In yet another reminder of the failings of California's anti-usury laws, the federal Consumer Financial Protection Bureau — and not California — has sued an Anaheim-based lender that charges borrowers annual interest of as much as 343%.
The Consumer Financial Protection Bureau, created by President Barack Obama and Congress in the wake of the 2008 crash, sued CashCall Inc., alleging that the online lender engaged in unfair practices, including debiting consumer checking accounts for loans that were void.
The suit names CashCall and a subsidiary, WS Funding LLC, and a Nevada collection agency, Delbert Services Corp., a Nevada collection agency. The suit says the loans violated anti-usury laws in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina.
California is not one of the eight.
In 2009, CashCall entered into an arrangement with a South Dakota-based online lender, Western Sky Financial, which was based on an Indian reservation and owned by a Cheyenne River Sioux tribal member. Western Sky claimed its status as a tribal business exempted its loans from state laws — a claim the federal government contests.
CashCall and Western Sky made hundreds of thousands of loans nationwide in amounts of between $850 and $10,000. The annual percentage rates ranged from 89.7% to 342.9%.
California law limits interest on loans of $300 or less. But the state's law imposes no interest-rate cap on loans by licensed lenders of $2,500 or more, a result of lenders' shrewd lobbying and campaign donations.
In an indication of the industry's clout, one of CashCall's lawyers is Neil Barofsky, a former federal prosecutor. Barofsky went through the revolving door to a Manhattan law firm in September, after serving as the Treasury Department's inspector general for the Troubled Asset Relief Program from 2008 to 2011. Barofsky says the suit violates a provision of the Dodd-Frank law that created the Consumer Financial Protection Bureau.
The industry fights any regulation. It's not hard to see why. Lenders charging 342.9% interest — and getting away with it — stand to reap tremendous profits.
As we stated in a Sept. 18 editorial: "California remains among the most lax states when it comes to payday lending. ... Clearly, this is an industry that depends on strapped families continuously borrowing."
We urge our central San Joaquin Valley representatives to the Assembly and state Senate to back reform that curbs the usurious interest rates charged by online lenders and payday lenders.
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