MANCHESTER, N.H. (CN) – Riding the shift in political winds, payday lenders are getting a second act now in the state and federal courts where for years they weathered years of regulatory attacks.
For the industry, CashCall has been something of a canary in the mine.
The Anaheim, California-based lender first made headlines in 2013 when the Consumer Financial Protection Bureau and several state attorneys general brought civil charges over its partnership with Western Sky Financial, an entity owned by Cheyenne River Sioux Tribe member Martin “Butch” Webb.
Blasting the partnership as a “rent-a-tribe” scheme, regulators accused CashCall of having exploited a lending-law loophole to charge huge interest on payday loans, sometimes at rates as high as nearly 400 percent.
A federal judge in Los Angeles ruled against CashCall three years later, but the judgment for the CFPB was set in January 2018 at just $10 million — a drop in what had been a nearly $300 million bucket demanded by the CFPB, which had earmarked $236 million of that amount for consumer restitution.
U.S. District Judge John Walter arrived at the figure after finding no proof that CashCall had engaged in intentional misconduct. Walter also found nothing “inherently unlawful” about CashCall’s lending operations.
With CashCall appealing nevertheless for a complete reversal, former CFPB official Christopher Peterson noted in an interview that the 2016 judgment itself is nothing to sneer at.
“It was a big success at the federal level,” said Peterson, now a law professor at the University of Utah.
The CFPB is appealing Judge Walter’s judgment to the Ninth Circuit as well, even as the agency walks back other measures that were expected to curb the payday-lending industry.
Before the Trump administration took over the CFPB last year, it rolled out a rule in late 2017 under then-Director Rich Cordray to rein in lenders.
Set to take effect in 2019, the pay-day lending rule would have required lenders to more closely vet borrowers’ ability to repay the loans and limit the number of loans, penalty fees and repeat borrowing.
With the Trump-appointed Mick Mulvaney at the helm this past May, however, the CFPB put the rule in an indefinite holding pattern. Mulvaney has a history of supporting payday lenders, and in his prior role as a congressman, the Republican lawmaker once sponsored a bill to eliminate the CFPB.
“The industry is feeling their oats right now,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.
Payday lenders said the new rules would require potentially crippling compliance measures and could force needy borrowers to offshore lenders and pawn shops.
But the CFPB’s pivot has sparked concern from Peterson, who helped lead the enforcement against CashCall during a five-year stint at the agency.
“I am concerned that the CFPB is not acting on its obligation to enforce consumer protection laws and go after illegal payday lending,” Peterson said.
Consumer-advocacy groups have decried the regulatory about-face as well.
In an amicus brief filed last month by the Equal Justice Center, Aaron Johnson wrote that the CFPB’s stalling of the rule was tantamount to “sleight of hand” and would “harm the agency’s ability to pursue its mission.”
The CFPB also has backed off enforcement this year, dropping a major lawsuit against Golden Valley Lending and three other online payday lenders with ties to a Native American tribe, which had charged up to nearly 950 percent annual interest on some loans.
“This is not just some abstract concept involving politics,” said Peterson. “Golden Valley is still up and running and collecting debts illegally. … There are single mothers trying to pay back 950 percent loans and the government abandoned them. That’s real suffering.”
Cordray, a Democrat who is now running for governor in Ohio, has chastised Mulvaney on Twitter, calling him “squatter leadership” and a “payday shill” for trying to kill the payday-lending rule and for dismissing the lawsuit against the four payday lenders.
“There would have to be really, really, really serious allegations for the agency to take action [against CashCall] now,” Rheingold said. “You can almost mark the date when Cordray resigned and when Mulvaney took over.”
For years CashCall was one of leading payday lenders, and also a leader for complaints.
CashCall and Delbert Services, both owned by J. Paul Reddam, handle more than 10 percent of all payday loans in the United States, according to a 2016 report by the U.S. Public Interest Group.
That same report lists CashCall as ranking second in terms of customer complaints to the CFPB, while Delbert Services ranks third; together they represented more than half of all customer complaints up to that point.
States have taken the reins on enforcement, with a number of them already settling with CashCall, including Nebraska in 2016 and Florida in early 2017.
Lisa Stifler, deputy director of state policy at the Center for Responsible Lending, said the CFPB under Mulvaney has indicated a preference for letting state attorneys general handle enforcement.
“Many states just continue to do what they’ve always been doing,” Stifler said. “But certainly there are states that have expressed interest in filling the void.”
