CashCall, an Orange County personal loan lender, and its owner, J. Paul Reddam, were ordered to pay $10.3 million for violating consumer protection laws. However, the fine is only a fraction of the $287 million in penalties and restitution sought by the federal Consumer Financial Protection Bureau (CFPB). The CFPB sued CashCall in 2013 and District Judge John Walter ruled in 2016 that CashCall was guilty of unfair, deceptive and abusive acts for making personal loans at interest rates, most times reaching 100 percent, that were far higher than allowed in numerous states. Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, was critical of Judge Walter’s judgment stating,
The judge is saying that people knew they were being ripped off and decided it was OK to be ripped off. These high-interest loans are designed to be debt traps. People may have thought they got what they wanted, but they had no idea what they were ending up with.
Last month, Judge Walter issued a judgment saying that the CFPB’s proposed penalties were too high because the lender did not violate consumer protection laws recklessly or dupe consumers. The key issue in this case is CashCall’s relationship with Western Sky Financial, which is based on the Cheyenne River Sioux Tribe’s reservation in South Dakota. Lenders affiliated with tribes or based on tribal land have often argued that they are not subject to state laws, including ones that limit the amount of interest lenders can charge. CashCall issued its loans through Western Sky, believing the company’s location and tribal affiliation would allow it to skirt state usury laws.
Judge Walter ruled in August 2016 that Western Sky did play a role in the business, but that CashCall was the “true lender” and the loans were therefore subject to state lending laws. The CFPB was seeking for CashCall to pay $235.6 million in restitution, the total amount of interest and fees paid on the illegal loans, plus a $51.6-million penalty. However, Judge Walter believed that restitution was not warranted and that the requested penalty was too high. An attorney for CashCall said the company may still decide to appeal the case. We will have to wait and see if the case is appealed by either side.
