In an opinion issued in a case previously discussed on this blog, a federal district court has found that a California loan company violated federal law by issuing high-interest loans through a separate company based on tribal lands. The company made the loans to consumers in states where the usury law would ordinarily bar the loan’s high interest rate, or the state required a lending license.
The CFPB brought this action against the corporation CashCall, and on August 31 the U.S. District Court granted the CFPB’s motion for summary judgment, and denied CashCall’s motion. CFPB v. CashCall Inc. et al., No. 2:15-cv-07522 (C.D. Cal. Aug. 31, 2016). The CFPB’s argument, adopted by the court, was that although the loans were made and originated by the company Western Sky Financial, a company licensed to do business by the Cheyenne River Sioux Tribe, CashCall was the “true lender”.
The court relied on evidence that CashCall purchased every loan made by Western Sky, before any payments were made or collected on the loan, and CashCall guaranteed a monthly minimum payment to Western Sky. CashCall also helped Western Sky develop the underwriting criteria for the loans and borrowers made all payments to CashCall. Accordingly, the court found that CashCall bore all the economic risk and reaped the benefits of the loans.
The Western Sky loans contained a choice of law provision, stating that the loans were governed by the laws of the Cheyenne River Sioux Tribe. The loans charged interest rates over 80%, well above state usury limits in the sixteen states named in the CFPB’s action. Because of this the CFPB alleged that these loans were invalid, and that by collecting on these loans CashCall violated the Consumer Financial Protection Act by engaging in unfair, deceptive and abusive acts and practices. The court agreed with the CFPB, applying choice of law principles to find that despite the provision in the loan documents selecting tribal law as the governing law, the states where the consumers made the loans had a greater interest in the application of their laws than the Cheyenne River Sioux Tribe. The court also found that the company’s CEO, founder and sole owner was personally liable under the Consumer Financial Protection Act for participating directly in the deceptive acts, and being recklessly indifferent to the wrongdoing.
With this ruling, the U.S. District Court for the Central District of California has confirmed the CFPB’s expansive definition of unfair, deceptive and abusive acts and practices and, by doing so, the broad scope of the CFPB’s jurisdiction to investigate and regulate.