Credit gambling problems can stem from violating card merchant agreements
Pub Date: 5/1/2008
Analysis
By Cole Boehler
From the beginning of the state's regulation of gambling in 1989, allowing gambling patrons to play on credit has been an explicit violation of Montana law. It is a crime that has been prosecuted by county attorneys and dealt with administratively by the state's Gambling Control Division (GCD) of the Department of Justice.
It is also not a common practice but is one that gaming business owners and their associations want stopped.
Recently a spate of cases were publicized in the daily media. The Montana Tavern Times asked GCD chief Gene Huntington if the cases brought attention because more abuse of the law was occurring or because enforcement had been stepped up.
Huntington says neither'; that the Division only acts on complaints from gamblers and their families usually when a troublesome credit card bill lands in mailboxes and hasn't been ferreting out more cases through increased audits. Instead, more complaints are coming through Division channels, he says.
Abuse of credit card merchant agreements or any other violation of the credit gambling statute are condemned by gaming businesses and their associations, say Mark Staples, Montana Tavern Association government affairs counsel, and Neil Peterson, executive director of the Gaming Industry Association.
Staples says, "There is no excuse for committing a fraud" in violating card merchant agreements. But he said he also understands some operators are simply trying to provide convenient service and be responsive to customer requests.
And things can get a bit murky when the state law explicitly allows cash advances from credit cards to be used for gambling. The trouble lies, Staples notes, in the fine print of merchant agreements between credit card issuers and credit card acceptors. Some may allow the cash advances while others do not.
Nevertheless "there is a clear public policy prohibiting credit gambling, and if you give cash back from a credit card charge and it goes straight into a gambling expenditure, it can be construed as credit gambling," Staples says. "The sensible thing is for licensees to just tell customers that they can't take credit cards for that.
"If the credit card and merchant agreement explicitly allow for cash advances, that's a different story," Staples continued. "But barring such an agreement, clearly (a licensee) ought to say, Sorry, I can't take a credit card for cash for gambling. "
GIA's Peterson agrees.
"Credit gambling is clearly against the law and is clearly spelled out'; there is no place for that. If you violate the merchant agreement, you will be out the merchandise and the cash and face administrative and criminal charges and penalties'; even the loss of your license and income.
"If education doesn't work, then authorities will prosecute. There is some ignorance (in the business) but that isn't an excuse. Those who do it willfully, get them out of the business'; there's no place for them."
Montana statute 23-5-157 says gambling must occur on a cash basis.
"(1) (a) In every gambling activity...the consideration paid for the chance to play must be made in cash. A check or credit card may be used to obtain cash to participate in a gambling activity. A participant shall present the cash needed to play the game as the game is being played.
"If a check or credit card is used to obtain cash on the premises of a licensee then it must be delivered and accepted unconditionally. A licensee or employee of a licensee may not hold a check or other evidence of indebtedness for redemption pending the outcome of a gambling activity.
"(b) Credit gambling is prohibited. Credit gambling is offering or accepting as part of the price of participation in a gambling activity or as payment of a debt incurred in a gambling activity:
"(i) a check or credit card held pending the outcome of a gambling activity';
"(ii) a loan of any kind at any time from or on behalf of a licensee';
"(iii) any form of deferred payment, including a note, IOU, post-dated check, hold check, or other evidence of indebtedness'; or
"(iv) a check issued or delivered that is accepted by the licensee with the knowledge that it will not be paid by the depository."
Clearly, outright loans or "hold checks" accepted for gambling are unlawful. But less clearly dealt with are credit card cash advances and cash back from credit card purchases that is used for gambling.
Huntington acknowledges that as monetary instruments and the technology associated with them change, new grey areas in gambling conduct come to light.
Thus last year the GCD wrote new rules to further cinch down the definitions of credit gambling. The rules clarified that cash received by a cardholder for credit card transaction must be explicitly covered under the "merchant agreement" which defines terms of the use of the card between the card issuer, the card user and the card acceptor.
