The Consumer Financial Protection Bureau (CFPB) and several states are suing CashCall and related companies, charging that they engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void.
“Today we are taking action against CashCall for collecting money it had no right to take from consumers,” said CFPB Director Richard Cordray. “Online lending is rapidly growing and deserves ample regulatory attention. The Consumer Financial Protection Bureau will take action against online lenders and servicers that engage in unfair, deceptive, or abusive practices.”
California-based CashCall, its subsidiary, WS Funding LLC, and its affiliate, Delbert Services Corporation, a Nevada collection agency, are all under the common ownership of J. Paul Reddam, and are affiliated with Western Sky Financial, a South Dakota-based online lender.
Western Sky Financial asserted state laws did not apply to its business because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe. But this relationship with a tribe does not exempt Western Sky from having to comply with state laws when it makes loans over the Internet to consumers in various states, the complaint alleges.
The loans ranged from $850 to $10,000, and typically had upfront fees, lengthy repayment terms, and annual interest rates from nearly 90 percent to 343 percent. Many consumers signed loan agreements permitting loan payments to be debited directly from their bank accounts, similar to a payday lender. The loans were then acquired by WS Funding and serviced by CashCall.
In September 2013, Western Sky stopped making loans and began to shut down its business after several states began investigations and court actions. But CashCall and its collection agency, Delbert, have continued to take monthly installment payments from consumers’ bank accounts, the CFPB said.
The CFPB’s complaint alleges that the defendants violated the Consumer Financial Protection Act’s prohibitions on unfair, deceptive, and abusive acts and practices. The Bureau’s investigation showed that the high-cost loans violated either licensing requirements or interest-rate caps – or both – in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York, and North Carolina.
Under statutes in at least those eight states, any obligation to pay such loans was nullified in whole or in part by law. Therefore, the defendants are collecting money that consumers do not owe.
This is the first CFPB online lending lawsuit. The Bureau has jurisdiction over a broad array of companies, including online lenders, loan servicers, and debt collectors. This lawsuit is a significant step in the Bureau’s efforts to address regulatory-evasion schemes that are increasingly becoming a feature of the online small-dollar and payday lending industry.
States also file complaints
Colorado and several other states today joined CFPB in filing civil lawsuits against CashCall and the other defendants.
“Today, Colorado is collaborating with other states and the Consumer Financial Protection Bureau to crack down on unscrupulous and abusive online lenders. This is the unveiling of a new state and federal strategy to stop predatory lenders,” said Colorado Attorney General John Suthers. “A seven-year, $10,000 loan cost consumers more than $50,000 in finance charges and because the loans are not legal, they are also not valid,” declared Suthers.
In the state’s case against Western Sky, the company claimed that it was not subject to Colorado’s consumer protection or usury laws because of tribal immunity and preemption. The Denver District Court, however, rejected those claims on April 15, 2013.
Similar actions are being filed today by the North Carolina Attorney General’s Office, New Hampshire Attorney General’s Office and Indiana Attorney General’s Office.