The New Mexico Supreme Court will hear a class action next month that could make creditors responsible for some gambling debts.
The plaintiffs claim 16 creditors, including Citibank South Dakota, Norwest Bank New Mexico, and Visa U.S.A. Inc., broke the law by processing checks, withdrawals from automated teller machines, and credit card cash advances that were used to pay gambling debts incurred at Indian casinos.
Because New Mexico has outlawed gambling, the banks should not have processed these transactions, the plaintiffs said. As punishment, the banks should be forced to return money spent by the consumers at the casinos, they said. (A total dollar figure was not specified in the suit.)
"The defendants deliberately supply money to gamblers to lose at these illegal games and then help the casinos collect their ill-gotten gains, all for a fee," they charged in an April 8, 1996, complaint. "By doing so, they violate the state's laws against gambling."
The case, set for argument on Sept. 8, has raised alarms in the banking industry. In addition to briefs filed by the banks and credit unions named in the suit, the American Bankers Association has submitted a friend-of- the-court brief seeking to get the case dismissed.
The trade group said the plaintiffs want the court to require lenders to research all customers to ensure there is no possibility that they use funds obtained from a bank for illegal purposes.
"Such a requirement would place an unbearable burden on the payment system and prevent financial institutions from fulfilling their roles in enabling transactions," the ABA said.
For instance, the ABA said the plaintiffs want to hold the Plus and Cirrus ATM networks responsible because people gambled with cash withdrawn from those networks.
But the ABA said the courts have long held that a bank does not have a fiduciary duty to borrowers and so is not responsible for what they do with money once it is withdrawn.
Some of the financial institutions named in the suit were even more blunt. In a brief filed by First Security Corp. and Currency Exchange of Wisconsin, the defendants said the case is absurd.
"This strategy by the plaintiffs to ... seek protection from the gaming risks they voluntarily assumed is without any factual support and is contrary in every respect to applicable law," they wrote.
The financial institutions also charge that the plaintiffs are just using them as a proxy to attack the casinos. "The clear target to which the plaintiffs and their lawyers are aiming is Indian gambling, not New Mexico banks or check cashing services," they said.
Although New Mexico has banned gambling, Indian reservations are considered sovereign countries that may ignore state bans on casinos.
The plaintiffs, led by Barbara Srader, are people who lost money gambling. For instance, the complaint alleges that Aili Parkarinen, a customer of Sunwest Bank, another defendant, lost $50,000 at Indian casinos. Most of the cash she wagered was withdrawn from a Sunwest ATM in a casino, the complaint said.
"Sunwest deliberately installed machines in the casinos for the primary purpose of providing money to be used as stakes in illegal bets," the complaint states.
"Sunwest processed withdrawals from these ATM terminals when it should have known that the funds would be used in illegal gambling."
New Mexico's Second Judicial Court in Bernalillo County dismissed the suit in November, saying the plaintiffs failed to state a valid legal claim. The plaintiffs appealed to the state Supreme Court.