Dive Brief:

• The Consumer Financial Protection Bureau wants to rein in the practice of charging credit card users cash advance fees on sports gambling transactions.
• The federal agency found that some credit card issuers are treating such transactions as cash advances, and charging fees of $10 or more, the agency said in a data report posted to its website Monday.
• “Some consumers placing bets may be in for a shock, finding their credit card issuer charged $10 or more in “cash advance” fees and added interest for each sports gambling transaction made with a credit card,” the agency said in the data report.

Dive Insight:

The CFPB is focusing on this now because of the tremendous growth in online sports betting, which has exploded since the Supreme Court overturned a federal law banning commercial sports betting (with some exceptions) in 2018.

Gambling on sports through online betting platforms is now legal in 38 states, plus the District of Columbia, and about $120 billion was wagered on sporting events last year, according to a recent assessment from S&P Global, which cited the American Gaming Association.

The CFPB analyzed credit card data from Missouri, Kansas and Ohio and found the frequency of credit card transactions with a cash advance fee spiked for the latter two in the first month that legalized sports betting was allowed in those states.

In Kansas, for example, the percentage of credit card transactions that were charged a cash advance fee rose from just under .6% in August 2022 to over 1% in September 2022, when the state first allowed sports betting. Ohio saw a nearly identical increase when it first allowed sports betting in January 2023.

At the same time, consumers also complained to the agency that they were being charged cash advance fees on gambling transactions, the agency’s website post said.

The cash advance fees tended to be a high percentage of the total transaction, especially on smaller bets, the CFPB found.

“Cash advance fees often have a minimum charge of $10, making smaller cash advances, particularly costly,” the CFPB post said. “Someone wagering $20 could face the same $10 fee on a $200 cash advance ATM withdrawal.”

Credit card issuers are not always clear or consistent about when they charge cash advance fees for online betting, the CFPB said. 

“Consumer complaints provide evidence that some card holders are caught off guard by cash advance fees and interest on sportsbook transactions,” the agency said. “Card holders cite a lack of transparency on the likelihood of fees from both sportsbooks and credit card issuers as factors increasing confusion around surprise charges.”

Major credit card issuers charged $717 million in fees on $3.6 billion in overall cash advances in 2022, the most recent year for which figures were available, according to the CFPB. 

The bureau reviewed agreements from seven major card issuers — Chase, Discover Financial Services, American Express, Citibank, Capital One, Bank of America and Wells Fargo — and found that most cash advance fees are either at least 5% of the total transaction, or $10, depending on which figure is higher, the CFPB said.

Spokespeople for those financial institutions did not immediately respond to requests for comment.

State gaming regulators should consider limiting the acceptance of credit cards by online sports sites, or at least require better disclosures about fees, the agency advised. 

The CFPB post does not outline any specific regulatory actions, but says the bureau will continue to study the issue to better understand how cash advances affect a consumer’s credit profile.