Comments End, Questions Linger

14 December 2007

Wednesday ended the public comment period for the proposed Unlawful Internet Gambling Enforcement Act regulations.

Looking back, the Federal Reserve Board and the Department of the Treasury on Oct. 1, 2007 jointly released a proposed rule to implement the UIGEA, which prohibits payment systems in the United States -- including credit cards, electronic funds transfers, and checks -- from processing transactions relating to Internet gambling.

The proposed regulations would require U.S. financial firms that participate in the aforementioned payment systems to have policies and procedures that are reasonably designed to prevent payments being made to gambling businesses in connection with unlawful Internet gambling. The proposed rule would provide examples of such policies and procedures. For purposes of the proposed rule, unlawful Internet gambling generally would cover the making of a bet or wager that involves use of the Internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is made.

During the public comment period, the agencies asked interested parties for specific guidance on the exemptions within the regulations. Such exemptions include certain payment systems like automated clearing house (ACH) systems; card systems (including credit, debit, and pre-paid cards or stored value products); check collection systems; money transmitting businesses; and wire transfer systems. The agencies have identified these five as exemptions because the operators of these systems have no adequate and/or practical means of enforcing the ban.

The document states: "The agencies are proposing to exempt all participants in the ACH systems, check collection systems, and wire transfer systems, except for the participant that possesses the customer relationship with the Internet gambling business (and certain participants that receive certain cross-border transactions from, or send certain such transactions to, foreign payment service providers, as discussed further below). The exemptions for these participants reflect the fact that these systems currently do not enable the exempted."

The agencies received 126 comments by the close of the comment period. The following is a small sample of what was said by various interest groups.

United States Chamber of Commerce

The Chamber writes specifically regarding the Paperwork Reduction Act (PRA) since the Chamber has been a strong supporter of the PRA from its inception.

With respect to the PRA, the Chamber understands that the Center for Regulatory Effectiveness (CRE) has formally raised concerns to OMB regarding the Treasury Department's (Department) compliance with their legal responsibilities to a proposed collection of information. The concerns expressed by CRE include an assertion that the Department did not provide OMB with the statutorily required "specific, objectively supported estimate of burden" as part of their proposed information collection.

Among the specific authorities provided by the PRA to the Director of OMB are those contained in ยง 3504 which states that "the Director shall- (1) review and approve proposed agency collections of information." OMB has sole authority for approving, or not approving, a proposed collection of information, it is essential that you closely review the Department's Information Collection Request before discharging your statutory authority in this matter.

Compass Bank

Compass believes that the Proposed Regulation suffers from two fundamental issues that will cause the regulation to fall short of its goal of prohibiting transactions in connection with unlawful Internet gambling. First, we believe that the Proposed Regulation fails because it does not define the term "restricted transaction." Second, we believe the Proposed Regulation fails because it requires a specific kind of functionality within the payment systems that simply does not exist. While the first issue may be resolved by revisions to the Proposed Regulation, given the methods and manners in which the payment systems operate, it is unlikely that the second issue can be resolved in the foreseeable future.

Electronic Check Clearing House Organization

As a check clearing house for image exchange, ECCHO supports this exception from the requirements of the regulation, as set forth in the Proposed Rule. ECCHO also supports the definition of check clearing house as set forth in the Proposed Rule. Check clearing houses provide a range of functions for their member financial institutions including, among others, rules coverage, informational reports to assist members with exchanges, physical locations for check exchanges, electronic information exchange, and settlement; although not every check clearing house performs each of these functions. These activities do not provide the check clearing house with information regarding the customers of the financial institutions or the nature of the underlying transactions to which the checks relate. Accordingly, a check clearing house could not establish or implement policies or procedures reasonably designed to prevent or prohibit restricted transactions. As such, the exception in the Proposed Rule for check clearing houses is appropriate.

The State Department Federal Credit Union

The proposed rule currently exempts Originating Depository Financial Institutions (ODFI) from implementing policies and procedures that would require credit unions to identify Internet gambling transactions and businesses. We support this exemption because it minimizes the overall impact of the Act on SDFCU and other credit unions. Nonetheless, we are concerned that this requirement could have an adverse impact on Automated Clearing House (ACH) and other automated payment systems, which would indirectly impact all financial institutions by adding inefficiencies to the automated payment process. Additionally, SDFCU believes that there should be no future requirements placed on ODFIs because of the limited value and huge regulatory burden that would be created.

North American Association of State & Provincial Lotteries

In directing the Agencies to prescribe regulations designed to "block or otherwise prevent or prohibit restricted transactions" Congress required that any regulations "ensure that transactions in connection with any activity excluded from the definition of unlawful internet gambling ... are not blocked or otherwise prevented or prohibited by the prescribed regulations." 31 U.S.C. 5364 (b) (4) (citations omitted). Contrary to this provision of the Act, the proposed regulations fail to ensure that excluded transactions are not blocked.

Click here to view all 126 responses.

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