UNLICENSED INTERNET PREDATORY LENDING

The Consumer Services Division of the Washington State Department of Financial Institutions (DFI) announced today that it entered into a settlement agreement with Western Sky Financial, CashCall, Inc. and their owners and affiliates stemming from allegations that the companies made predatory, high interest loans to Washington borrowers over the Internet. Western Sky Financial also ran regular television ads in Washington to advertise their loan products. The settlement resolves two cases that have been on-going for more than four years, both of which the DFI litigated through the administrative hearing process with the assistance of the Attorney General’s Office.

Under the terms of the settlement, the companies agreed to provide refunds to thousands of Washington borrowers and will zero out the principal balances for additional Washington borrowers. The companies will also pay for the costs associated with administering the refunds.

“This settlement will provide much needed relief for thousands of Washington residents,” said DFI Division of Consumer Services Director Charles Clark.

This case arose because Washington residents reached out to DFI questioning whether loans with interest rates in excess of 100 percent were legal. In the course of its investigation, DFI received dozens of consumer complaints and had contact with hundreds of borrowers who had been victimized by high interest loans from these companies. Many borrowers reported that they did not understand the loan terms or how much it would really cost them.

“Western Sky Financial and its related entities came into Washington through the Internet and TV advertisements with a total disregard for Washington laws that protect our consumers from predatory loans. The egregious interest rates involved in this case clearly took advantage of borrowers in need of a loan,” DFI Director Scott Jarvis said. ”Such disregard for our state law and regulations is not only harmful to consumers but is also unfair to our licensed lenders that play by the rules. We will not tolerate such illegal conduct and will take action against those that offer illegal loan terms to Washington residents.”

The Statements of Charges issued against CashCall and Western Sky alleged that the companies engaged in unfair and deceptive acts and violated usury laws and other consumer protection laws. According to the Statements of Charges, the annual interest rates on these loans ranged from 89 percent up to 169 percent. A borrower who took out a $1,500 loan would pay a whopping $500 loan origination fee, receive loan proceeds of $1,000, and have an annual interest rate of 149 percent. If the borrower made payments consistent with the loan agreement, over the course of two years the borrower would pay more than $4,800 for that $1,500 loan. For larger loan amounts, the loan terms were even more predatory; for a $2,600 loan, a borrower could make payments totaling more than $13,000, and for a $5,000 loan, payments could total an incredible $41,000.

More than 6,900 loans were made to Washington borrowers totaling more than $17,600,000 in principal. Borrowers eligible for refunds will be contacted by DFI or by the administrator of the refunds, A.B. Data, Ltd. Washington borrowers who have loans with principal balances on their Western Sky loans will automatically have their loans balances written off. Such borrowers will also have any negative reporting made to the credit bureaus removed from the borrower’s credit history for these loans.

In addition to making refunds and charging off principal balances, the companies also agreed to cease and desist from lending in Washington. CashCall’s Washington State consumer loan license was revoked. Western Sky has never had a license to provide consumer loans in Washington.

DFI’s core mission is to regulate financial services, to protect and educate the public, and to promote economic vitality.

“Consistent with DFI’s mission, I am proud to say that throughout these protracted cases, DFI worked hard to ensure that relief for the borrowers, in the form of both refunds and principal balance adjustments, remained our priority,” Clark said. “Over the course of the next few months borrowers should be able to benefit from these efforts.”

To verify whether a company offering consumer or residential loans is licensed by DFI, go to www.dfi.wa.gov and click on the “Verify License” link.