The imminent launch of legal online gambling in Brazil comes at a risky time because it coincides with the emergence of high-interest microloans. Though regulated markets are safer than the alternative, the opening of new markets typically leads to a temporary uptick in gambling. Throwing predatory lending practices into the mix threatens to create a perfect storm for Brazilians in tenuous financial situations.
In Brazil, nearly one in three people live below the poverty line. Against this backdrop, the combination of new gambling options with increased access to high-interest, predatory loans could kick off an economic and public health crisis. If that leads to backlash against the gambling market rather than the loansharks, it could prove to be a significant setback for regulation in the country.
A recent central bank report underscored the magnitude of the risk with the finding that Brazil’s Bolsa Família social program recipients handed over 20% of their August benefit to online gambling operators.
Speaking with BNN Bloomberg, Daniel Dias, a Fundação Getúlio Vargas Law School professor, said Brazil’s poverty creates unique risks.
The vulnerability that comes with poverty is something that sets us apart.
Brazil’s Blooming Debt Follows Gambling Boom
According to research firm Instituto Locomotiva, Brazil’s gambling population has doubled from 26 million to 52 million over the last six months. Simultaneously, Brazil’s central bank has said that between January and August, Brazilians spent an average of $3.4 billion ($18-$21 billion reals) monthly on gambling.
Central Bank President Roberto Campos Neto has previously said a disproportionate number of those gamblers are lower-income. In comments shared at a September event, he called the situation “really worrying.”
Even more troubling, the above numbers fail to capture Brazilians’ growing reliance on credit cards to fund their gambling. Brazil has notoriously high credit card and loan interest rates, anywhere from 300% to 1000% annually. Even the largest credit lenders, including Itau Univanco and Nubank, charge annual interest rates above 300%.
Poverty Fuels Gambling’s Intoxicating Allure
In addition to credit cards, many Brazilians have recently gained access to high-interest loans with up to 438% annual rates. Experienced together, Brazil’s incoming legal gambling regime and predatory lending options create a toxic combination that puts citizens—particularly those with low incomes—at risk.
In 2021, Tennessee regulators approved a high-risk lender—with annual interest rates of nearly 300%—for double duty as a sports book operator. Specifically, they approved Advance Financial, a “flex loans” lender, as a deposit location for the company’s affiliated sportsbook, Action 24/7. Not long after, the sports betting operation had its license temporarily suspended, but an injunction had it back up and running within a few days. Notably, a pair of proposed bills that would have forced the separation of loans and betting were subsequently withdrawn, and Action 24/7 is still in operation today.
Viviane Fernandes of the Brazilian Institute of Consumer Protection (IDEC), a Brazilian-focused consumer protection organization, told BNN that easy access to gambling and high-interest borrowing could start a vicious cycle for the indebted.
Usually, people who are over-indebted try to find ways to pay. They take out another loan, ask their families for help, go to a loan shark, seek out smaller lenders. And then they end up with multiple creditors, and it becomes very hard to juggle all that.
Legal Gambling Contributes to Pervasive Reality
In its recent report, The Lancet Public Health Commission on Gambling noted the increased pressure commercialized gambling puts on low-income and middle-income countries (LMIC). The authors argue that gambling’s pitfalls complicate efforts to reach the United Nation’s Sustainable Development Goals in continental Africa and other LMICs.
The Lancet Commission also recognized the heightened risks associated with the gambling industry’s relationship with sporting, leisure, and other lifestyle services. Sports-gambling partnerships contribute to a “new pervasive social reality,” where increased interest in sports equals increased exposure to gambling.
In Brazil, people typically gamble in one of two ways:
- On casino-style apps and websites offering slots, roulette, and other chance games
- Sports betting, particularly on soccer—Brazil’s most popular sport.
The report states:
Effective regulation of gambling faces many challenges, with knowledge asymmetries and serious imbalances in resource levels between regulators and the industry that they regulate. These challenges are intensified by the borderless nature of the digital gambling ecosystem, the fast pace of technological innovation, and the ability of gambling companies to shape products and manipulate behaviours. Under-resourcing of regulators and insufficient and inadequate regulatory action in LMICs is particularly concerning given the rapid expansion of the gambling industry into these countries.
To Brazil’s credit, gambling regulation is coming with the new year. In the meantime, the country has preemptively started enforcing the incoming laws for companies that have refused to shift to the legal market.
Still, Brazilians have gambled illegally for decades in clandestine bingo halls and on popular and widely available lottery-style games like Jogo do Bicho.
Since betting in Brazil finally became legal (though unregulated) in 2018, interest in gambling has only grown. Last year, Brazil’s Finance Ministry implemented the incoming rules to supplement tax revenues. Inadvertently, that pending regulation seems to have sparked Brazil’s recent gambling frenzy.
Government Looks to Rein in Gambling Frenzy
In Brazil, like many parts of the world, gambling is everywhere.
From social media feeds flooded with gambling ads to influencers peddling jackpot-fueled fantasies, gambling is seeping into the everyday. Catchy jingles featuring prominent Brazilian betting brands play incessantly on local radio and TV while competing brands grace the jerseys of popular sports teams.
The Brazilian gambling explosion became publicly apparent last September when police detained several influencers in a gambling-related money laundering probe. Amid the resulting controversy, Brazil’s finance ministry acted to ban all companies that had yet to apply to operate legally before the official January deadline.
Further, despite signing the impending legislation in 2023, Brazil’s President Luiz Inácio Lula da Silva (Lula) expressed his frustrations during a recent gathering at the UN. Gambling, he said, was financially destroying people, particularly those with the least, who are now “piling up debt.”
Only days earlier, Lula’s finance minister, Fernando Haddad, shared his gambling-related anxieties, calling Brazil’s gambling obsession “an epidemic.” Altogether, Lula, Haddad, and Camps Neto have approached Brazil’s gambling boom with a commitment to rein in the newly minted industry.
Industry Supports Rules, But Pans Legal Roll-Back
Officials reportedly expect to gain control of the industry—and the ability to limit bets, block payments, and monitor for criminal activity—as of Jan. 1. Per BNN, one official likened the arrangement to the government being the casino and legal operators the croupiers.
Brazil’s government is expected to ban credit-fuelled gambling and tighten rules around gambling advertising in the coming months.
Further, Brazil’s Prosecutor General has asked the Supreme Court to revisit gambling’s legality entirely. In that case, the prosecutor has argued the legislation fails to protect consumers and contradicts the government’s duty to safeguard families. One judge partially granted the request and enacted a temporary ban on social program recipients from betting online.
Notably, the Brazilian Institute of Responsible Gaming (IBJR) fully supports gambling regulation, representing companies that handle 75% of all online sports betting. However, while the National Association of Gaming and Lotteries (ANJL) supports regulation, it has cautioned that backtracking on gambling regulation would reflect poorly on Brazil. Specifically, the ANJL has said any effort to reinstate a ban after regulation efforts would cause Brazil “incalculable damage.”
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