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.”