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Continued: State sues California-based Internet lender, says it uses tribe as a front for high-rate loans

  • Article by: JENNIFER BJORHUS , Star Tribune
  • Last update: July 11, 2013 - 11:53 PM

“While it would be inappropriate to comment on pending litigation, we look forward to correcting the record in this matter,” said Claudia Callaway.

Swanson said she has seen “dozens” of consumer complaints from Minnesotans about CashCall’s operation but doesn’t know how many people in the state have been affected.

“I think it’s a lot,” Swanson said. “This potentially could be the biggest one yet.”

Nine other states have taken action against either CashCall or Western Sky.

Aimee, a 40-year-old Brainerd woman who asked to be identified only by her first name, said she took out a four-year loan for $2,525 from Western Sky after falling behind on some bills.

She saw a Western Sky ad on television, she said. Immediately the calls and e-mails from CashCall started.

Somehow, she said, the she wound up with finance charges of $11,000.

“It’s pretty mind boggling,” she said. “You tell yourself ‘I’ll just do this and pay it back quicker.’ 

“It’s really embarrassing to me that I took a loan like this.”

In 2008, the West Virgina Attorney General sued CashCall for running a rent-a-bank scheme in which lenders tried to skirt state usury laws because national banks are allowed to carry the interest rate rules of their home state to other states. A judge ordered CashCall to pay $15 million in civil penalties, refunds, and the canceled debts for nearly 300 West Virginians.

Meanwhile, the Federal Trade Commission has sued Webb and several of his companies, including Western Sky, for garnishing the wages of customers without a court order. That case is pending.

According to court documents, Western Sky began making loans in 2010 and doesn’t make any loans to people in South Dakota.

Payday lenders and other high-interest consumer lenders with longer term loans are known for their creative approaches to avoiding consumer protections. Rent-a-bank or rent-a-charter schemes that flourished in the 1990s were stomped out. After migrating to the Internet, consumer lenders tried to argue that they could export the high interest rates of their home states to other states where they operate, avoiding interest rate caps in those states.

Now problematic linkages with American Indian tribes are popping up.

“More and more now, we’re seeing the unlicensed Internet lending industry morph to purporting to affiliate with a tribe or a tribal member,” said Swanson. “It’s the whack a mole problem. This is sort of the latest iteration.”

Jennifer Bjorhus • 612-673-4683

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