling sites.

According to Crain’s Detroit, the move came after CEO Carma Peters saw that 1% of her credit union’s 20,000 members had made over 1,200 online gambling transactions to the tune of nearly $83,000 within only two weeks of the state’s January 22 internet gaming launch date. Many of the credit union’s account holders are low income.

We just thought the potential risk was way too much, and it wasn’t worth it.”

“We just thought the potential risk was way too much, and it wasn’t worth it,” Peters said. “How many people are going to want to pay on a gambling debt?”

If a member starts running a negative balance on their credit card and can’t make the payments, the credit union has to eventually eat the loss. It’s a bad situation for both the member and the credit union.

“If you are the bank stuck with that debt, that’s not a positive risk assessment to jump into,” Patricia Herndon, executive vice president of government affairs for the Michigan Bankers Association, told Crain’s.

Comerica banned gambling transactions early on

It is not just credit unions putting a block on internet gambling transactions. Some big banks are putting the clamps down, as well. As soon as online gambling became legal in Michigan nearly two months ago, Comerica Bank warned its customers that they could have their accounts suspended if they tried to make gambling deposits.

Policies vary from bank to bank, so it does not sound like it is an absolute guarantee that there will be account consequences for trying to send money to an internet gaming or sports betting site, but other banks like Huntington Bank, JPMorgan Chase, and Capital One “may” stop such transactions.

The financial institutions may loosen their restrictions in the future as Michigan’s online gambling industry matures and the banks and credit unions understand the industry better. Even in early February, Comerica told the Detroit Free Press that it will “continue to monitor the federal and state legal and compliance framework surrounding internet gambling for guidance how to safely provide banking services in that area.”

Banks fear risk for themselves, customers

The primary reason why banks and credit unions would bar credit card transactions for online gambling is, as Carma Peters, mentioned, the risk of card holders running up gambling debt. For the customers, the obvious risk is month after month of putting gambling payments on their card, accruing interest liabilities, and falling into a hole from which they can’t dig out. On top of that, some banks consider gambling deposits to be cash advances, which usually carry very high fees and less flexible terms than regular charges.

they do not want customers who can’t pay

For the banks, while they naturally want customers to use their cards, they do not want customers who can’t pay. As was addressed earlier, the bank or credit union is eventually the one holding the bag if a card holder can’t pay their bills. Most, at least on a human level if not the faceless, corporate level, also don’t want to see their customers financially harmed.

Online gambling transactions tend to have a higher rate of chargebacks, as well.

Debit cards are a bit safer, as total charges can only go as high as one’s bank account balance will allow, overdrafts not withstanding. Gamblers can continue to accrue charges on their credit cards, regardless of how much money one has in the bank. But both methods can be abused, however, as the pain of spending money is not as easily felt when entering a card number online as it plunking down cash at a gaming table.

Players who cannot use credit or debit cards can often use an e-wallet, depending on the online gambling site. The account holder transfers money from their bank account to the e-wallet and then any transactions with the gambling site – deposit or withdrawal – are made with the e-wallet.