Online gambling is becoming a billion-dollar risk for PayPal & Co.

Frankfurt Local payment service providers are threatened with drastic consequences from a new ruling on online gambling. As has now become known, the Ulm Regional Court decided in December that PayPal must compensate a gambler. In 2017, the plaintiff transferred more than 9,600 euros to an internet casino via PayPal and gambled them away there. Now he should get the money back – plus interest. If the judgment is confirmed in the higher instance, the industry threatens to reclaim millions or even billions.

The Ulm judgment is clear. “The payment service provider has an obligation to check, as far as possible, whether the payment can be processed or whether it violates a legal prohibition,” the court explains. However, Paypal has not met this obligation – and must therefore compensate the player.

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The Ulm case is explosive for the industry, as it is representative of many other disputes. The judgment throws a bright light on the longstanding practice of an industry that is both lucrative and controversial.

In Germany there is a state lottery and casino monopoly, private online offers are actually prohibited. But after the federal states were unable to agree on an extension of the State Treaty on Gaming in 2011, Schleswig-Holstein took a special route: the state in which many providers are based distributed appropriate licenses. Officially, the providers are only allowed to target players in Schleswig-Holstein, but many of them attract customers nationwide.

According to the consumer lawyer Guido Lenné, a large part of the industry has committed “institutionalized breaches of law for years”. The Leverkusen lawyer, who represents many players and who won the Ulm verdict, says: “Some players gamble away 60,000 euros and more in one weekend – all over Germany. The providers do not set any limits, although they are not allowed to operate outside of Schleswig-Holstein. “

According to Lenné, the only way to quickly put an end to the hustle and bustle is to remind banks and payment service providers of their responsibility. “The payment service providers might have to memorize 100 account numbers of the major providers and block them for transfers. Then the illegal business would collapse quickly, ”he believes.

Lucrative business with addicts

One thing is clear: It’s about a lot of money for companies, but also for the state treasury. According to estimates, the gaming turnover in Germany is 90 million euros – per day.

Last year, PayPal explicitly excluded payment processing for this industry in its terms and conditions. “With the expiry of the online gambling licenses of the state of Schleswig-Holstein, the offer of online casino games is forbidden or at best tolerated in Germany,” said the group. Therefore, no more payments have been supported since the turn of the year 2018/19.

But the decision came too late, my observer. “Payment service providers and providers have earned too well in this market for too long,” says Ilona Füchtenschnieder, board member of the German professional association for gambling addiction. “The real scandal is that cynical business is being done here on the back of sick people.”

For years Füchtenschnieder has been advising people who have succumbed to the lure of the colorful machines and virtual roulette tables. “Gambling addiction is an inconspicuous addiction,” she reports. “We’re not talking about people who go to the casino once a year, but about a serious illness with dire consequences.”

Fathers who have gambled away family assets report to their counseling center in Bielefeld. Older women who have lost their retirement savings through the casino app. And many who want to quit, but keep relapsing. “The suicide rate is high,” says Füchtenschnieder. “Business must end. At least the illegal payments have to be stopped. ”

The legal arguments with which the payment service providers have so far defended themselves in court seem to be subtle. PayPal’s lawyers argued that the company could not have known what the exchanged money would be used for. And it is possible that the player from the Ulm area deposited his money there, but then played in Schleswig-Holstein or outside Germany. “The deposit of money on a casino side is only a legally neutral preliminary discussion,” the court summarizes the argument.

The Ulm judges were not convinced by this argument. PayPal has “created no instruments at all to prevent a payment that is most likely related to illegal gambling, which was recognizable for the defendant,” the court complained. “In doing so, she benefits from the payment through commissions.” As a result, she “accepted the payment processing for illegal gambling with full sight”.

In response to an inquiry from the Handelsblatt, PayPal said: “We regret the first instance decision by the Ulm Regional Court and will now analyze the reasons for the judgment. On this basis, we will then, in all probability, appeal against the judgment. ”It is an individual decision,“ which is opposed to other first and second instance decisions ”.

Risk to the industry

In fact, other courts have ruled otherwise. In 2018, for example, the Munich Regional Court explicitly denied players’ compensation claims – a decision that many payment processors are now referring to. However, there was no final judgment in the next instance, the Higher Regional Court (OLG) Munich. Many disputes do not even end up in court, while others are withdrawn. According to lawyers and addiction counselors, out-of-court settlements are often reached. In the case of revoked direct debits, banks book funds back, and payment service providers offer voluntary compensation payments in the event of legal action.

Lawyer Istvan Cocron from the Berlin law firm CLLB therefore believes: “The industry has one goal: to prevent a decision by the highest court.” He is currently suing the Cologne District Court against PayPal for the repayment of more than 150,000 euros lost by a gambling addict client would have. “As soon as the first player can no longer be fobbed off, but goes through the process up to the higher authorities, it becomes interesting.”

In the Ulm case it could now be so far: According to his lawyer, the plaintiff is “about the principle”. An initial clarification before a German OLG is within reach. The Higher Regional Court of Stuttgart would be responsible, whose judges, unlike their Munich colleagues, are considered consumer-friendly.

If their judgment were confirmed in the last instance, the Federal Court of Justice (BGH), if this is then called, it could become expensive for the online casinos and their long-term payment processors, observers believe. “Then there is a risk of billions in repayments, and due to the limitation period up to three years back,” says Cocron.

He sees payment processors as having an obligation: “Payment service providers must always check whether a provider has the necessary license before doing business with him. Apparently, this has not always happened in the past. Now this practice could fall on their feet. “

If the BGH confirms a claim for compensation, this does not yet trigger an automatic mechanism: class actions based on the US model do not exist in Germany. Each player would have to contact their payment service provider individually and claim their funds back. But online portals such as Myright, which by its own account already represents 50,000 defrauded diesel car buyers, and others are already lurking to help a possible claim for compensation break through.

The payment service providers would then have to get the money back from the gambling providers – and hope that they are sufficiently solvent. The German Online Casino Association based in Kiel did not want to comment on the Ulm judgment on request.

More: PayPal reacts to criticism from consumer advocates and excludes gambling providers from their own payment transactions.

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