Net gamblers sue credit card firms

In a series of class-action lawsuits, the bettors are accusing credit card companies and banks of violating federal racketeering and gambling statutes and of ignoring state laws that say gambling debts are uncollectable.

In a move that adds new sting to the term "sore loser," five class-action lawsuits have been filed in recent months in Alabama and Wisconsin against MasterCard, Visa USA and individual banks over the use of their cards at Internet-based casinos.

Specifically, the lawsuits charge the companies with violating the federal Wire Act, which prohibits transmission of bets or betting information over telephone lines, and the Racketeer Influenced and Corrupt Organizations Act (RICO), a statute generally employed against organized crime.

But in a new legal twist, the lawsuits say that even if the credit card companies and banks aren't guilty of violating those statutes -- and there is considerable debate over whether online gambling does run afoul of federal laws -- they are breaking little-known state laws that deem gambling debts uncollectable.

What's at stake
If the state laws are upheld, it would be a serious blow to the online gambling industry, where up to 90 percent of accounts are opened using credit cards.

And some legal experts say they expect courts will find that the credit card companies and banks have been violating the state laws.

"I think that there is a real danger here for the banking industry, because the state laws are so clear ... that gambling debts are not collectible," said I. Nelson Rose, a law professor at Whittier College and a leading authority on U.S. gambling law.

"It is very possible that a court could issue an injunction ordering banks not to have any involvement of their debit or credit cards with any form of gambling."

Kelly Presta, a spokesman for Visa USA, denied the company was violating federal laws in business dealings with Internet casinos and sportbooks, arguing that the 1961 Wire Act predates the creation of the Internet and is not applicable to online gambling. A racketeering charge would have to be based on a conspiracy to violate the Wire Act.

As to the state laws, he said the unique nature of the Internet demands federal regulation.

"(The Internet) will not be an effective system for commerce if we're going to have local and state laws that govern a system that is worldwide," he said. "Any attempt (at e-commerce regulation) should at least be at the federal level." Calls seeking comment from MasterCard were not returned.

Representatives of the banks named in the lawsuits -- Capitol One, Citibank, First USA, Providian and MBNA America Bank - either declined comment or did not return phone calls.

The lawsuits come as Internet gambling is undergoing increasing scrutiny from lawmakers. A bill to ban Internet gambling, authored by Sen. Jon Kyl, R-Ariz., is expected to be approved Thursday by the Senate Judiciary Committee. Either Kyl's legislation or a House version of the law are expected to become law in the months ahead.

Additionally, the National Gambling Impact Study Commission will submit a report Friday to President Bill Clinton calling on lawmakers to pass laws against Internet gambling and to prohibit the collection of credit card debts arising from Internet gambling, among other things.

With congressional action looming, the U.S. credit card companies and banks already were facing an expected forced withdrawal from at least the American portion of the growing Internet gambling market.

But the attorneys who brought the class-action lawsuits on behalf of the five gamblers say they hope to inflict an expensive lesson if their cases come to trial.

"Our complaints are asking that for the six years preceding the filing of these claims, that ... Visa, MasterCard, all of the issuing banks return every Internet gambling debt that has been collected," said attorney W. Lewis Garrison, who is representing plaintiffs in the four lawsuits filed in Alabama.

"How much that is I don't know, but I can assure you it's in the high millions." But Rose said that even if the state courts rule against the credit card companies, they would not necessarily order repayment to other gamblers.

Common Law Remnant
"These laws go back to the Statute of Ann of 1710 in England, part of the Common Law ... which says the court will leave the parties as it finds them," he said. "... So if the person has paid off the credit card bill when it comes in, they can't get their money back. But if they don't pay the bill, the bank can't do anything to collect."

He said that other lawsuits were expected to be filed as additional investigations were completed.

American Express, which also gives merchant accounts to Internet casinos and sportsbooks, has not been sued, but it could be as other bettors come forward, an attorney close to the case said.

Attorney Barry Reed, who initiated the class-action campaign against the credit card companies and is handling the Wisconsin case, said he and other lawyers at the Minneapolis law firm of Zimmerman Reed decided to sue the credit card companies to halt what they viewed as clear case of predatory corporate behavior.

