CashCall has been a leading lender (although if you asked the managers over at CashCall they never supplied any loans to anyone, they simply loaned money to other lending companies) involved with tribal lending for at least nine years and maybe longer than that. But recently (September of 2016) the world changed for CashCall as a lawsuit led by the CFPB (that's the Consumer Financial Protection Bureau) won a federal court case in California against the firm. What makes the story so interesting is that the case actually went back to the old days (2005 - 2012) of tribal payday lending when a company called Western Sky Financial was the big player in the business. Western Sky has been gone for years but this case focused on CashCall's financial relationship to that company.
The trial looked at the fact that CashCall was immediately buying the loans generated by Western Sky after that company had successfully marketed and signed-up new borrowers. But immediately after the potential customer had been converted to an actual customer the loan was promptly sold to CashCall. And it wasn't like CashCall was reviewing each loan, and choosing some but denying others, the process was automatic. There was zero underwriting activity as far as credit, risk or any type of normal standards someone who would purchase debt from another entity would undertake. Instead the relationship was one built on numbers. The entire structure of Western Sky being a Native American lender that could issue these super high interest rate loans and then sell them on to a non-Native American company (which was CashCall) to "manage" or "operate" was seen by the federal judge (and anyone else with any common sense) as a flagrant front activity.
CashCall was the company funding the operation and they were the ones would benefit just as much, if not more, than the Native American lending company. Western Sky did get a lot of money out of the operation but the judge found that CashCall was the de facto lender since it was there capital that was funding the loans. Western Sky operated as a kind of middle man, which was a necessary process because otherwise the loans would not have been legal to originate in the first place. The loophole here was (and largely still is) the fact that Native American lenders are not restricted to writing loans with any state bound regulations on lending. That means the interest rate that was assigned to the loans could be whatever the tribal entity wanted the rate to be. If Illinois had a maximum lending rate of 96% or New York had a maximum rate of 38% well it turns out none of those state regulations meant a thing at all. The tribal lender, in this case Western Sky based out of a federal recognized tribal reservation in South Dakota, could decide that a 783% APR or a 430% APR was far superior for their profits than any of the boring state mandated rates could provide.
The states had no sway or legal control over what financial operations took place on tribal lands. This is where the newly created CFPB focused their attention. And they noticed that CashCall was relentlessly purchasing all the loans that Western Sky could create. The judge found that the relationship between the two companies was not legitimate, at least in the fact that it technically allowed for CashCall to collect on loans which had rates far above what any state would have found as legal.
The judge wrote in his decision "Indeed, the intentionally complicated and sham structure of the Western Sky loan program would have made it impossible for reasonable consumers to know that law did not govern the loan agreements, and thus that their loans were void and/or not payable under the laws of their home states" and the legal jargon of the judge continues but that is enough for our purposes. And we can disagree with the judge on one point because he referred to the arrangement as 'intentionally complicated' which it was not at all. Western Sky had one purpose, which was to get around the regulations of 50 states and to gain access to the residents of those 50 states without the legal difficulty of state rules. CashCall had the funds to make the loans happen while Western Sky had the legal standing to make the loans "legal" or at least they thought they did.
It's not a good day for CashCall but at the end of the day this does not really impact Native American lending. This was a rare arrangement. Most tribal lenders run the entire operation from the tribal land. They market the loans, originate the loans, fund the loans, manage the loans, manage the collections process if needed, maintain records and handle the customer service as needed. This way not only do they keep all the profits but they also create a number of jobs for tribal residents. Western Sky thought they would be crafty and arrange to get money for just running an aggressive marketing operation. Things didn't turn out to be so good for them, or their backers at CashCall.
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