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October 6, 2014

State Revokes California Online Lender's License, Orders $1.5 Million Restitution for Iowa Borrower

Settlement resolves allegations that CashCall Inc. charged Iowans exorbitant interest rates, violated state lending laws

(DES MOINES, Iowa) The Iowa Superintendent of Banking today revoked an Anaheim, California online lender’s Iowa license and the company must pay $1.5 million in restitution costs, in a settlement with Iowa’s Division of Banking negotiated with the assistance of the attorney general.

The agreement with CashCall Inc., approved by Iowa’s Superintendent of Banking, requires the company to stop lending to Iowans and pay restitution for more than 3,400 illegal loans the company made to Iowa borrowers.

According to a 2013 amended statement of charges filed with the Iowa Superintendent of Banking, an examination conducted by the Banking Division revealed CashCall charged borrowers interest rates of up to 169 percent, far exceeding the maximum rate that Iowa law allows.  State law caps the annual interest rate at 36 percent, depending on the loan amount.

The annual percentage rate (APR) charged on these loans was even higher, once fees and costs were factored in.  In a response to a consumer complaint filed last year with the Attorney General’s Consumer Protection Division, CashCall disclosed that on one loan it charged the consumer an APR of 340 percent.

Iowa Superintendent of Banking James Schipper and Attorney General Tom Miller alleged that CashCall violated Iowa’s consumer loan laws.  The state alleged that CashCall improperly calculated and charged illegally high interest rates, and charged illegal fees to borrowers who obtained personal loans.  As part of the agreement, CashCall neither admits nor denies wrongdoing.

“CashCall charged outrageous interest rates and illegal fees, and we’re pleased that the Superintendent of Banking and our office were able to obtain restitution for Iowa borrowers through this agreement,” Miller said.

CashCall Asserted Tribal Jurisdiction, State Called Claim “Untenable” and a “Sham Arrangement”
In what the Superintendent of Banking and Attorney General have called an “untenable legal theory,” CashCall asserted that its lending activity, which originated through a company called Western Sky Financial LLC, is beyond Iowa’s jurisdictional reach.

CashCall claimed that Western Sky independently originated the loans on the Cheyenne River Indian Reservation in South Dakota and is subject solely to the laws and jurisdiction of the Cheyenne River Sioux Tribe.  The state alleges that, in this “sham arrangement,” CashCall is “the de facto lender” in loans purportedly originated by Western Sky.  CashCall has attempted to “’rent a tribal affiliate’ as its shield for making high cost consumer loans that violate Iowa law by partnering with Western Sky,” Schipper wrote in a 2012 nonresident regulated loan company license application denial.

“We allege that CashCall exploited Iowans by setting up a sham corporate structure designed to skirt our state lending laws that protect Iowans,” Miller said.

Additional Terms
In addition to the payment to the state and ban on future loans, the agreement forbids CashCall from reporting Iowans to credit agencies, requires the company to request credit agencies to remove its past reports on Iowa borrowers, forbids the company from using or threatening to use Iowa courts to collect on loans to Iowans, resets interest rates on outstanding balances  to four percent, and prohibits the company from attempting to collect illegal fees.  The agreement does not prevent borrowers from pursuing their own legal claims.

Other States, CFPB Pursued Actions against CashCall
Around 20 states and the Consumer Financial Protection Bureau (CFPB) have pursued lawsuits or regulatory actions against CashCall, alleging unfair debt collection practices, and charging and collecting excessive interest rates.  In a pending federal lawsuit filed in December  the CFPB alleged that CashCall collected money that consumers didn’t owe.

In September 2013, according to the CFPB, Western Sky stopped making loans and began to shut down its business after several states began investigations and court actions.  But, the CFPB added, CashCall and its collection agency continued to take monthly installment payments from consumers’ bank accounts or have otherwise sought to collect money from borrowers.

State to Contact Iowa Borrowers Owed Restitution
The company has provided the state with a list of borrowers who will receive restitution under the settlement.  The state will send notices to affected Iowa borrowers.  Borrowers do not need to contact the Iowa Division of Banking or the attorney general’s office to make a restitution claim.

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Additional Documents

1             11/9/12               Denial of Licenses
2             11/26/12            Statement of Charges
3             2/26/13               Motion to Amend Statement of Charges
4             2/26/13               Motion to Sever Proceedings
5             9/26/13               Ruling on Whether Loans at Issue are Subject to Iowa Law
6             4/23/14               Order Adopting Administrative Law Judge’s September 26, 2013 Decision
7             10/6/14               Stipulation and Consent Order

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