What has improperly happened in past cases, Huntington says, is card holders may have purchased merchandise such as a meal, then asked a casino owner or attendant to post a charge in excess of the value of the merchandise, then return change to the card holder who may then have used the proceeds to gamble.
While the use of a credit card to obtain a cash advance for gambling is proper provided it is allowed under the merchant agreement, posting inflated charges or purely cash advances disguised as merchandise purchases, then returning cash to the card holder for gambling is not.
That is a violation of the "merchant agreement" which is now construed by the division as a violation of the credit gambling statute. That legal theory or construction has not been contested yet.
Instead, those licensees who have been charged and felony charges are possible have paid a fine, paid for the costs of the investigation, accepted a probationary status for their license, have agreed to not pursue the card holder to make good on the charges, and are out the amount posted to the charge accounts in violation of the merchant agreement. In addition, they have agreed to random spot checks of their accounting and credit card transactions, Huntington says.
A felony criminal conviction for credit gambling can carry a 10-year prison sentence and $50,000 fine for each count, Huntington says.
And consider, operators will also pay on these losses indirectly the 15 percent tax on machine gross revenues with no expected help from a machine vendor. It is easy to see this practice and violation can quickly amount to a large hit that can be especially burdensome to the small operator.
So why don't card holders simply use the provisions to obtain cash advances to gamble with?
Because the player may not want others in the household to spot and recognize the cash advances for what they are: gambling play. But as likely, Huntington says, is because the cost of cash advances the fees and associated interest rate are substantially higher than for merchandise charges. And in some cases, more limited credit cards simply have no provisions for cash advances.
Unfortunately, the credit card abuses often indicate a compulsive gambling problem, Huntington says. And the operator has a legal and moral obligation to not abet the problem behavior.
"It is a classic symptom of chasing losses," he says. Limiting the resources available to play, but especially the means to borrow resources, is one of the keys to reducing gambling problems, he says.
Both Peterson and Staples acknowledge that gambling with credit is often associated with compulsive gambling behavior. Both urge operators to be more vigilant to the signs of gambling compulsions and to not abet the problem.
"We have to be more pro-active in heading (gambling problems) off," says Peterson. With heightened awareness, "operators can help problem players. We can, and have, played a role" in arresting problem behavior or directing customers with problems toward help.
Huntington said the Gaming Advisory Council, with help and input from the gaming business community, formulated and implemented the new rules in an attempt to stop the abuses.
Numerous information pieces have been developed and distributed to operators to help them educate their employees including brochures direct mailed and distributed through the Montana Tavern Times in addition to numerous personal columns by Huntington and news reports carried by the Times.
Huntington allowed that some licensees and their staff may simply forget about the prohibitions in the law and rules, or may not know of them since turnover in gaming licensees and location employees is so high. It doesn't really matter though, as those in the business are obligated to know and abide by the law, he says.
It does matter, however, Huntington says, in how the division settles the case. If it can be demonstrated that the credit card misuse was a matter of ignorance or even neglect, that might make things go easier than on a licensee who willfully, with full knowledge and intent, abused the system.
There have been 22 complaints in the past 12 months that have resulted in investigations, Huntington notes, but 40-50 complaints have been lodged, leaving some 20-plus complaints that were withdrawn. Huntington speculated those withdrawn represent people who have found some other resolution or are avoiding publicity.
And somewhat encouragingly Huntington reports there have been no cases of second violations. Should the division encounter one, he warns, license suspension would certainly be put on the table and examined.
"Our system in Montana," Huntington says, "is based on limited gambling. This is where the system can leak. We don't want people losing their livelihoods or all their assets. That threatens people but also the (gaming) industry."
Huntington says, "We appreciate the support of the Montana Tavern Association and Gaming Industry Association. With these new permutations of financial instruments, we can use the help of the industry and their technical knowledge. This is a complex new area. Businesses want a clean industry and have been supportive.
Source: The Montana Tavern Times, May, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.