On August 18, the Minnesota Attorney General announced that it had settled a lawsuit against online money lender CashCall, Inc. The State of Minnesota alleged that CashCall violated Minnesota’s usury, lending, and licensure laws by entering into an arrangement in which a company affiliated with a Native American tribe would loan money to Minnesota citizens at interest rates as high as 342 percent and then transfer those loans to CashCall for servicing and collection. The 342 percent rate exceeded the Minnesota interest rate limits.
Under the terms of the settlement, all outstanding loans to Minnesota residents have been forgiven. If CashCall sold a loan to a third party, the settlement requires CashCall to send a letter to the third party, directing the third party to forgive the loan. In addition, CashCall must send a letter to the consumer reporting agencies to which it reported, directing the consumer reporting agencies to remove any reporting about the loan from consumers’ credit report. CashCall also made a $4.5 million restitution payment to Minnesota.
Minnesota’s settlement with CashCall is a part of a growing trend of states executing settlement agreements with lenders arising out of the lenders’ alleged violations of state licensing and usury laws. In fact, CashCall recently executed similar settlements with the States of Arkansas and Michigan. These cases are particularly important to payment processors, as states have filed lawsuits or executed settlement agreements with lenders and processors arising out of allegations that the lenders violated a state’s usury laws.