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From Banking and Finance Law Daily, October 30, 2015

Massachusetts busts unlicensed online lenders

By Colleen M. Svelnis, J.D.

Massachusetts’ Division of Banks has reached a settlement with unlicensed loan lenders who made illegal, high-interest loans over the internet to thousands of consumers in the state without proper state licensing or registration. Under the consent judgment, the corporations and their owners will be permanently enjoined from doing any business in Massachusetts and the lenders are required to refund all interest charges above the statutory rate and fees paid by consumers beyond their principal loan amount.

“These companies targeted thousands of financially-stressed consumers in need of a loan, and charged exorbitant interest rates and fees, causing these consumers and their families to incur even greater economic strain,” Massachusetts Attorney General Maura Healey said. “We are pleased to have worked with the Division of Banks in order to obtain significant restitution for consumers who were harmed, and permanently stop these lenders from doing business in Massachusetts.”

The parties involved in the settlement are: Western Sky Financial, LLC, a South Dakota corporation; CashCall, Inc., a California corporation; WS Funding, LLC, a Delaware corporation and wholly owned subsidiary of CashCall; Delbert Services Corporation, a Nevada corporation; and the companies’ owners, Martin Webb and J. Paul Reddam.

Background. According to the complaint, the Internet-based companies made extremely high-interest loans to Massachusetts consumers in amounts ranging from $400 to $9,925.00. Consumers were charged high up-front fees, as well as interest rates on these products ranging from 89 percent to 135 percent. All loans were charged an initial fee, alternatively referred to as an "origination fee," a "loan fee," or a "prepaid finance charge," which was added to the principal amount loaned and which varied in size depending on the amount of the loan. The statutory limit for small loans of $6,000 or less in Massachusetts is 12 percent. “It is not uncommon for borrowers to make timely payments for months and still owe more on the loan than the amount they received in principal.” For example, a borrower that receives $1,000 in principal can owe as much as $4,768.98, if carried to the full two-year term.

The Division asserted that these companies were in the business of making, purchasing, or collecting on high-interest loans to consumers. The loans were offered to Massachusetts' consumers using Western Sky's name through television advertisements and through its website. Additionally, the companies falsely claimed to be Cheyenne River Sioux Tribal member-owned businesses and subject only to tribal law and jurisdiction.

Settlement. The settlement resolves the Division’s pending actions with the lenders and the Attorney General’s lawsuit alleging violations of the state’s consumer protection laws. Under the settlement, Massachusetts consumers will be entitled to a refund if their total payments on their loans exceed the principalthat was loaned, plus the statutory maximum 12 percent rate of interest.

The settlement also orders the companies to be permanently banned from advertising, soliciting, brokering, purchasing, or lending in Massachusetts, and they may not apply for any type of license or registration with the Division of Banks.

The companies have also agreed to pay civil penalties in the amount of $388,231, half of which will be suspended upon full satisfaction of consumer reimbursements and compliance with the consent judgment. The companies will also pay $65,000 in attorney fees.

Companies: CashCall, Inc.; Delbert Services Corporation; Western Sky Financial, LLC; WS Funding, LLC

MainStory: TopStory Loans MassachusettsNews StateBankingLaws

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