This article is part of a series of occasional articles supported by a grant from the Northwest Area Foundation.
Minnesota joined nine other states in cracking down on a fast online lending company that claimed to operate under Native American tribal law, circumventing state limits on lenders.
CashCall, Inc. of California used Western Sky Financial LLC – which claims to operate under tribal law of the Cheyenne River Sioux in South Dakota – as a front and illegally charged borrowers in Minnesota annualized rates of up to at 342%, according to a lawsuit filed today. by Minnesota Attorney General Lori Swanson and Commerce Commissioner Mike Rothman.
The borrowers were falsely told the loans were governed by tribal law, according to a complaint filed in Hennepin County District Court.
MinnPost reported in June that lenders claiming to operate under tribal law were advertising in Minnesota and generating complaints with authorities. Borrowers who bit on these ads found themselves in murky legal waters and disputes over the scope of tribal sovereignty.
Domestically, some non-Indian actors were using tribal sovereign immunity as a front — so-called “rent-a-tribe” programs — to sidestep state limits on loan amounts, interest rates interest and collection tactics, according to federal authorities.
In the Minnesota lawsuit, authorities allege loans were made to consumers as being made by Western Sky Financial, LLC. In reality, they allege that CashCall or its affiliates were funding the loans – buying them immediately before the borrower had made a single payment. And CashCall collected interest and payments.
Western Sky and its affiliates did not respond to repeated requests for comment from MinnPost. On his websiteWestern Sky pointed out that it “is a Native American company operating within the outer limits of the Cheyenne River Sioux Reservation, a sovereign nation located in the United States of America.”
Further, he stated, “All loans will be subject only to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation. All Borrowers must consent to be bound by the jurisdiction of the Cheyenne River Sioux Tribal Court and further agree that no other state or federal law or regulation shall apply to this Loan Agreement, its application or its interpretation. .
Minnesota authorities reject this request for sovereign immunity.
“CashCall uses Western Sky as a front to fraudulently give consumers the impression that they are subject to tribal law, not state law, and therefore not subject to the interest rate caps of the state and other consumer protections,” said a statement released by Swanson. Office.
“Western Sky and CashCall falsely claim that the loans are not subject to state loan laws (including state interest rate caps) because Western Sky owner Martin Webb, is a member of the Cheyenne River Tribe of South Dakota,” the statement read.
According to the complaint, Western Sky’s advertisements offering easy money prompted Minnesotans to borrow between $850 and $10,000 with annualized percentage rates ranging between 89 and 342 percent. Consumers also paid an origination fee of up to $500 at the start of the loan, which is funded and subject to the same interest rates.
“In other words, a Minnesota resident who wishes to receive $1,000 must finance $1,500 – with $500 immediately for fees – and then must repay the entire $1,500 at an interest rate of 149% “, says the press release announcing the lawsuit. By contrast, he said, a properly licensed lender making a similar loan would only be allowed to charge a fee of $25, with an APR of 21.75%.
“This outfit has a history of hiding behind shell companies to circumvent legal protections — including limits on interest rates — available to borrowers under state law,” Swanson said. “The internet is flooded with unlicensed lenders, and people need to be on their guard.”
CashCall also advertised under its own name in Minnesota. And he’s been caught in the past trying to dodge lending laws using so-called “rent-a-bank” schemes, according to the lawsuit.
Other States and Federal Regulators
The Federal Trade Commission and at least nine states – including Colorado, Illinois, New Hampshire, Massachusetts, Oregon, Georgia, Missouri, Maryland and Washington – have taken action against CashCall and/or Western Sky for illegally making loans without proper state licensing and in violation of state usury laws.
In April, the Oregon Department of Consumer and Business Services released a cease and desist order against Western Sky and fined the company $17,500 “for making loans in Oregon without proper licensing and charging interest rates in violation of Oregon law.” The department’s statement said Western Sky had “promoted its loans through an aggressive television and radio advertising campaign in numerous states, including Oregon,” and charged premium rates. annualized interest between 89% and 342%.
Colorado Attorney General for follow-up Western Sky and its owner, Martin A. Webb, in state district court in 2011, alleging that the unlicensed lender illegally made some 200 loans in Colorado.
A Colorado district court judge was unconvinced by Western Sky’s argument that Indian-owned businesses operating on a reservation are not subject to state rules. In a summary judgment finalized in May, he sided with the state, noting that borrowers applied for and received their loans in Colorado, not on the South Dakota reservation. And they paid off Colorado loans and finance charges, usually by withdrawing funds through Western Sky electronically from their local bank accounts.
The Colorado court also did not accept Western Sky’s demand that borrowers submit to the jurisdiction of the Cheyenne River Sioux Tribal Court.
Meanwhile, the Federal Trade Commission charged in the U.S. District Court for South Dakota that Western Sky and affiliated lending companies “sought to unfairly and deceptively manipulate the legal system and force indebted consumers from across the country into South Dakota and to appear in tribal court that had no jurisdiction over their cases.” The FTC said Webb also does business under several different names, including Payday Financial LLC, Lakota Cash and Great Sky Finance.
The FTC alleges that Western Sky and its affiliates attempted to settle claims in tribal court and even obtained court orders to garnish their wages.
“The Tribal Court has no jurisdiction over claims against persons who are not of the Cheyenne River Sioux Tribe and who do not reside on the reservation or elsewhere in South Dakota,” the FTC said in summarizing his case.
The Better Business Bureau gives Western Sky an F rating.
In 2010, the Better Business Bureau warned cash-strapped families to beware of online lenders claiming they are not beholden to state or federal laws. After receiving hundreds of complaints, the BBB said lenders, when confronted, typically claim legal immunity – “often claiming they are based in another country or on Native American reservations and are nations sovereign”.
The BBB also said the West Virginia attorney general had “evidence to prove that lenders claiming tribal sovereignty were not actually part of the tribe but were merely ‘renting’ it out to protect themselves from state law. and federal”.
Some tribal lending businesses are legitimate, as are the sovereign rights of tribes to operate them on their own terms. And some tribes across the country see the online lending industry as the new casino, a new chance for those operating on remote reservations to profit.
In the case of CashCall and Western Sky, however, Minnesota authorities say they are drawing the line.
“Minnesota is not open to illegal, bogus lending companies preying on our consumers,” said Commerce Commissioner Rothman, whose department licenses and regulates lenders making loans in Minnesota. “The Commerce Department is committed to ending loan programs that are ripping off Minnesota consumers with exorbitant interest rates.”
Their lawsuit seeks to stop the loan operation as well as seek restitution for Minnesota consumers.
The same Minnesota authorities have successfully cracked down on other online lenders who were operating illegally in Minnesota and charging rates well above the caps set by state law.
On May 31, Ramsey County District Judge Margaret Marrinan ordered Delaware-based Integrity Advance LLC to pay $7 million in damages to the state and $705,308 in restitution to borrowers. of Minnesota. The company was also prohibited from collecting interest and fees on loans made to Minnesotans unless it obtained an appropriate license in the state.
The case was Swanson’s office’s eighth recent court victory against online lenders.