~ Virginia consumers to receive $15.335 million in restitution and debt relief as part of settlement to resolve allegations that online lender used “rent-a-tribe” scheme to deceive consumers and collect illegal interest on online loans ~
Attorney General Mark R. Herring today announced that Virginia consumers will be receiving $15.335 million in restitution and debt relief as part of a settlement to resolve claims that CashCall, Inc. and its president and CEO J. Paul Reddam illegally deceived borrowers and collected illegal interest of up to 230% on online loans made in amounts of between $700 and $10,000. The settlement will result in $9.435 million in restitution to approximately 10,000 Virginia consumers who were overcharged illegal interest, an estimated $5.9 million in debt relief, and credit reporting corrections for affected borrowers. The settlement, secured by the Predatory Lending Unit of Attorney General Herring’s Consumer Protection Section, also requires payment of $100,000 in civil penalties and attorneys’ fees to the Commonwealth.
“Online lenders are quickly becoming a new source of high-interest, financially risky loans,” said Attorney General Herring. “Unfortunately, like payday and car title loans before them, these small dollar loans issued online often come with exorbitant interest and fees that can trap a borrower in a cycle of debt. This is the largest settlement my Predatory Lending Unit has secured against an online lender. I’m glad we’re going to be able to get some relief to consumers who were harmed and I hope this settlement sends a clear message that we will not allow lenders to deceive, defraud, or illegally abuse Virginians.”
According to Attorney General Herring’s complaint, CashCall broke the law by engaging in a “rent-a-tribe” scheme, using a South Dakota company with a purported Native American tribe affiliation called Western Sky Financial, LLC as a façade for marketing and issuing its high-cost installment loans. CashCall used Western Sky’s purported Native American tribe affiliation to deceive Virginia consumers into believing that no state or federal laws applied to its loans and that its excessive interest rates were legal. CashCall then collected the Western Sky loans at interest rates ranging as high as 230% annually. But, according to the complaint, Virginia’s usury laws did apply to CashCall’s loans and capped the collectable interest at 12% annually. Thus, the complaint alleges the following violations of the Virginia Consumer Protection Act:
- Misrepresenting that Western Sky is a Native American business entity;
- Misrepresenting that the Western Sky loans were subject only to the laws and jurisdiction of a Native American tribe;
- Misrepresenting that the Western Sky loans were governed by the Indian Commerce Clause;
- Misrepresenting that the Western Sky loans were not subject to federal laws or the laws of the Commonwealth of Virginia;
- Misrepresenting that Western Sky was the lender on CashCall’s Virginia loans; and
- Misrepresenting the legality of charging more than 12% annual interest in the Commonwealth of Virginia.
The civil settlement is in the form of a Stipulated Final Judgment and Order that has been filed with the United States District Court for the Eastern District of Virginia, Richmond Division. The settlement was filed in coordination with a pending Virginia class action settlement in the same court and the order is expected to be entered at the time the court approves the final class settlement. -Submitted by Michael Kelly