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CFPB targets online lender

By Marcie Geffner · Bankrate.com
Friday, December 20, 2013
Posted: 2 pm ET

The Consumer Financial Protection Bureau, or CFPB, has filed a legal action against an online loan servicing company and has said it has plans to take more actions against online lenders.

The recent action was taken against CashCall, a California-based company; CashCall's subsidiary, WS Funding, CashCall's affiliate; Delbert Services Corp., a collection agency based in Nevada, and the companies' owner J. Paul Reddam.

The complaint alleges that the companies and Reddam engaged in unfair, deceptive and abusive practices.

In a statement, CFPB Director Richard Cordray said the federal agency was taking action against CashCall for collecting money that it had no right to take from consumers.

"Online lending is rapidly growing and deserves ample regulatory attention," Cordray said.

The CFPB said its investigation discovered that beginning in late 2009, CashCall and WS Funding entered into an arrangement with Western Sky Financial, an online lender based in South Dakota.

WS Funding acquired the online loans and CashCall serviced them.

The loan amounts ranged $850 to $10,000, and the loans typically had upfront fees, lengthy repayment terms and annual interest rates from almost 90 percent to 343 percent.

Many of the consumers signed loan agreements that permitted payments to be debited directly from their bank accounts, the CFPB said.

The CFPB also said its investigation showed that these high-cost loans violated licensing requirements, interest-rate caps or both in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina. Since laws in those states void or nullify all or part of any obligation to pay such loans, the companies allegedly collected money consumers didn't — and don't — owe.

Western Sky Financial said state laws didn't apply to its business because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.

The CFPB said this relationship with a tribe doesn't exempt the lender from state laws when it makes loans online to consumers in various states.

Western Sky stopped making loans in September 2013 and began to shut down its business after several states began investigations and court actions, the CFPB said. CashCall and Delbert allegedly continued to debit consumers' bank accounts or take other actions to collect money from consumers.

The CFPB wants CashCall to refund the money it took from consumers where the loans were void or the consumers' obligation was otherwise nullified. The complaint also seeks additional damages and civil penalties.

Have you used online loan services?

Follow me on Twitter: @marciegeff

 

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