Citibank Takes I-Gaming Ban Public

17 June 2002

Despite a blitz of mainstream media reports that Citibank will block its credit cards from being used for online gambling transactions, interactive gaming insiders say the announcement is nothing more than political grandstanding and a public relations ploy.

Payment transaction experts agreed Monday that a recent announcement from Citibank stating that it would now block Internet gambling transactions was not a significant change.

Citibank announced Friday that it made an agreement with the New York attorney general to decline authorization to Americans who try to use its credit cards for online gambling. The bank will also pay $400,000 to nonprofit groups that help families hurt by gambling addictions.

"I think it is a great P.R. move, and I think that is all it was. From a business standpoint, it doesn't mean a hill of beans."
-Stephen Fein

Stephen Fein, co-chairman of the Interactive Gaming Council's Credit Card Working Group, said gaming operators have known for more than two years that Citibank cards would be denied for approval if tried on their sites.

"There is really nothing new," he said. "There is nothing different in this statement from what they are already doing. From an operator's standpoint, nothing really will change."

The statement was released after company officials met with regulators and lawyers from New York, where Citibank is headquartered. Lawyers from Attorney General Eliot Spitzer's office informed Citibank that it could face criminal prosecution for aiding in the promotion of online gambling, which is illegal in the state.

While the announcement isn't anything new to industry insiders, it does mark the first time Citibank has publicly addressed online gambling. Citibank has more than 33 million Visa and MasterCard holders and is the nation's largest credit card issuer. It controls about 12 percent of the nation's credit card market.

Citibank isn't the first issuing bank to block gaming transactions: MBNA, Bank of America and Chase Manhattan Bank have taken similar stances. However, Citibank was the first company threatened with legal action for allowing its cards to be used for Internet gaming.

Other banks have balked at allowing their cards to be used for online gaming due to high numbers of charge backs and cardholders denying they used the cards for gambling.

Ken Dreifach, chief of the New York attorney general's Internet Bureau, told the Associated Press that the Citibank announcement came after the two sides met last year. He also said that other banks in the state could be targeted with similar threats.

"This is a signal," he said. "It's a shot across the bow to financial institutions that are supporting gambling and making profits off of the financial hardships of compulsive gamblers."

In its official statement, Citibank said the announcement was a result of more than the threat of legal action.

''Citibank agreed to take these steps to help alleviate concerns raised by the attorney general about the impact that gambling on credit may have on New York residents,'' said Citibank spokeswoman Maria Mendler. ''In addition, Internet gambling transactions have an increased potential for fraud loss, increased delinquency rates, and there is a greater potential that proceeds from such transactions may fund inappropriate activities.''

Spitzer said Friday that Citibank's agreement with him is expected to significantly reduce illegal, underage and potentially addictive Internet gambling.

''Americans now waste $4 billion a year on this pernicious form of gambling,'' Spitzer said. ''With this agreement, we will cut off an enormous line of credit that was a jackpot for illegal offshore casinos.''

Fein said the decision will have little to no impact on existing operators, since they have had to deal with this issue for the last two years. The same can't be said for Capitol Hill, though.

Lawmakers in Washington have been trying to ban Internet gambling since 1996, arguing that the money goes to questionable sources that are not bound by U.S. banking regulations. They also argue that gambling addicts run up massive credit card debts that they frequently default on paying.

Fein feels that showing U.S. lawmakers that the private sector is handling the situation in a manageable way is the best message to send those who are opposed to the activity. On the whole, Fein said, the statement from Citibank and Spitzer shouldn't send shock waves throughout the industry.

"I think it is a great P.R. move, and I think that is all it was," he said. "From a business standpoint, it doesn't mean a hill of beans."

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