One of the states targeting CashCall’s alleged predatory loans is New Hampshire, which in 2013 issued a cease-and-desist order and assessed nearly $2 million in fines against the lender for nearly 800 cases of violations of state lending law.
Initially CashCall tried to have the fines dropped, claiming its owner, Reddam, was not subject to New Hampshire banking laws.
Earlier this year, however, the New Hampshire Supreme Court ruled otherwise. In the 13-page opinion, the court rejected Reddam’s arguments that he was not subject to New Hampshire lending laws because he was not personally involved in CashCall’s lending in the state.
“It would be nonsensical to hold that a person could intentionally create a scheme for the purpose of violating the laws of numerous states, control the company that thereafter violated these state laws in accordance with the scheme, yet somehow be shielded from personal jurisdiction in each such state because he did not individually target the particular state’s consumers,” the court wrote in its opinion.
CashCall responded in March with a motion for a trial by jury, citing a state law that requires jury trials in all cases involving more than $1,500.
The state banking department ruled last month, however, that CashCall was not entitled to a trial by jury. It said the applicable lending laws did not exist when New Hampshire’s jury-trial right was first enacted, and that the administrative fines imposed on CashCall are different than civil and criminal cases.
Another point that the ruling makes is that CashCall and Reddam, a former mortgage company owner, waived their right to a jury trial because of the dozens of motions and hearings held in the five-year case.
“This is not a case in the early stages of discovery or motion practice,” the 15-page ruling says, noting that CashCall was “ready to set a hearing date.”
CashCall renewed its bid for a jury trial last last month, this time filing a suit in Merrimack County Superior Court that says New Hampshire banking regulators violated the state constitution by imposing fines on CashCall without allowing the lender or its CEO a jury trial.
“If the department is not enjoined from pursuing its enforcement action against the CashCall parties, they will suffer irreparable harm from the denial of their constitutional right and the possible imposition of several million dollars in penalties,” the complaint states.
“The balance of interests weighs in favor of preserving the CashCall parties’ constitutional right to a jury trial.”
New Hampshire Banking Department Deputy Commissioner Emelia Galdieri said the department has not yet been served with the suit and declined to comment.
Attorneys representing CashCall from the firm McLane Middleton did not return emails seeking comment.
New Hampshire-based consume-advocacy lawyer Roger Phillips said the state Supreme Court has already ruled that it is not necessary for civil matters generally to go before a jury unless the tort in question existed before the state constitution was drafted.
“It think what [CashCall] wants to do is not go through administrative remedies that exist within the banking department, and instead go to superior court and enjoin the action,” Phillips said. “But I don’t think that would work.”
CashCall has also filed other lawsuits to alleviate the burden of enforcement. Last summer the lender sued its former law firm, Katten Muchin Rosenman, for half a billion dollars, claiming it was wrongfully advised to partner with Webb to get around U.S. consumer-lending laws.
In the 2017 suit, CashCall claimed Katten Muchin “destroyed an $870 million consumer-lending program, harmed plaintiffs’ other successful businesses, tarnished plaintiffs’ business reputation, and caused plaintiffs to suffer hundreds of millions of dollars in damages.”
CashCall also accused its former lawyers of claiming its arbitration clauses were enforceable, though the company has suffered some defeats on that front.
Last year a federal judge in New Jersey ruled against CashCall in a consumer case, writing that the arbitration clauses were nothing more than “sham dispute resolution procedures” that sought to obviate the Federal Arbitration Act by rejecting both state and federal law.
“It is difficult to imagine a more transparent attempt to hijack the FAA to deprive aggrieved parties of an opportunity to meaningfully adjudicate their claims,” U.S. District Judge Madeline Cox Arleo wrote in the 2017 opinion.
Tribe-owned lenders have proliferated over the last several years, and the community even founded its own trade association in 2012, the Native American Financial Services Association, which applauded the 2013 enforcement action against CashCall.
Rent-a-tribe lenders seem meanwhile to be on the wane, and not all seem to have been lucky at evading heavy fines.
In 2016, Scott Tucker — who set up various consumer-loan companies through a number of Native American tribes — was fined $1.3 billion by the Federal Trade Commission. Tucker was sentenced to 16 years in prison earlier this year, though his convictions also include racketeering and money laundering.
Late last month Connecticut’s banking regulator filed a cease-and-desist order against trial-affiliated payday lender SpotLoans over payday loans with interest nearing 400 percent.
“It hasn’t gone away,” Stifler said of rent-a-tribe schemes, “but there have been some concerns in engaging in it because of all these lawsuits.”