WASHINGTON — Banks and credit card companies could find themselves on the losing end if the daily fantasy sports companies DraftKings and FanDuel are deemed to have been running illegal gambling operations in the state of New York.
A class action lawsuit was filed in the Southern District of New York on Wednesday against some of the biggest names in the banking and payment industries for their role in providing credit and facilitating payments that flowed through the daily fantasy websites.
The suit comes a day after New York Attorney General Eric Schneiderman issued an enforcement action against the two daily fantasy sports companies for running illegal gambling operations.
JPMorgan Chase, Merrick Bank and Capital One were among the banks that the lawsuit claims made "loans" to users of the websites. The suit also says American Express, MasterCard, Visa and Vantiv were among the payment processors that facilitated transactions.
The daily fantasy sports websites allowed players with credit cards to deposit funds. They were then debited back any winnings. If a player's winnings exceeded a certain amount, they could also opt for the daily fantasy sports companies to cut them a check.
But the lawsuit says that the banks were providing loans for illegal gambling by offering credit. It also alleged the payment processors were performing a "player banking function" by receiving a fee for transacting the payments between banks and the daily fantasy sports companies.
"New York prohibits the Bank Defendants' conduct because New York law prohibits the enforcement or collection of debts issued for illegal gambling," the lawsuit says.
The lawsuit seeks "restitution for the past six years because the contracts are void."
The daily fantasy sports industry has been under fire in recent weeks after a number of states have determined that they are not legally protected under the Unlawful Internet Gambling Enforcement Act of 2006, which had a carve-out for fantasy sports.