The Consumer Financial Protection Bureau (CFPB) sounded the alarm about online loan services, filing a lawsuit against CashCall Inc., for collecting exorbitant amounts of money the bureau says consumers didn’t owe.
It is the first time the CFPB has sued an online loan service.
The CFPB alleges that CashCall Inc., tried to collect on loans made by Western Sky Financial that ranged from $850 to $10,000 and charged interest rates ranging from 90 percent up to 343 percent. According to CFPB, CashCall illegally debited consumer checking accounts to collect on those loans, and violated lending laws in at least eight states.
The bureau says these loans included upfront fees and lengthy repayment schedules that resulted in consumers paying as much as $62,453 over seven years for a $10,000 loan.
“We are taking action against CashCall for collecting money it had no right to take from consumers,” CFPB Director Richard Cordray said in a statement. “Online lending is rapidly growing and deserves ample regulatory attention. The Consumer Financial Protection Bureau will take action against online lenders and servicers that engage in unfair, deceptive or abusive practices.”
States Join in Suit
Western Sky Financial’s owner was a Native American and the company was based on an Indian reservation in South Dakota. It had a national reputation for claiming that its ties to a reservation meant it did not have to follow state laws. Western Sky shut down its lending business in September after being sued by New York, one of eight states with laws that place caps on interest rates, require licenses to make short-term loans or both.
The other states include Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire and North Carolina. Colorado and North Carolina joined the CFPB in filing suit against CashCall.
The CFPB said that CashCall violated lending laws in each of those states, removing consumers’ obligation to pay back the loans.
CashCall attorneys claim the CFPB has no right to enforce state laws regarding interest rates. The CFPB’s response was that the loans were made over the Internet to consumers in many states and must comply with the laws in those states.
Agency Wants Money Refunded
The CFPB lawsuit seeks a court order to require CashCall to refund money illegally collected from borrowers. It also asks for penalties against CashCall and an order requiring CashCall to follow all laws in collecting payments.
The website for CashCall displays quotes for consumer loans in amounts ranging from $2,600 to $25,000 with repayment terms spread between four and 15 years.
For example, the $5,000 loan, paid back over 7 years at $486.58 a month, would cost the borrower $40,872.72. The APR on that loan is 116.73 percent.
A $100,000 loan, paid back over 15 years at $2058.27 per month, would cost the borrower $370,488.60. The APR on that would be 24.08 percent.
By contrast, the typical $100,000 home loan at 6 percent from your local bank would cost $151,894.23. The APR on that loan would be 6.43 percent.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- Zibel, A. (2013, December 16)CFPB Sues Online Lender CashCall. Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702304403804579262411416359846
- Harris, S. (2013, December 16) CFPB sues CashCall for attempts to collect on tribal loans. Cleveland.com. Retrieved from http://www.cleveland.com/consumeraffairs/index.ssf/2013/12/cfpb_sues_cashcall_for_attempt.html
- NA, ND. Current Rates. Cashcall.com. Retrieved from http://www.cashcall.com/CurrentRates.aspx
- NA, ND. Mortgage APR Calculator. Mortgageloan.com. Retrieved from http://www.mortgageloan.com/calculator/mortgage-apr-calculator