WASHINGTON (12/17/13)--California firm CashCall has been sued by the Consumer Financial Protection Bureau in that agency's first action against an online loan provider.
The CFPB filed suit against CashCall in the U.S. District Court for the District of Massachusetts. In the complaint, the CFPB alleged that CashCall, subsidiary WS Funding LLC, and an affiliated Nevada collection agency, Delbert Services Corporation, "engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void."
CashCall collected money "it had no right to take from consumers," CFPB Director Richard Cordray alleged. "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," he added.
The CFPB said that CashCall and its partners entered into business with South Dakota online lender Western Sky Financial, which was situated on an Indian reservation and owned by a Cheyenne River Sioux Tribe member. The firm claimed that state laws did not apply to its business. "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 CFPB said.
According to the bureau, Western Sky provided borrowers with loans in amounts from $850 to $10,000, with upfront fees, lengthy repayment terms, and annual interest rates as high as 343%. Some consumers agreed to allow payments to be debited directly from their bank accounts. These loans were acquired by WS Funding and serviced by CashCall.
These loans, the CFPB charged, violated either licensing requirements or interest-rate caps--or both--in Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York, and North Carolina. "Under statutes in at least these eight states, any obligation to pay such loans was rendered void or otherwise nullified in whole or in part by law. Therefore, the defendants are collecting money that consumers do not owe," the CFPB said.
The CFPB suit seeks refunds for consumers, damages and civil penalties. The suit also requests that the defendants adhere to all federal consumer financial protection laws, including prohibitions on unfair, deceptive, and abusive acts and practices.
For more on the CFPB suit, use the resource link.