American banking representatives met with members of Congress during a hearing to discuss the effects of the Unlawful Internet Gambling Enforcement Act of 2006 – which made it illegal for banks and other financial institutions to process online wagers. The banks are very reluctant to take on the responsibilities outline in the Act including monitoring web sites and making the legal determination as to what constitutes “illegal gambling”. I found a nice summary of the situation in the comments of a New York Times article on the meeting:

The U.S. paid untold billions (the Trade Office won’t say exactly how much) to Canada, Europe and Japan last December to settle the dispute created by this ban.
Antigua has received the World Trade Organization’s blessing to infringe $21M worth of U.S. copyrights annually to redress the losses Antigua’s economy has suffered since the law came into effect.
State-backed lotteries and lucratively-taxed casinos across the U.S. continue to collect much of their revenues from the poorer half of the populace, even as part of the rationale for this ban was preventing the pernicious influence of Internet gambling from sucking in the wage earners of struggling American families.
Congress is now making the banking industry testify as to why they’re not better able to tell the government exactly what your money is being spent on.
Are we having fun yet?
Kudos to Rep. Frank for carrying the torch of common sense.

CNet offers some nice coverage of the hearing including a post of an audio interview with pro-gambling representative Barney Frank.

Banks, credit card companies, and some Democratic members of Congress are predicting that forthcoming restrictions on Internet gambling will ensnare innocent customers and threaten the viability of e-commerce.

The criticism came at a congressional hearing on Wednesday devoted to the Unlawful Internet Gambling Enforcement Act, enacted in 2006 by a Republican Congress after pressure from social conservatives. The Federal Reserve and the Treasury Department published draft regulations last fall–which financial institutions say will disrupt perfectly legal transactions unless dramatic changes are made before the rules take effect.

Rep. Ron Paul, the libertarian-minded Republican presidential candidate, criticizes Net-gambling restrictions on Wednesday, saying ‘people should make their own decisions.’
(Credit: U.S. House of Representatives)
“Consumers will be placed at risk of having lawful transactions blocked,” said Rep. Luis Gutierrez, D-Ill., chairman of the House monetary policy and technology subcommittee. “It is easy to see how these regulations, if implemented in their current form, could wreak havoc on electronic commerce in the U.S.”

The 2006 law forces banks and other financial intermediaries to police money flows that could be related to Internet gambling. It never received a formal up or down vote in the entire Congress; instead, Republican congressional leaders simply glued it on to an unrelated port security bill that was approved nearly unanimously.

More at CNet.com.