Web Bettors Push Odds With Credit Card Debt

From her Marin County home, Cynthia Haines used her personal computer and a stack of credit cards to gamble on the Internet. With each click of her mouse, money flowed from her credit card accounts into the virtual craps, roulette and blackjack tables of Caribbean cyber-casinos with names like Acropolis, Grand Dominican and Cyberthrill.

When the banks that had issued her 12 Visas and MasterCards tried to recover the $115,000 debt that she’d piled up, Haines sued and hit the jackpot: As part of a settlement reached last month, her credit card debts were wiped out, along with a $225,000 lawyer’s bill.

Bolstered by centuries-old laws that make gambling debts legally uncollectable in all 50 states, bettors like Haines are going to court to have their online losses canceled.

Their lawyers are going even further. They’ve charged in suits filed across the country that banks and credit card companies engage in racketeering by allowing offshore casinos to process illegal bets on their customers’ credit cards.

As Congress debates whether to ban Internet gambling, some credit card issuers are rethinking their policies. Providian National Bank in San Francisco, one of the nation’s largest Visa card issuers, says it will no longer process gambling transactions for its 11 million customers. Other card issuers are expected to follow suit. If enough of them do, that could effectively kill online gambling, observers say, by eliminating the only convenient way to pay.

Of the 14.5 million people who gamble over the Internet, the vast majority are U.S. citizens with credit cards. Nearly all pay their bills without questioning them.

Courts generally side with gam-blers when disputes over gambling debts crop up in the offline world of real casinos. Casinos in Las Vegas and Atlantic City readily accept credit cards anyway because most gamblers pay up, and credit card issuers continue to allow cash advances in casinos.

But the stakes have risen in the latest lawsuits because online wagering, a new industry with no connection to the casinos, depends almost entirely on credit cards.

The credit card companies say the attacks on them are meritless. It isn’t Visa’s or MasterCard’s business to determine whether their customers’ transactions are appropriate, they say. And the charges from online casinos are credit card debts--not gambling debts.

The gamblers “voluntarily used their credit cards” to wager, said Daniel H. Bookin, a San Francisco attorney for Visa International. “They should accept responsibility for their actions instead of bringing lawsuits.”

Tomio Narita, a San Francisco attorney for Providian, argued in court papers that Haines should not be allowed to sue because she said she indulged in illegal gambling. Someone who has to acknowledge committing a crime to establish a claim is barred from suing in California courts, he contended. The judge ruled Haines’ case could proceed.

Legal experts say it is unclear whether these bettors and online casinos--most of them located in foreign countries--are breaking U.S. anti-gambling laws. The 38-year-old federal Wire Act prohibits taking bets on sports by phone or wire, which some interpret to include the Internet. Legislation pending in both houses of Congress would clear up that ambiguity by prohibiting all forms of gambling on the Internet.

The costly settlement of Haines’ case was bankrolled by a Canadian company that sells gaming software to the online casinos that took her bets. Apart from covering Haines’ legal bill, Cryptologic of Toronto paid about $5,000 each to Providian and to another issuer, First Union Direct Bank. The other 10 credit card issuers decided to forgive her debts, according to sources familiar with her case.

That Cryptologic came forward to resolve the case--even though it was never sued--illustrates how online gambling has become a high-stakes showdown. The firm boasts that it has processed more than $1.8 billion in gambling bets and other electronic transactions in its four-year history. Companies such as Cryptologic, analysts say, will help the booming Internet gaming industry explode--from about $1 billion in 1999 to $10 billion in three years.

Only a few months ago, a government blue-ribbon panel looking into compulsive gambling in the United States recommended that lawmakers adopt tougher measures prohibiting wire transfers to known Internet gambling sites and their banks. In addition, the National Gambling Impact Study Commission, which placed the number of compulsive gamblers at 5.5 million, more than the nation’s roll of hard-core drug users, also proposed laws that would render unrecoverable any credit card debts incurred while gambling on the Internet.

“The use of credit cards in [all] kinds of gambling exploits the vulnerability of compulsive gamblers,” said former California Lt. Gov. Leo T. McCarthy, a member of the blue-ribbon commission.

Critics say credit card issuers help to facilitate online gambling, virtually acting as the cashier’s window for online casinos. People who log on to some of the 400 Web sites that take bets receive virtual casino chips when they tender their credit cards. Credit card companies profit from Internet gaming because they receive between 2% and 5% of each bet--plus interest when their customers’ gambling debts are not paid off immediately.

Allowing people to use credit cards to gamble from their homes and offices “feeds into the problem of gambling,” said Henry Lesieur, head of the Institute for Problem Gambling in Middletown, Conn. People can satisfy their impulse to gamble merely by clicking a mouse, but “when their credit card bill arrives, it’s like waking up from a dream,” he said.

Fred Marino, a San Bruno, Calif., man who is readying his own lawsuit to get out of paying $100,000 in credit card gambling bills, said he felt helpless. “I felt I had to gamble to make my losses back up,” said Marino, 45, adding that he “ended up maxing out all my cards and losing my home.”

Haines said that during a six-month period, she used her credit cards to gamble at nine casinos. Her credit card statements reflected that she did business with different merchants with names like Caribbean Education.

When Providian took Haines to Marin County Superior Court to recover $5,000, Haines hired San Rafael attorney Ira Rothken, who decided to sue Visa, MasterCard International and the 12 credit card issuers. Under a settlement reached last month, Visa and MasterCard were required to advise their cardholders through written and online notices that “Internet gambling may be illegal in the jurisdictions in which you are located. [Visa and MasterCard] may only be used for legal transactions.”

Providian spokeswoman Laurie Cole said the bank decided to settle because it got paid. But Haines’ suit, Cole said, caused the bank to take a closer look at such charges, adding that they will no longer be permitted.

Credit card issuers can identify “online gambling merchants” through a so-called category code assigned to such businesses. Providian says it will automatically deny transactions from merchants with these codes.

Nelson Rose, a Whittier Law School professor who specializes in gambling law, said the credit card issuers decided to settle Haines’ suit because “they realized they were going to lose this one.”

Credit card issuers are taking “tremendous risks” when they process bets on customers’ credit cards, Rose said, noting that all 50 states have laws--dating back to the early 18th century--rendering gambling debts unenforceable.

While it is undisputed that gambling debts are unenforceable, less solid are a dozen suits--filed within the last few months--that say Visa, MasterCard and numerous credit card issuers are involved in criminal enterprises because they do business with cyber-casinos.

In one class-action complaint filed in a San Francisco federal court, North Carolina resident Mark D. Eisele blamed San Francisco-based Visa and his credit card issuer for his $15,000 gambling loss.

Last month, a Wisconsin federal judge dismissed a similar suit against Purchase, N.Y.-based MasterCard, holding that the indebted gambler had not proved that the banks plotted illegal activity, as is required for a successful suit under federal racketeering laws. Similar cases are pending in several federal courts.

Lawyers for the credit card companies attribute the spate of lawsuits to plaintiffs’ attorneys who they say are shopping for favorable judges.

James F. McCabe, a San Francisco attorney who represents MasterCard, said it is “unclear whether cardholders want their card issuers to be the policemen of public morals. I’m not sure whether anyone [would] want their card issuer to look over their shoulders and tell them whether they should be engaged in particular transactions.” McCabe said.