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PayPal Overblocking Online Transactions Due to Ambiguity of UIGEA

30 March 2010 by Devon Chappell

Many people have wondered why exactly it is that the American Banking Association, the world’s largest credit card companies, and even the Federal Reserve have said all along the supposed US online gambling ban – the Unlawful Internet Gambling Enforcement Act (UIGEA) – would be nigh impossible to enforce, considering all of the carve outs and discrepancies in the bill. I mean a carve out is a carve out, right? Simply identify which forms of online gambling are illegal and block those out.

As nice as this would be, the reality is that the UIGEA does not give transaction codes for specific forms of gambling that should be deemed legal or illegal. Furthermore, every State’s laws are slightly different, so what may be legal in Kentucky (horse racing) could be illegal in a different State, and vice versa. In other words, the UIGEA has placed this huge responsibility – and what some will say is an insurmountable task – on US financial institutions and payment processors.

Case in point is the recent fledgling of affairs at the South Florida Blues Society, which recently send a member-wide email out explaining that internet transactions for the group are being inadvertently blocked because Paypal has mistakenly listed their website as an online gambling website. Now, of course the South Florida Blues Society is a music fan club and has nothing to do with offering online gambling services. But that’s how it goes when you give payment processors the difficult task of filtering out millions of transactions made every day of the year – some related to gambling, some slightly related to gambling, some for legitimate online gambling and some for illegal online gambling. Oy!

The South Florida Blues Society is now even having trouble processing payments made with Visa and Mastercard – both of which have recently been making a wholehearted attempt to comply with the regulations of the UIGEA – the implementation of which has been delayed until June 1, 2010. At less than two months away, getting the UIGEA “successfully” implemented looks even more daunting and impossible than ever.

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