Apparently, the laws aren’t top priority for many cash advance loan companies. This past April, a federal judge ruled against Payday Loan Debt Solution, Inc, which touted itself as a debt relief serve provider.
The judge, in his ruling, ordered company owners to return money to the pockets of American consumers affected by their predatory practices. This was an especially important case since it was also the first time CFPB and state attorneys general worked towards reining in cash advance companies.
Payday Loan Debt Solutions
Payday Loan Debt Solutions promised consumers it could help them get out from under payday debt loans; however, the company was collecting hefty fees and then worked on settling the loans. It’s against the Federal Trade Commission’s Telemarketing Sales Rule as well as the new Dodd Frank Act. Many states also have laws in place to prevent such practices.
It didn’t take long for the company to realize it was being investigated and once it did, it began hiding its practices and stopped ongoing cases.
Among other things, the federal ruling determined the company’s president, Sanjeet Parvani, violated CFPB laws. As a result, the company and owner were put on blast and then ordered to pay $100,000 that would go to the consumers who paid the advance fees but received no help. Not only that, but it was also ordered to pay a fine of $5,000 while also agreeing to cooperate in any future investigations.
Tip of the Iceberg
This was just one company. But the message to other similar companies apparently missed its mark. CFPB Director Richard Cordray said when the ruling came down,
This matter affects only a single debt-relief service provider, but it is part of our comprehensive effort to police the debt-relief industry. Our work focuses not only on debt-relief service providers, but also on their partners, including those who facilitate their unlawful conduct and who may also run afoul of the federal consumer financial protection laws.
Western Sky offers a lot of cash with few approval problems. The catch is the sometimes triple digit interest rates. Now, though, New York has stepped in and like CFPB did to Payday Loan Debit Solutions, the state’s law enforcement officials aren’t allowing the illegal lending to continue. It’s in clear violation of the state’s caps on interest rates. Further, it says the fine print is irrelevant: the company is breaking the law.
Other Cash Advance Companies
Not only is Western Sky Financial, LLC in the crosshairs, but a host of other companies, too. New York Attorney General Eric T. Schneiderman said that while he’s targeting those other companies, Western Sky is by far the worst offender, charging anywhere from 89 percent to more than 355 percent in interest rates.
The lawsuits are filed against:
- Cash Call, Inc.
- WS Funding, LLC
- Martin Webb
- J. Paul Reddam
plus 30 more companies
Schneiderman says each has violated usury and licensed lender laws in his state.
The example he provided: Consumers that received loans of $1,000 were charged an interest rate of more than 234 percent, and had to repay as much as $4,942 in interest and principal over just two years.
Not only is he looking for financial penalties as well as a halt in those lending practices, he also wants companies to reimburse consumers who paid more than 16 percent in interest. Sixteen percent is as high as any lender can charge. Interestingly enough, the companies aren’t necessarily located in New York; however, all of the victims are in his state. He says they targeted New Yorkers through advertising on both television and the internet and promised fast cash to consumers desperate for cash. The laws prohibit non-banking lenders from charging more than the 16 percent on any type of loan, whether it’s a personal loan or a credit card. Those licensed in New York may not charge more than 25 percent. The fact that a company hangs its shingle in places outside the state’s lines – whether they’re overseas or on tribal lands – are subject to that state’s laws if even one of its customers calls New York home.
Western Sky’s defense, so far, has been that it operates “within the exterior boundaries of the Cheyenne River Sioux Reservation” in South Dakota. Not only that, but it says that the fact it can use tribal affiliation protects it from state and federal laws. Still, Schneiderman believes he has a case.
If for no other reason, he argues, the company has made close to 18,000 loans over the past two years. Schneiderman told reporters on Monday,
With this case and others, my office will continue to fight to protect New Yorkers from illegal business practices and stop companies that seek to prey upon consumers facing tough economic times.
The investigation began closet to a year ago.
And Then the Governor Stepped In…
For now, Schneiderman hopes a court order will cease the lending or at a minimum, will ensure those who do make loans to New Yorkers to do so in ethical and legal ways. If found guilty of breaking the usury laws, the companies face fines of $5,000 for each violation.
Finally, and whether it was deliberate remains to be seen, Governor Cuomo announced that he and his administration has been in contact with 119 banks around the state with the hopes of getting them to cut off a payday lending company’s access to their customer bank accounts. Remember, the companies can only request information if the customers give permission. No one’s arguing they obtaining information illegally, Cuomo just wants to pull that right away from residents (even if that “right” is actually anything but beneficial to most). He wants to overhaul the system in its entirety.
Illegal payday lenders swoop in and prey on struggling families when they’re at their most vulnerable – hitting them with sky-high interests rates and hidden fees,
We’ll continue to do everything we can to stamp out these pernicious loans that hurt New York consumers.
The only problem is those that are acting with the confines of the law will be punished for the illegal behaviors of other companies.