CashCall Fined $10 Million for Payday Loan Scheme Involving Native-Owned Business

A California federal judge ordered online loan servicer CashCall to pay a $10 million fine to the Consumer Financial Protection Bureau (CFPB) for violating the unfair, deceptive, or abusive acts or practices (UDAAP) provision of the Consumer Financial Protection Act (CFP Act). The fine was substantially less than the $280 million sought by the CFPB for restitution to consumers and punitive action against the provider. The judge found that CashCall had not “acted in bad faith, resorted to trickery or deception, or have been guilty of fraud” and refused to levy significant penalties against the company.

The case against CashCall originally revolved around determining the “true lender” of loans made by a company owned by a citizen of the Cheyenne River Sioux Tribe and almost immediately sold to CashCall for collections and servicing. This arrangement drew the ire of the CFPB, who argued that the partners were simply using the Native business as a sovereign shield, charging consumers triple-digit interest rates in violation of state usury laws.

Paul Reddam, owner of CashCall, had long argued that it was inaccurate legal advice on the sovereign status of the Native-owned business, Western Sky, that he partnered with for thousands of loans that led to the violations. The judge’s opinion chronicled years of advice affirming the legality of his business arrangement with Western Sky, despite opinions from outside firms warning against the relationship with a business that was not an arm of the tribe. Reddam is also embroiled in a lawsuit with his former legal counsel over this important legal distinction in federal Indian law.

In speaking with Bloomberg on the true lender issue last year, NAFSA Executive Director Gary Davis noted:

“NAFSA member tribal lending enterprises are structured in a way in which the lending enterprise that originated the loan is also the entity that services the loan, which means they do not encounter true lender concerns. Further, NAFSA members have established considerable regulatory and industry best practices to ensure tribal lenders are at the forefront of federal and tribal compliance.”