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Ham or turkey sandwich? - 9th Circuit weighs remedies in CFPB's CashCall case

3 minute read

Consumer Financial Protection Bureau headquarters in Washington, D.C. REUTERS/Andrew Kelly

  • Agency challenges denial of $200 million restitution
  • Court suggested sending tribal lending case back to lower court
  • Lender claims Supreme Court ruling limited available remedies

(Reuters) - The 9th U.S. Circuit Court of Appeals appeared inclined on Thursday to reverse the U.S. Consumer Financial Protection Bureau's $200 million loss in a long-running case against lender CashCall Inc.

A Los Angeles federal judge in 2018 ordered CashCall to pay a $10.3 million penalty for demanding payment on loans that violated state usury laws but rejected the agency's bid for $200 million in restitution, saying the company had fully disclosed the fees and interest rates to borrowers.

During oral arguments on Thursday, U.S. Circuit Court Judges John Owens and Ryan Nelson suggested sending the case back for a redo to determine how much the CFPB should be entitled to recoup for borrowers.

The three-judge panel questioned whether borrowers should get back the amount they were charged over the legal rate in their state, or whether failure to repay the loan principal should be factored in.

"If I go to order a sandwich, and I say I want a turkey sandwich, and they give me a ham sandwich, there are different ways you can value my damages," said Owens. "It seems that this discussion we are talking about did not happen in the district court."

The CFPB sued CashCall in December 2013 over an arrangement the lender made with a Native American-owned finance company, which CashCall believed allowed it to claim sovereign immunity from state usury laws.

CashCall ended the agreement after state attorneys general began going after sovereign immunity claims by lenders who were not members of the lending tribe, and eventually paid tens of millions of dollars to settle with several states.

U.S. District Judge John Walter found that CashCall did not knowingly or recklessly violate the law because it relied on the advice of counsel, but denied the CFPB restitution.

Kristin Bateman, an attorney for the agency, said on Thursday it was "straightforward" that the company should repay what it unlawfully charged consumers.

In response to a question from U.S. Circuit Judge Eric Miller, Bateman said the U.S. Supreme Court's ruling in Liu v. SEC, which limited disgorgement to net profits, did not apply because restitution refers not to profits, but returning a victim's money.

The 7th Circuit erred when it recently applied Liu to limit restitution in another CFPB case, Bateman said.

But Reuben Cahn of Keller/Anderle, who represents CashCall, said that asking the court to split with the 7th Circuit was "unjustified."

Under Liu, restitution would be limited to the company's profit, minus business expenses, because the holding applies broadly to equitable remedies, he said.

The case is Consumer Financial Protection Bureau v. CashCall Inc et al, 9th U.S. Circuit Court of Appeals, Nos. 18-55407 and 18-55479.

For the CFPB: Kristin Bateman

For CashCall: Reuben Cahn of Keller/Anderle

Read More:

7th Circuit shrinks lawyers' $59 mln CFPB penalties

Case to Watch: CashCall, CFPB to clash at 9th Circuit

CashCall to pay $10 mln, CFPB request for $287 mln denied

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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