As discussed here, in 2016 the Central District of California granted judgment in favor of the Consumer Financial Protection Bureau (CFPB) in its long-running challenge to CashCall, Inc.’s tribal-lending operation. Specifically, the court found that CashCall engaged in unfair, deceptive, and abusive acts or practices in violation of the Consumer Financial Protection Act (CFPA) when it serviced and collected on loans made by Western Sky Financial, a lending operation owned by an enrolled member of the Cheyenne River Sioux Tribe. Invoking a contested doctrine, the court found that CashCall was the “true lender” of the loans and, therefore, had deceived consumers by creating the false impression that the loans were enforceable and that borrowers were required to repay them.
However, in the damages phase of the litigation, the court rejected the CFPB’s request for $236 million in restitution, finding that the CFPB failed to present any evidence that CashCall “set out to deliberately mislead consumers” or “otherwise intended to defraud them.” The court also rejected the CFPB’s request for a $52 million penalty finding that the CFPB failed to prove that CashCall knowingly engaged in any misconduct. The CFPA imposes penalties in three tiers depending on the defendant’s level of culpability. Applicable in this case, a first-tier penalty requires no showing of scienter whereas a second-tier penalty applies to “any person that recklessly engages in a violation” of the CFPA. Each penalty tier provides a maximum penalty for each day during which a violation continues. Ultimately, the court awarded the CFPB a tier-one civil money penalty of $10,283,886. Both parties appealed.
The Ninth Circuit affirmed in part and reversed in part, concluding that the court correctly found liability but erred in determining the penalty. The appellate court determined that CashCall’s conduct was reckless beginning in September 2013, which would require a tier-two penalty award for violations beginning that month. The Ninth Circuit remanded the action instructing the court to: (1) reassess the civil penalty; and (2) re-evaluate whether restitution is appropriate in a manner consistent with the CFPA.
On remand, the district court assessed the maximum tier-one penalty from the time period beginning on July 21, 2011 and ending on August 31, 2013 and the maximum tier-two penalty for the time period beginning on September 1, 2013 and ending on August 31, 2016, resulting in a civil penalty of $33,276,264. The court further ordered restitution in the amount of $134,058,600 to ensure that consumers are made whole and protected from deceptive practices. “As the Ninth Circuit held, ‘CashCall harmed consumers by deceiving them about a major premise underlying their bargain: that the loan agreements were legally enforceable.’ Accordingly, consumers paid interest and fees to Defendants that they had no legal obligation to pay.”
Notably, both before the Ninth Circuit and on remand CashCall, relying on the Fifth Circuit’s decision in Community Financial Services Association of America v. CFPB, requested the court enjoin prosecution of the case on the grounds that the CFPB’s funding structure violates the Appropriations Clause. Both courts denied Cashcall’s motion. The Ninth Circuit determining that the constitutional challenge had been forfeited and the law of the case doctrine binding the district court. Notwithstanding, the district court noted that it would still reject the Fifth Circuit’s ruling as inconsistent with “‘every other court to consider’ the validity of the CFPB’s statutory funding provisions.”
A copy of the district court’s decision can be found here.