Between February and May 2019 the Gambling Commission conducted a call for evidence on gambling with credit cards. The responses and data received have persuaded the Commission that there are risks of harm associated with using credit cards for online gambling and action needs to be taken to protect consumers. The Commission is therefore consulting on potential changes to the Licence Conditions and Codes of Practice (LCCP) designed to tackle these issues.
These changes are likely to have a significant operational impact, requiring operators to adjust their business risk assessments, relevant policies and procedures and terms and conditions. The changes are also likely to impact on contractual relationships with third parties. We urge all licensees to start planning accordingly.
Credit card proposals
The Commission's key objective in making regulatory changes with respect to the use of credit cards is to reduce the risk of vulnerable consumers experiencing gambling-related harms. At the same time, in delivering that objective, there is a need to minimise any adverse impact on gamblers who are not experiencing harm. The Commission is therefore consulting on two separate options: either prohibiting the use of credit cards for online gambling, or, alternatively, restricting or limiting their use through a range of measures to mitigate harm.
Among the benefits of an outright ban identified by the Commission are the fact that consumers would no longer be exposed to cash advance fees and higher interest rates that are incurred for gambling transactions. The "relatively frictionless deposit journey" of credit card use would also be interrupted.
The Commission acknowledges, however, that if gamblers used overdrafts or loans instead, they could be exposed to interest rates or fees similar to or higher than those accrued through credit cards. Alternatives to an outright ban include limiting customers to one active credit card, providing cooling-off periods, banning sub-prime (credit-building) credit cards and providing customers with warning messages about credit card charges. These restrictions all present their own challenges.
Potential knock on effect on e-wallets
Currently, customers can make payments to gambling operators through e-wallets using a debit card stored in the wallet, a credit card stored in the wallet or from a separate balance acting as an independent pot of funds within the wallet. In any case, the operator does not know what payment instrument has been used to execute the transaction.
In the Commission's view, "[t]his lack of transparency is crucial", in that it presents a key challenge to the effectiveness of any regulation of gambling with credit cards. Therefore, if the Commission decides to ban credit card use outright, operators would not be able to accept any type of e-wallet payment unless individual e-wallet providers could demonstrably prevent the use of credit cards for online gambling through their wallets.
If, on the other hand, restrictions short of a ban are imposed, e-wallet providers would need to provide operators with transparency as to the source of transactions and enable any harm mitigation measures to be applied to credit cards used through their e-wallets. The Commission notes that if it were not possible to implement the same measures for credit cards used through e-wallets, it would have to prevent gambling operators accepting payment by credit card through an e-wallet.
Other forms of borrowed funds: financial services and operators must work together
Mindful of the potential unintended consequences of taking action in relation to credit cards alone, the Commission is concerned that consumers experiencing harm might use products such as overdrafts and loans to fund their gambling in lieu of credit cards if credit cards are prohibited. The Commission therefore expects financial services to take the lead, and where possible, to work with gambling operators to develop tools and approaches that can help to mitigate the risks of harm from forms of borrowing of which operators have limited visibility.
The Commission also encourages gambling operators to work with financial services to explore what measures can be introduced to better identify customers who might be gambling with borrowed funds (and therefore struggling to afford their gambling spend) and to mitigate the risks of harm to which they are exposed. The Commission identifies the credit card issue as a subset of the wider work needed to ensure customers can afford their gambling spend, referring to the discussion in the Commission's enforcement report (see our June 2019 briefing) of gambling related harm and unaffordable loans.
The Commission's consultation ends on 6 November 2019 and it is proposed that any changes to the LCCP arising from the consultation will take effect in April 2020.
If you have any questions on the consultation, please do not hesitate to contact a member of the Betting and Gaming team.