The Consumer Financial Protection Bureau and four state attorneys general on Monday announced a series of lawsuits against CashCall Inc., a California-based online loan servicer accused of usury and deceptive collection practices through its affiliation with the online lender Western Sky.
The lawsuits were filed separately by the CFPB and attorneys general from Colorado, North Carolina, New Hampshire and Indiana. The attorneys general allege CashCall exceeded respective state usury limits, while the CFPB claims the company violated federal law banning "unfair and deceptive" acts. The bureau alleges CashCall improperly collected payments through automatic account withdrawals for loans that were void. This is the first action the CFPB has taken against an online loan servicer.
"Today we are taking action against CashCall for collecting money it had no right to take from consumers," said CFPB Director Richard Cordray in a press release. "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."
The CFPB said CashCall and its subsidiary, WS Funding, entered into an agreement in late 2009 with Western Sky, a high-cost online lender under intense scrutiny from several state regulators. CashCall provided capital upfront for Western Sky's lending operations, and then would buy back the loans and assume servicing of them.
In its own fight against legal action, Western Sky has claimed it did not need to comply with state laws because it was based on an Indian reservation, an assertion many officials have challenged.
The CFPB said that although Western Sky stopped accepting loan applications in September while being targeted in several investigations, CashCall continued to take out monthly installment payments from customers' accounts on loans that were voided and to use other shady collection tactics.
In a conference call with reporters, Cordray said 13 states have now filed formal actions against CashCall.
The CFPB is seeking monetary relief for consumers with loans serviced by CashCall that were considered void or nullified due to various state legal actions, as well civil money penalties.
The agency said in the press release that the action was "a significant step" in its efforts to tackle "regulatory-evasion schemes" in the online small-dollar and payday lending industry. The bureau's investigation alleges that high-cost loans made through CashCall violated either licensing requirements or interest-rate caps, or both, in at least eight states, including Arizona, Arkansas, Massachusetts and New York.
"In filing this suit today, the bureau has worked closely and collaboratively with state attorneys general and banking regulators," the CFPB said. "Some of these state officials are also filing their own lawsuits and announcing formal investigations today; others are already in litigation."
In 2012, a judge in West Virginia levied a $13 million penalty against CashCall after finding it used predatory lending practices against its clients in the state.