UK: Commercial And Dispute Resolution: Is It Time To Roll The Credits?

Some parts of the Gambling Act 2005 (the Act) have provoked significant debate: on-line gaming, the issue of super-casinos, gaming machines and TV advertising to name but a few. However, other changes brought in by the legislation have not created much of a stir. One area which seems to have been largely overlooked is s.335 of the Act which provides that "the fact that a contract relates to gambling shall not affect its enforcement". Thus, the simplest of sentences, wipes out over 200 years of precedent which has formed the common practice not only in the UK but also in most common law jurisdictions around the world¹, that gambling contracts are debts of honour only.

It might be asked – why is the change important at all? – after all, the industry has coped for many decades without being able to enforce gambling debts. The significance comes not from the fact that the gambling contract itself will become enforceable (after all, the house can still protect itself by demanding the stake up front), but that contracts to lend money to those who gamble will also be enforceable. This brings forward the prospect of banks and other financial institutions offering loans or credit for gamblers, and being able to take to their credit committees for the first time a realistic risk assessment of the debts incurred. An alternative would be an insurance market in gambling risk.

Those outside the industry are prone to raise at least an eyebrow at the thought of the provision of credit for gambling, given the potential for a consumer to get "out of his depth". In reality, however, no financial provider will be keen to advance monies to those from whom it is unlikely ever to recover. Instead, lending institutions may have their sights set on more lucrative propositions, to be found where the punter has an interest in gambling with third-party funds, but is likely to have means for repayment.

Cultural considerations are likely to be a significant factor in the take-up of credit for gambling. For example, in the Far East there is something of a stigma attached to gambling with one’s own money. The provision of credit to this type of player might well create a unique selling point.

Another potential target for credit gambling are the high-rollers of the gambling world. It is generally acknowledged that a few of these players can make up a significant portion of a casino’s overall profit and therefore offering such individuals easy terms of credit (with the potential for greater anonymity for their financial transactions) may be attractive as part of the overall tailored service which is offered but in a situation where that risk is backed by at least some legal protection. Under the Act, the operator may work with a financial provider to afford credit to this elite group, which helps to secure the punter’s loyalty to the operator.

The position as to the lending of monies for use in gambling is not entirely liberalised as the Act follows the Gaming Act 1968 in maintaining significant restrictions on the provision of credit by casinos and other gambling operations. Previously, the Gaming Act 1968 made it a criminal offence for a holder of any gaming licence, or for any person under the control of a licence holder, to offer credit for gaming from licensed premises. Section 81 of the new Act will mean that the Gambling Commission or the Secretary of State may attach conditions to any operating licence to restrict or make other provision for the giving of credit in connection with licensed gambling activities. Credit is defined by the Act as "any form of financial accommodation" or as payment by means of anything other than cash, debit card or cheque for full value.

The same section makes it plain that credit cannot be offered by the proprietors of either land-based casinos or bingo premises. Such premises may install cash machines and allow them to be used to obtain money on credit from an independent provider, so long as no commission is received by the owner of the premises.

However, the Act is silent as to the provision of credit by entities without a gambling licence, such as banks. Furthermore, the restrictions detailed above do not appear to impact on those who are not UK licensed gambling operators. There appears to be no reason, therefore, why an offshore operator could not make its contracts subject to English law and the jurisdiction of the UK Courts in order to offer enforceable credit to gamblers.

Any effort by a UK-based lender to provide a line of credit to interested punters is likely to fall under the UK’s consumer credit regime. The regime, operated by the Consumer Credit Licensing Bureau as part of the Office of Fair Trading, implements the Consumer Credit Act 1974 (the 1974 CCA) which requires that businesses which offer goods or services on credit, or which lend money to consumers, must be licensed for that purpose. The OFT is able to carry out checks through the Gambling Commission when considering the fitness of any operator applying for a consumer credit licence.

The 1974 CCA, like the Act, defines the concept of offering credit in broad terms as "money or any other form of financial accommodation". For a contract to be considered a consumer credit agreement, the Act imposes four key requirements: that credit is provided; that the debtor is a consumer; that the credit does not exceed £25,000² and that the agreement is not one of a number exempted by the 1974 CCA. The change in the enforceability of gambling contracts will mean that they are no longer exempt under this fourth condition.

Those who have considered the law of gambling in recent years will be accustomed to the adjustments required when operating under an existing legislative regime yet awaiting a new one. The Consumer Credit Act 2006 (2006 CCA) is to replace the 1974 CCA and is currently being implemented in stages. Under the new Act, the Secretary of State has the power to exempt from the 2006 CCA those consumer credit agreements or consumer hire agreements where the debtor or hirer has a "high net worth". Given that the greatest potential for gambling credit products may well lie in the high-roller market, this provision is likely to be of interest to lenders. The individual must declare that he agrees to forgo the protection and remedies that would otherwise be available to him and provide the lender with a statement of "high net worth" made by his accountant or solicitor.

For those who do not qualify, or who do not wish to make such a declaration, the 2006 CCA attempts to ensure that the debtor has sufficient information before entering into the contract to make a wise and informed decision. A significant provision of the 2006 CCA is that any pre-contractual representations made by the creditor will be binding. There are also complex rules relating to the control of advertising (including key information that must be provided and a formula for calculating any annual percentage rate of interest). However, these conditions can also be avoided to a greater or lesser extent if the credit provided is repayable in less than 4 instalments within the course of 12 months.

It is difficult to predict whether the availability of enforceable credit bargains in relation to gambling will prove an attractive proposition for credit providers or for the punters themselves. It is certainly true that those who entered this particular market would need to be cautious about the way that it was marketed and operated in order to ensure that the service was not the subject of criticism and negative publicity from anti-gambling groups or those involved with dealing with gambling addiction. Nevertheless, in a marketplace where customer acquisition (and retention) is becoming ever more difficult, the offering of credit as a facility creates "stickiness" to a particular provider and would presumably flatten attrition curves. It might also provide a lever to operate in new or specialist marketplaces.

Even if gambling operators do not choose to provide credit themselves, it might be worth considering adopting English law as the proper law of the gambling contracts entered into with the public. With a convenient and well used legal system and the certainty of enforcement, the English Courts might prove to be one of the few places within the UK that offshore operators might feel welcome.

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