Worth the Wager? How Michigan Credit Unions are Handling Recent Legalization of Online Gambling

Three Michigan credit unions speak to the hobby’s rise and how it affects financial institutions.

Online gambling, which Gov. Whitmer legalized in late 2019 and began this January, is rising. The newly available hobby hit $89.2 million last month, according to the Michigan Gambling Control Board, with $9.5 million of that coming from sports betting.

“Michigan residents and visitors continued to show strong interest in internet gaming and sports betting during a snowy and cold February,” said Michigan Gaming Control Board Executive Director Richard S. Kalm in a press release. “The internet gaming taxes more than tripled, but that’s what we expected with a full month of gaming. This means more funding for the City of Detroit, K-12 education, economic development and tribal communities.”

The operators delivered approximately $14.1 million in taxes and payments to the State of Michigan for February.

But is it all good news for the financial institutions impacted by the use of credit and debit cards to process gambling payments?

Just weeks after online sports betting opened in Michigan, Michigan Legacy Credit Union President/CEO Carma Peters denied access to the credit union’s credit and debit cards for all online gambling websites.

“We are already seeing our members racking up debts through these online betting platforms that they can’t afford to pay back,” Peters told CU Times. “We are not making a judgment on gambling or online betting; as a member-owned credit union, we simply can’t afford the write-offs from our institution’s credit and debit cards.”

One of the primary problems, according to Peters, is that these sites allow debit and credit card users to go negative, and if they don’t have the ability to repay that negative balance, the credit union must then charge off the balance and take it as a loss.

During the five-week period between the opening of online gambling in Michigan and Michigan Legacy’s decision to close access, Peters reported 187 members made 1,211 gambling transactions that totaled $82,715. The average bet was $203 and the average number of times that bet was made was 15. That means the average gambling debt amounted to $3,045.

So far, Michigan Legacy is the only Michigan credit union to deny card access to online gambling sites (although Comerica did the same).

The Michigan Credit Union League (MCUL) asked a few other Michigan credit unions how they feel about this rising hobby and how it may affect credit union operations and members.

Burton-based ELGA Credit Union reported millions of dollars being spent on gambling since the law went into effect — more than $1.1 million through 17,000 transactions in the first two months.

“The transactions are taking some members deep into the negative,” said ELGA CEO Karen Church. “I am very concerned, as this easy gambling access can be destructive for people with addictive behaviors. I don’t see anything good coming out of this for most people.”

Expounding on card charges into the negative and how they affect credit unions, Church said it creates much more work as they have to review reports, contact the members and take calls from members disputing transactions.

To date, the credit union has disputed nearly $13,000, or 123 transactions. 

“I’m concerned about increased losses credit unions will experience when members can’t cover overdrawn balances or payments on their credit cards. I’m sure bankruptcies will increase as time goes on, as well,” continued Church. “Gambling has been made too easy; credit union members may use money that should be used to pay their monthly expenses or borrow money that they can’t afford to pay back. The financial impact will be devastating for some members. We can see the potential issues through their account activity, but feel powerless to assist them before it gets out of control.”

Despite concern, ELGA does not currently have plans to close access to cards for gambling sites, but is monitoring the situation closely and is in favor of legislation that favors financial institutions rather than casinos regarding dispute coverages.

MSU Federal Credit Union (MSUFCU) in East Lansing has reported only 150 transactions for just $17,500 since online gambling was legalized in the state.

When asked how the credit union feels about consumers’ ability to place bets with debt and credit cards, MSUFCU Chief Marketing Officer Deidre Davis said, “As a financial institution, we look for opportunities to educate and assist our members to be financially successful. If a member’s account is mismanaged due to any potential number of reasons, we will take appropriate steps to assist our members. As part of our standard practices, in an effort to assist our members, we monitor member accounts for negative balances and abusive behaviors.”

While the credit union did not report any issues with the activity its tracked thus far, and with no plans to close card access, Davis said MSUFCU’s focus is on helping members achieve their financial goals.

“We provide free financial education to our members through a variety of methods, including when they come into a branch or call in with questions, as well as through webinars, in-person presentations, monthly podcasts, weekly blogs, financial tips on local TV and radio shows, published articles and more. Topics discussed range from understanding your credit, how to reduce debt, value of having an emergency fund and more,” continued Davis. “As a financial partner, we continue to provide guidance and education on financial topics that will help members be successful.”

Ruthann Varosi, Extra Credit Union’s AVP of marketing, told MCUL that the Warren-based credit union has yet to be able to establish any trends of data related specifically to online gambling, but are currently prepared and monitoring the situation, while refraining from taking an official position on online gambling.

“As with any electronic expenditure, there is the potential for increased abuse and/or fraud; however, we believe this is ultimately the members’ choice and will act accordingly to put processes and procedures in place to protect any members who may be victims of fraud due to increased online activity,” continued Varosi.

Extra Credit Union’s current emphasis and plan, much like MSUFCU’s, is centered on education.

“We strive to educate members of the responsibilities associated with online purchases and services and describe how they can track expenditures and account balance online and with alerts to protect their accounts,” said Varosi.

The credit union is not considering any options that limit card access at this time.