Online Lender Claiming Tribal Affiliation Must Refund, Cancel $11.6M In Payday Loans

Image courtesy of eyetwist

For years, online lenders have claimed affiliations with tribal groups in order to skirt state laws related to short-term, high-interest loans. Today, the state of Minnesota came to a settlement over a years-long, so-called “rent-a-tribe” loan scheme with CashCall, ordering the lender to pay $11.6 million in relief to borrowers. 

The settlement, announced Thursday by state Attorney General Lori Swanson, covers loans involving more than 6,000 Minnesota borrowers.

According to the complaint [PDF] — first filed in 2013 — California-based CashCall Inc. and its subsidiaries allegedly engaged in an “elaborate ruse” to deceive borrowers and regulators about its use of high-interest online loans.

“The company engaged in an elaborate scheme to collect payments far higher than allowed by state law,” Swanson said in a statement. “The company must cancel all outstanding loans, pay money back to consumers, and undo any adverse reporting to the credit bureaus.”

CashCall fraudulently claimed that the loans it provided were subject to tribal sovereign immunity because they were made by a South Dakota company called Western Sky Financial Inc., authorities claimed.

However, the state argued that tribal sovereign immunity doesn’t protect an individual member, including those that are assigned loans from a lender that claims immunity, such as CashCall and its subsidiaries.

The suit claims that after Western Sky supposedly originated the loans, it immediately assigned them to CashCall or similar companies, which then collected all payments on the loans and charge interest.

The resulting loans, ranging from $850 to $10,000, charged annual percentage rates of up to 342%, according to the lawsuit.

Under Minnesota law, a licensed lender making a similar loan could only charge an APR of about 22%

CashCall argued it shouldn’t abide by that rule, as it had immunity based on Western Sky — creating a “rent-to-tribe” arrangement.

As part of the settlement, CashCall will provide $4.5 million in restitution to consumers and cancel $5.2 million in outstanding loan balances.

Additionally, it must notify third parties that bought outstanding loan balances totaling more than $1.9 million that the debts should be forgiven.

This isn’t the first time Western Sky Financial has been involved in settlements or lawsuits with state regulators.

Last March, the Missouri Attorney General’s Office reached a deal to refund $270,000 to residents and requires the company to stop doing business in the state.

In August 2013, Western Sky Financial announced it would discontinue offering loans after facing lawsuits from around the country over three-digit interest rates for its loans. The company had perviously claimed they were not bound by state law because of their tribal affiliation.

[via Minneapolis Star Tribune]