"What grabbed us immediately was the vulnerability of young people - particularly young men, college age, who are into the sports thing and intrigued by gambling," he said. "...Also compulsive gamblers, who rather than having to go find a bookie ... can simply sit in their own home and sort of feed their disease."

Reed and Garrison said several of the clients they represent are college students who logged onto Web gambling sites out of curiosity and quit after losing only a little money. Others, however, quickly dropped a bundle.

"We have people who have lost over $50,000 using a variety of credit cards," Garrison said.

California case
Reed said he got the idea of suing the credit card companies after hearing of the case of Cynthia Haines, the California woman who is seeking to skip out on $70,000 in Internet gambling debts.

According to court documents, Haines used a dozen credit cards to play craps, blackjack and other Internet casino games from January 1997 until mid-1998, when she was sued by Providian National Bank for failing to make payments on a Visa credit card issued by the San Francisco-based bank.

She countersued Providian, Visa, MasterCard and 50 known and unknown online gaming operators alleging unfair business practices for granting merchant accounts to the Internet casinos.

Unlike the class-action lawsuits filed by Reed and Garrison, Haines is seeking only to have her gambling debts declared null-and-void, not the return of all debts collected from other bettors. Her suit is scheduled to go to trial Oct. 20 in Marin County Superior Court.

If the judge finds in favor of Haines, a range of remedies would be possible, ranging from the requirement that the gambling Web sites post warnings to an order barring the credit card companies from giving merchant accounts to Web sites that accept bets from Californians.

Tenative settlement reached
Ira Rothken, an attorney for Haines, told MSNBC that Visa and MasterCard have responded to the lawsuit in very different fashions.

MasterCard "understands this to be a problem" and has agreed to a tentative settlement of the case, Rothken said. Under the settlement, MasterCard would require Internet gambling sites accepting the company's card to post warnings and ask consumers where they're gambling from, which would allow the sites to exclude California residents if a court were to issue a restraining order at the conclusion of Haines' case.

"Visa's response (is) ... they're fighting tooth-and-nail to be able to allow Internet gambling and offshore casinos to prey on California citizens," he said.

Rothken noted that state appeals courts in California already have ruled twice that providing credit for gambling is illegal in brick-and-mortar casinos or cardrooms, and Rose, the expert on gambling law, said other state courts have issued similar rulings.

"We had a player who was from Massachusetts, with a credit card from Connecticut, (who) went down to the casinos in Atlantic City, New Jersey, got a $5,000 advance, gambled and, when the bill cane in, he refused to pay," he said.

"...The court ruled that under the law of Massachusetts, Connecticut or New Jersey - it didn't matter - gambling debts are not collectible and he didn't have to pay the bill."

Of course, his credit rating was ruined, Rose added.

Authorities could further gum up Internet gambling by putting pressure on services that provide money transfers, as the state of Florida did in 1997 in forcing Western Union to cease providing such service to its residents.

Casino operators alarmed
Many observers agree that serious gamblers will find a way to continue betting over the Internet no matter what. But a ban on credit card use likely would dissuade many casual bettors because it would require additional effort and a delay of at least several days between the mailing of a check or a money order and the availability of the funds.

"It would put into play probably more of the serious players, who do it on a regular basis and would understand that if you want to bet on the Bears coming up this Sunday ... you're going to have to have an account set up the week before," said Geoff Bacino, a Washington, D.C., lobbyist who represents several online gambling operators said.

Leo Friday, general manager of the Caribbean Cyber Casino, said that a halt in the use of credit cards would have "a huge impact" on the Grenada-based operation, where customers use them to make deposits or open new accounts in roughly 90 percent of the transactions.

Reed, the attorney who masterminded the class-action lawsuits, is betting against the house in hoping that courts will order the credit card companies and banks to repay gamblers - with a share going to his firm.

"Consumer class-actions (are) what I do, and I make no apology for it," he said. "But I make my living, I think, by doing the right thing. ... If we are able to accomplish something in terms of getting the debt canceled, in terms of getting reimbursed, .. and in terms of stopping this insidious disease before it really gets started, I'd hope we'd be rewarded for our efforts."