On Dec. 16, the Consumer Financial Protection Bureau (CFPB) sued online loan servicer CashCall Inc., two related companies, and owner J. Paul Reddam to stop them from demanding payment for costly loans. The servicer managed loans that came with terms that often included triple-digit interest rates.
The CFPB also is seeking refunds for payments that borrowers have made as well as other financial penalties against the firms. Officials say that, because such high-cost, “small dollar” loans are illegal in many states, the company has no right to collect payments from borrowers in those states. This is the CFPB's first online-lending lawsuit. The agency said that CashCall -- which has ties to Western Sky, the South Dakota lender based on an Indian reservation -- violated state caps on interest rates, laws that required financial companies to be licensed, or both, in at least eight states.
CashCall has been accused of engaging in “unfair, deceptive, and abusive practices” that include illegally debiting borrower accounts for loans that were actually void under state law. In one case, a woman in Greensboro, N.C., borrowed $2,600 and paid $4,000 over 14 months but found that she still owed more than $2,500 on her principal balance. On its website, the nonprofit Center for Responsible Lending (CRL) recommends alternatives to high-cost loans, such as salary advances from employers or credit card advances. “It may seem like a quick easy solution, but it just leads to more debt,” said Uriah King, vice president for state policy at CRL.