By Emily Stephenson
WASHINGTON Dec 16 The U.S. consumer watchdog
and several state attorneys general on Monday sued a
California-based servicer of online loans, accusing the company
of wrongly collecting on loans that were made in violation of
CashCall Inc. serviced online loans that broke consumer
protection laws in at least eight states and collected money
that borrowers should not have had to repay, the U.S. Consumer
Financial Protection Bureau said.
It continued seeking money from borrowers even after the
online lender, Western Sky Financial, came under investigation
by several states and stopped making loans, CFPB Director
Richard Cordray said.
The bureau and states say the loans, which typically had
upfront fees and sometimes carried interest rates of more than
300 percent, broke state laws that require lenders to hold
licenses or violated caps on interest rates. That meant the
loans were legally void, the CFPB said.
"When CashCall debited people's bank accounts or demanded
that people pay them back, they often were taking money that the
consumers did not owe on loans that did not even legally exist,"
"The Internet is a convenient and desirable place for many
consumers and companies to do business, but we cannot allow it
to become the Wild West of unregulated and irresponsible
The U.S. consumer bureau, which was created by the 2010
Dodd-Frank law, oversees loan servicers, debt collectors and
Attorneys general from states including Colorado, North
Carolina and New Hampshire also said on Monday they had filed
lawsuits against CashCall or were investigating violations.
CashCall's attorneys said in a statement that the consumer
bureau's complaint amounted to an unfair attempt to set interest
rate caps for lenders.
"Today's action also raises serious questions of what the
CFPB is seeking to accomplish by expending resources to file an
action that needlessly duplicates and interferes with ongoing
state enforcement efforts," said Neil Barofsky and Katya Jestin,
attorneys with the law firm Jenner & Block.
The CFPB's lawsuit, filed on Monday, did not include action
against Western Sky Financial.
The complaint against CashCall and its owner was filed in
the U.S. District Court for the District of Massachusetts. The
officials want CashCall to refund money that consumers should
not have paid. They are also seeking financial penalties.
Consumer advocates have raised concerns about online
lending, which they say sometimes gets around state laws that
They are particularly worried that so-called payday loans,
or cash advances that carry high interest rates and are meant to
be repaid quickly, will migrate online as states try to crack
down on the practice.
In Monday's action, the consumer bureau said CashCall
serviced and collected on loans made by Western Sky, an online
lender based in South Dakota.
New York's attorney general sued Western Sky in August for
"scamming" consumers with high interest rates. In September,
Western Sky stopped making loans, blaming "unwarranted
overreach" by state officials in a note on its website.
Western Sky has said the state laws do not apply to its
loans because it is based on an Indian reservation.