Some Michigan banks, credit unions cut off access to accounts for online gambling

In less than two months since the Jan. 22 launch in the state, Peters said 187 members made more than 1,200 transactions with online betting sites totaling $82,715.

That’s just about 1 percent of the credit union’s 20,000 members, many of whom are in the low-income bracket. Peters quickly sensed the risks it posed for members and her business.

“They’re not calling their gaming apps; they’re calling us,” Peters said, adding that gaming merchants are not implementing spending floor limits. “From a reputation standpoint, this is not good for us. While we didn’t do it, they’re calling us, and they’re angry.”

So, effective March 2, the credit union cut off services for online betting, including legal sites. Of course, that’s several weeks after the betting bonanza of Super Bowl LV, but shortly before another massive gambling event, the NCAA March Madness — or, as the credit union put it in a news release, “March Sadness?”.

“This could truly create a financial disaster for members,” Peters said. “We just thought the potential risk was way too much, and it wasn’t worth it. How many people are going to want to pay on a gambling debt?”

If the member does not have the ability to repay their negative balance, the credit union must then charge off the balance and take it as a loss.

Other institutions in Michigan also are not willing to take that bet. From the onset of legal online gaming, Comerica Bank notified customers trying to use credit and debit cards or accounts to gamble that “attempting to use these sites” may result in accounts being temporarily disabled.

“We generally do not comment on our internal policies, but yes, the notice is correct,” Matt Barnhart, Comerica’s vice president of corporate communications, Michigan Market, said in a recent email to Crain’s. “Nevertheless, like most banks, we will continue to monitor the federal and state legal and compliance framework surrounding internet gambling for guidance how to safely provide banking services in that area.”

Other large banks blocking online gaming in Michigan and elsewhere include JPMorgan Chase, Huntington Bank and Capital One, while several of the large credit card issuers have followed suit.

Patricia Herndon, executive vice president of government affairs for the Michigan Bankers Association, said it is probably not prudent for a bank to make credit available for online betting.

“If you are the bank stuck with that debt, that’s not a positive risk assessment to jump into,” she said.

In addition to the risk of writing off gambling debts, banks do not want to run afoul of federal law. While there is no blanket law in the U.S. prohibiting online gambling, there are laws that forbid certain types of it, such as gambling that crosses state lines. However, different states have different laws, which has further complicated the issue and compelled banks to stay away for now.

The issue is not unlike that of banking marijuana money, a practice big banks have avoided due to pot’s federal categorization. Still, some smaller institutions in Michigan have welcomed marijuana merchants and grown very quickly because of it.

Similar to the marijuana industry, online betting operators are hopeful banks will change their tune when legalization becomes more widespread, but the largest institutions have shown no sign of changing policies, according to an American Banker report.

Peters said her credit union could reverse its policy toward online gambling, but she thinks the move benefits both the business and customers.

“It makes me question the amount of marketing” by the online gaming companies, she said. “It’s an early onset to get people hooked. They’re plugging that card into these apps, and they’re playing, and they’re playing and they’re playing.”