LOS ANGELES (Legal Newsline) - A Los Angeles federal judge’s ruling against CashCall Inc. over alleged
predatory lending practices is a win for consumers, an expert in responsible
“The court’s decision is a huge victory for consumers in helping enforce
laws that are in place to protect against high-cost lending practices,” Diane
Standaert, director of state policy at the Center for Responsible
Lending, told Legal Newsline.
The ruling in Consumer Financial Protection Bureau v. CashCall Inc., granted the CFPB summary judgment on the issue of liability. The CFPB alleged CashCall violated the Consumer Financial
Protection Act of 2010 by offering loans with exorbitant interest rates, some
as high as 300 percent, exceeding state usury laws in the process.
In these lending agreements, customers took out loans online
or over the phone through Western Sky, a financial company under the jurisdiction of Cheyenne River Sioux tribal law. Once loans were
processed, CashCall, a separate entity, purchased and backed them.
Western Sky did handle loan transactions, but it was
CashCall that serviced and collected on the loans, a move that gave customers
the impression payments were required and that their loans were legitimate.
The court found that in most cases, CashCall had not
even secured consumer lending licenses in a majority of the states they were
In his ruling, District Judge John F. Walter focused on
who was the “true lender.”
CashCall argued the
CFPB’s effort to establish a test to
determine “true legal lenders” put the company on the spot.
Experts say the
decision against CashCall may protect some consumers, but it won’t
necessarily solve predatory lending practices.
“One thing we know about the lending industry is that they are very
persistent in seeking and exploiting potential loopholes,” Standaert said.
“They’ve tried it with rent-a-banks, they’ve tried it with credit
services organizations, and here they were trying it with a tribal lending entity,
so it is something that has appeared in multiple forms over many years and each
time there have been efforts to successfully enforce against these schemes
designed to evade consumer protection.”
Payday lenders continue to evolve, but Standaert says this
ruling is timely, as it comes in the wake of the CFPB seeking public comment on
its first draft of national rules for payday lending.
“Payday loans are marketed as a quick financial fix, but in reality
create a long-term debt trap that can lead to a cascade of harms like bank
penalty fees, increased likelihood of overdraft when they are paying their
bills,” Standaert said.
“It’s because of these harms that 14 states and the District of Columbia
enforce strict usury limits to protect against these high-cost loans.”
The “true lender” determination does present new questions
in regards to a variety of lending arrangements, but Standaert says it provides
opportunity for the agency (CFPB) to deem that loans made in violation of state
laws, are in violation of the federal unfair, abusive and deceptive act.”