The new regulation of credit for gaming (Macau)
by Jorge A. F. Godinho

The new regulation of credit for gaming
Jorge A. F. Godinho

Until 2004 Macau did not formally allow any form of credit for gaming, and this prohibition was backed by criminal penalties (art. 13 of Law 8/96/M, of July 22). The situation changed with the approval of Law 5/2004, of June 14 (in force 1 July 2004), on credit for gaming and betting in casino games, as part of the ongoing legislative reform of the gaming sector. The legislator recognized that credit for gaming is a necessary and unavoidable part of the gaming industry, and that it is preferable to have it legalized and regulated in a transparent, credible and stable manner. In addition, credit means more gaming and more tax revenue.
The new law does not mean that anyone can now legally grant credit for gaming in Macau: only certain entities can do so. Regulated and authorized credit for gaming is legal, but unauthorized credit continues to be forbidden by criminal law. Art. 13 of Law 8/96/M is still in force and, in fact, crime statistics show that loansharking cases have not diminished, doubtless because legal credit is intended to high-rollers while loansharks target small players.
Only gaming sub/concessionaires and gaming promoters can grant credit for casino gaming. Banks cannot. Credit not for gaming granted by authorized financial institutions falls within banking law.
For gaming promoters to grant credit a prior contract with a sub/concessionaire is required. Such contracts have to be approved by the Government; clauses not approved are void. The law does not regulate the detailed substance of these contracts, but the law of Macau must apply, and the parties must not submit disputes to the courts of other jurisdictions.
Gaming promoters can grant credit by themselves or do so in representation of gaming sub/concessionaires; in the case of management companies, they can also act in representation of sub/concessionaires. No other instances of representation or delegation of the capacity of authorized credit granter are allowed.
The legal concept of concession of credit is intentionally wide; it is not a narrowly defined type of contract. There is concession of credit whenever a credit granter transfers casino chips to a third party without receiving immediate cash payment. The concession of credit for gaming (which bears no relation with the concession contract regulated in the Commercial Code, or with the administrative law concept of concession of public or privileged services) is basically an economic or financial concept designed to bypass legal discussions as to what exact type of contracts are subject to the regulation. It is well known that the same economic result may often be pursued by different legal avenues: there may be different types of contractual arrangements underlying credit for gaming, such as a loan of money to buy casino chips, or a purchase and sale of chips where the price is paid later. Whatever the set of legal relations used, if casino chips are transferred without immediate cash payment there is a concession of credit.
Regarding the maximum interest chargeable, credit for gaming is not treated differently from other financial activities. Regardless of whether the credit is granted under a loan contract or any other arrangement, limits apply. Interest is usurary if over three times the default interest rate, which currently stands at 6% p.a. (Executive Order no. 9/2002): therefore, the maximum interest is 18% p.a. The legal consequence of usurary interest is its reduction to the maximum limit: courts will not enforce higher interest rates.
The new law provides expressly that credit granted under its provisions creates civil obligations: debts arising from credit for casino gaming can be judicially enforced in Macau courts. This clarification avoids any discussions on the legal effects of credit for gaming that could surface given the fact  discussed in the March 2005 issue of Macau Business  that the Civil Code still provides that, as a rule, gaming contracts create natural obligations.
The law sets out other detailed duties that credit granters must comply with, and states the penalties applicable for breach of its rules, which include the suspension, the imposition of conditions, and the termination of the activity of granting credit for gaming. It also states that breaches of the law on credit affect their general suitability as authorized operators.

Date Posted: 16-Sep-2005

Jorge A. F. Godinho
Assistant Professor, Faculty of Law, University of Macau (jgodinho@umac.mo)

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