Another tribal lender is about to close down their business and this time it isn't some little unknown company. Western Sky Financial (yes, the Western Sky huge tribal lender with all kinds of TV and radio advertising) has announced that they will be closing their doors to any new customers after September 3, 2013.
The announcement went out Monday, August 26, 2013 so the company left only one week from the announcement to when they will stop issuing new loans. Western Sky will keep their offices open and the website will remain in operation in order to service their existing customers. The news broke first at the Wall Street Journal website.
Western Sky Financial has been targeted by a number of state regulators for their extremely high cost loans. The company would issue loans with interest rates as high as 355%. This is a high rate and it does make it hard for customers to repay, however before the criticism begins to fly (and the criticism was implicit in the WSJ article) make sure to do your homework. Look around at all of these other tribal lending companies and find a rate that is substantially better. I have done the homework and the fact is that Western Sky's rates were in line to other tribal lenders and more similar in their overall terms than not.
What happened to Western Sky was a two part problem. The first problem had to do with just how successful the company was at advertising and growing. Without a doubt Western Sky Financial became the most well known tribal lending company in the United States. Unlike most online lenders Western Sky bought a lot of television and radio advertising spots. They ran their ads during the middle of the day on cable networks, in the middle of the night on broadcast channels, and all day long on many radio stations. It's safe to say that the average consumer has heard their advertisements dozens or maybe hundreds of times. But this widespread advertising made them the face of tribal lending and they became synonymous with Native American loans. The reality is that tribal loans are very expensive and it is quite easy to get into financial trouble when taking out such expensive loans.
Western Sky (and all tribal lenders) state on their site that this is an expensive form of credit and they are not kidding. If you fall behind there are a number of extra fees and penalties that will get added to the customers next payment, in addition to the already high finance charge. Since it is so easy to get into trouble with these types of loans, can you take a guess as to what has transpired over the last few years? Of course, thousands of people have fallen behind and been financially devastated by Western Sky.
This in turn has led to a number of complaints with the Better Business Bureau, as well as all sorts of internet forums and websites dedicated to consumer abuse. Many borrowers (ex-borrowers) of Western Sky loans also turned to complaining to their states attorney general. The New York Attorney General became the most aggressive, filing lawsuits in federal court to stop the company from issuing loans.
The other problem Western Sky had was in the original formation and registration of the company. Evidently the company was registered as an LLC in the state of South Dakota. Rather than following the normal format of registering as a sovereign nation organization, Western Sky was organized and registered by a member of the tribe (based in South Dakota) and the limited liability company was registered in South Dakota. So all this time, technically Western Sky has not been a true (legally anyway) tribal loan company. All of this is according to the filings in federal court by the New York State Attorney Eric Schneiderman.
In the end all of the attention and new customers that Western Sky got with their advertising blitz came back to haunt them. Many of these customers made a lot of noise about the poor practices of Western Sky and that woke-up a number of state regulators, who then filed suit. In addition to AG Schneiderman the New York Department of Financial Services Superintendent issued a cease and desist order to Western Sky Financial, among a number of other tribal lenders. New York has led the charge and they will get the credit for the disruption, and conclusion, to Western Sky continuing as a lender.
That's something that has mixed results. In the most simple terms this outcome makes total sense and it would appear to be the best moral result, too. Western Sky charges what would be considered outrageous rates when compared to a few years ago. If you go back a few decades their rates would be absolutely illegal. The company doesn't leave much room to negotiate and if you miss a payment there is a very good chance you will wind-up paying a lot of money and none of it will go towards the principal amount of the loan. Western Sky was not a very nice lender. They certainly could have charged less in their finance charges and they could have been more flexible when people got into trouble. They were not, people got burned, and now Western Sky is getting burned.
On the other hand it will be bad to lose Western Sky. After dealing with this company first hand (I was a customer in 2011) and getting a loan for $4,000 with them, it can truly be said that this was one of the last companies remaining where an average person could get a real loan. And I am specifically leaving out the massive number of payday loan stores that are so ready to loan out $300 0r $400 dollars, with the due date 12 days away. That's not a real loan. Western Sky issued true installment loans in which there were a number of repayment dates, anywhere from 12 bi-weekly repayment dates or as many as 78 repayment dates, which is a three year loan. The concept of most tribal lenders providing a three year loan is just out of the question. Most lenders these days won't even issue you a 36 day loan, much less a 36 month loan.
Western Sky did actually provide loans, and finding a company that is willing provide a long-term loan is just getting harder every year. Now it will be even harder without Western Sky. The lowest amount the company is (was) willing to lend was $850 and the maximum was $10,000. I can emphasize how different that is from all other tribal lenders. And Western Sky would issue loans to people who did not have fantastic credit. If you think that other signature lenders are going to step into the breach created by the loss of Western Sky you are mistaken. Companies like Springleaf and OneMain Financial are lenders that are for higher-end borrowers who have relatively high income and who have a very good credit score. That means that more than 50% of all Americans are immediately out of consideration for these mainstream lenders.
One more note in the defense of Western Sky. The company claimed to have lower rates than payday lenders and they are correct. If you were to get a small loan, say $400, and all you did was make the minimum finance charge (in order to keep rolling the loan over) and you did that for the entire year you will end up paying just as much if not more than a loan from Western Sky. And that loan with Western Sky would have been for a larger amount than the payday loan. The argument that Western Sky has high interest rates really doesn't work very well because there are dozens of other tribal lenders with even higher rates.
It makes sense that Western Sky is going away from the point of consumers getting treated fairly. Their rates were not very good and their penalties were too extreme. But if you think that things will be better without the company around, you better hope you never need to get hold of a true loan (over $2,000) because the loan companies that are left standing will not even consider your request.