It is no secret that one of the reasons people wanted a prepaid card was to use it to to gamble online. If they couldn’t get a credit card, they could use the prepaid’s 16-digit card number, expiration date, and security code, to place money bets with online casino and horse racing sites. As the U.S. Congress passed laws prohibiting such sites from operating in the United States, the sites themselves moved offshore. For the past few years the legality of online gambling has been something of a gray area.
The online gaming industry was thrown into turmoil when the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed by Congress in 2006. The law was meant to stop certain electronic financial transactions (ETFs) surrounding online gambling while encouraging foreign governments to cooperate with the U.S. in policing it.This law was passed on the coattails of ethics reforms and Homeland Security legislation. But at the last minute, certain enforcement measures were stripped from the bill that became law. A section in the law §5363 – Prohibition on Acceptance of Any Financial Instrument for Unlawful Internet Gambling states that “No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person, in unlawful Internet gambling – [credit, EFTs, checks, drafts, or the proceeds of any other form of financial transaction as set forth in federal regulation].”
U.S. citizens continue to gamble online, and gaming sites continued to operate.
Prepaid cards are popular with gamblers/gamers, because the sites can credit any winnings to these cards. The cards can then be taken to an ATM machine to convert the winnings to cash. Or the card can simply be used for purchases until the balance is drawn down.
In April 2007, Rep. Barney Frank filed an amendment to the UIGEA to attempt to regulate online gambling. He was able to suspend enforcement of the provisions, while clearer rules about online gambling were drafted into law. The suspension expired June 1, 2010, so the UIGEA is in full effect.
The law enforces steep penalties on financial institutions for allowing ‘illegal Internet gambling’ transactions to occur via electronic funds transfers. In response, prepaid card issuers are now monitoring cardholders accounts and preventing funds transfers–payments or winnings–from being transacted. For example, Netspend is informing its cardholders that it will not allow such payments to go through.
David Pratt writes about personal finance issues, including prepaid debit cards and specifically debit mastercards from his of