Missouri AG Shuts Down Eight Online Payday Lenders Operating From South Dakota Reservation

More than 6,300 Missouri residents will receive refunds or have their debts voided after the state’s attorney general reached an agreement with an online payday lender based on a Sioux reservation in South Dakota.

St. Louis Post Dispatch reports that Missouri Attorney General Chris Koster reached a deal with the online payday loan operation that will refund $270,000 to residents and requires the company to stop doing business in the state.

The operation issued loans online under the names Payday Financial, Western Sky Financial, Lakota Cash, Great Sky Finance, Red Stone Financial, Big Sky Cash, Lakota Cash, and Financial Solutions.

None of the businesses were licensed to do business in Missouri, however the company claimed it was exempt from all states’ laws because it operated from a sovereign nation – the Cheyenne River Sioux Tribe.

Still, Koster sued the operation – which is controlled by Martin A. “Butch” Webb – claiming that lenders violated state laws by imposing excessively high fees on the short-term loans, The Post Dispatch reports.

Missouri state laws prohibit origination fees of more than 10% of the loan, to a maximum of $75.

The Missouri AG’s office reports it received 57 complaints from consumers who were collectively charged more than $25,000 in excess fees.

In one instance, a Missouri resident was charged a $500 origination fees on a $1,000 loan, which was immediately rolled into the principal of the loan. She was then charged a 194% annual percentage rate and eventually paid $4,000.

“These predatory lending businesses operated in the shadows, taking advantage of Missourians through outrageous fees and unlawful garnishments,” Koster said in a news release. “Webb may have thought that by operating on tribal land he could avoid compliance with our state’s laws. He was wrong.”

Under the agreement, the payday loan operation is prohibited from making or collecting on any loans in Missouri. It also cancels existing loan balances for Missouri borrowers. The company must pay $270,000 in restitution to consumers and $30,000 in penalties to the state.

This isn’t the first time that Webb and his payday operations have come under scrutiny for their lending and collection practices.

In 2011, the FTC sued Webb and nine of his businesses for allegedly attempting to garnish borrowers’ wages without first obtaining a court order, in violation of the FTC Act.

The defendants surrendered around $420,000 following a partial judgement in favor of the FTC back in Sept. 2013, shortly after Western Sky – one of Webb’s operations – announced that it would have to stop funding new loans.

Then in April 2014, Webb reached an agreement with the FTC to pay nearly $1 million in penalties over charges that it illegally garnished borrowers’ wages and wrongfully sued them in tribal courts.

Payday lenders hiding behind tribal affiliation have been dealt several blows in recent years that make them more accountable for their actions.

In May 2014, consumer advocates say a decision from the U.S. Supreme Court in regards to a Michigan Native American tribe’s alleged illegal casino could prove to be a game changer for the often predatory payday loan industry.

The court’s decision, while it didn’t appear to have much to do with payday lending, made it clear that states have options when a tribe conducts activity off-reservation.

Officials with the National Consumer Law Center said at the time that the decision makes a clear statement that states can “shutter, quickly and permanently, an illegal casino” and that the same is true for illegal payday loans that claim tribal affiliation.

Nearly a year ago, a U.S. District Court judge upheld a magistrate judge’s 2013 ruling that the Federal Trade Commission has authority to regulate certain companies associated with Native American tribes.

That ruling revolved around Colorado-based AMG Services’ claim that it was exempt from FTC enforcement because of its affiliation with American Indian tribes.

Reservation payday lender to pay restitution to Missourians [St. Louis Post Dispatch]