Michigan Legacy calls timeout on sports betting

As legal sports betting gains ground in several states, one Michigan credit union is calling a timeout.

Michigan Legacy Credit Union in Wyandotte, Mich., announced last month that all member transactions to legal gambling and betting websites would be blocked.

“We were watching alarming increases in trends and the potential for losses,” said Carma Peters, the credit union's CEO. While Michigan Legacy had not seen substantial individual losses among members, the decision was made as a proactive measure.

Sports betting was legalized in Michigan in late 2019.

Online gaming is legal in roughly half of all states and several of the nation’s largest banks already block transactions on betting sites using their debit or credit cards out of a concern that they could unwittingly be aiding in illegal activities.

The decision to bar Michigan Legacy members from using their cards on these sites was more nuanced than just a risk assessment, said Peters, noting that one issue is the fact that gaming sites aren’t subject to the same sort of regulations as financial institutions.

“It was just not worth the reputation risk or potential losses,” she said. “Should the financial institutions allow gambling on credit cards, the potential for bankruptcies from nonpayment of gambling debts is too risky.” One report said in the span of five weeks, 187 Michigan Legacy members made more than 1,200 transactions at online gaming sites totaling nearly $83,000.

Members can still use their Michigan Legacy plastic at casino ATMs, but a press release from the credit union said “home/mobile access to online better is already showing signs of quickly surpassing physical casinos when it comes to spending beyond one’s limits.” Casino ATMs often limit cash withdrawals to a specific daily amount, the credit union added, but online betting sites will allow users to take their accounts negative, and if a consumer can’t repay those balances then it falls to the credit union to charge off the account and take it as a loss.

“These potential losses” far outweigh “the minimal interchange income per transaction,” Peters said.

Other credit unions in the state are closely watching how consumer behaviors around online gaming develop. According to a report from the Michigan Credit Union League, many institutions are monitoring member transactions on those sites but haven’t yet elected to follow Michigan Legacy’s lead.

There is some evidence the pandemic has given online betting a boost.

Steven Reider, president of the consulting firm Bancography, noted that lockdowns, social distancing orders and other factors may have contributed to a surge, given “Lots of idle time for work-at-home or laid off employees, extra cash on hand from stimulus and enhanced unemployment benefits, and no oversight or auditing of your computer activity when you’re working at home,” he said. “I would speculate that those same factors fueled a rise in online gambling, first in casino games and then in sports as that reopened.”

However, the issue isn’t new. Financial services firms have been discussing the impact of online gambling for years, and as more states move to legalize it, those conversations — and the potential for actions like that of Michigan Legacy — are likely to grow more frequent.

Already this year, Comerica Bank has notified customers that it is blocking the use of debit cards on betting sites and that those attempts to use the bank’s cards for online gaming could result in debit cards or online banking being disabled.

Other financial institutions could take similar action as online gambling is legalized in more states and the number of consumers taking part rises. And there’s a possibility credit unions could be at the forefront of that.

The industry has historically emphasized thrift and making responsible banking decisions, and Reider suggested limiting access to online better was akin to “a parental-type instinct to intervene for the good of their members.”