Monday, July 18, 2016

Outfits Notorious For Using "Rent-A-Tribe" Racket (Purporting To Dodge State Usury Laws By Claiming Federal Sovereign Immunity) To Peddle Excessively High-Interest Online Payday Loans Agree To Cough Up $750K, Voids All Claims Against State Residents To Settle Another State AG Lawsuit

From the Office of the Arkansas Attorney General:
  • Arkansas Attorney General Leslie Rutledge has settled a consumer-protection lawsuit against Western Sky Financial, CashCall Inc., WS Funding, Martin A. Webb and J. Paul Reddam. The entities were accused of conspiring to offer illegal payday loans online to Arkansans while claiming to be affiliated with a Native American tribe.(1)

    Under the terms of the settlement, the Arkansas Attorney General’s office will collect $750,000 of which $500,000 will be made available to eligible consumers. The remaining $250,000 will be deposited to the Consumer Education and Enforcement Account. The entities may not offer, fund or collect upon any loan with an interest rate in excess of the maximum rate set out in Arkansas law. Additionally, the settlement voids all current, delinquent, defaulted, charged-off or outstanding lending transaction entered into with Arkansans.

    “Arkansans who were in a time of need sought the online lending services of the defendants and were regrettably handed more debt,” said Attorney General Rutledge. “While traditional storefront payday lending has been eliminated in Arkansas, the risk to Arkansans from online payday lenders is quite high. My office will continue to protect consumers against these illegal activities and will notify those who are eligible to receive restitution payments under this settlement.”

    The lawsuit, which was filed in October 2013, alleged that the defendants offered online payday loans with interest rates as high as 342 percent, in violation of Arkansas law.

    Western Sky, based in South Dakota, identifies itself as a tribal entity protected by tribal sovereign immunity. However, Western Sky was not protected by tribal immunity because it was not owned or operated by a tribe. Consumers based in Arkansas, not on tribal lands, used the internet to apply for loans and sign loan documents. CashCall and its subsidiary, WS Funding, are based in California and owned by Reddam. Martin Webb, also known as Butch Webb, owns Western Sky.

    According to the 2013 complaint, WS Funding had an agreement with Western Sky in which Western Sky nominally originates the illegal payday loans, then assigns the loans to WS Funding for them to collect. CashCall and its subsidiaries ran virtually every aspect of Western Sky’s operations.

    Arkansans had been offered loans in amounts ranging from $850 to $10,000, with corresponding annual percentage rates of between 89 percent and 342 percent.
Source: Rutledge Reaches Settlement with Online Payday Lender.

For an earlier settlement with the North Carolina Attorney General, see Court OKs NC AG's $9+ Million Settlement w/ Online, Payday-Type Lender (Accused Of Peddling Excessively-High Interest, 'Fast Cash' Loans, Using "Rent-A-Tribe" Racket To Purportedly Claim Federal Sovereign Immunity From State Usury Laws).

See generally, Center for Responsible Lending: Ending the Cycle of Evasion: Effective State and Federal Payday Lending Enforcement:
  • Some lenders attempt to sidestep regulations through a number of schemes, such as by claiming that affiliations with Native Nations or operating online exempt them from complying with state regulation.
    ***
    The scheme is structured similarly to a historic form of payday subterfuge known as "rent-a-bank,” in which non-bank lenders, such as payday lenders, partner with out-of-state banks in order to charge rates higher than what is permitted by state law.

    Western Sky (a non-bank company claiming tribal sovereign immunity) originated illegal payday loans over the internet, then quickly sold the loans to California-based company CashCall (or one of its subsidiaries) often before the first payment. Subsequently, the loans were serviced by CashCall (or one of its affiliated entities). Court documents revealed further that virtually all of Western Sky’s operations were controlled by CashCall. CashCall et al. claim that their association with Western Sky exempts them (and the companies servicing and collecting loans originated by Western Sky) from regulation under state law.

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