Purchaser of Loans and Servicing Rights Deemed “True Lender,” Subject to State Laws in CFPB Payday Loan Suit

In CFPB v. CashCall, Inc., the CFPB’s motion for partial summary judgment was granted for claims that defendants violated the Consumer Financial Protection Act (“CFPA”) by participating in deceptive practices.  The U.S. District Court for the Central District of California agreed with the CFPB that defendant CashCall was the “true lender.” CashCall had helped create a tribal entity (“Western Sky”) with the Cheyenne River Sioux Tribe for the purpose of originating and selling to CashCall.  CashCall had pursued this arrangement because tribal entities are not subject to state usury laws.

The Court determined that Western Sky was not the “true lender” in spite of its loan origination activities.  Instead, the Court found that CashCall was the “true lender,” and because of that, the Court disregarded the loan documents’ choice of forum with the Cheyenne River Sioux Tribe.  The Court explained the Tribe had “no substantial relationship to the parties or the transactions and that there [was] no other reasonable basis for the parties’ choice of [Cheyenne River Sioux Tribe] law.”  Instead, the Court held that the loans would be subject to the law of the states where the individual borrowers resided.  Under the law of certain states, the Court determined that the CFPB had shown the loans were void or uncollectible.

Because CashCall’s servicing and collection efforts created the impression that those loans were enforceable, when they actually were not, the Court found that CashCall had engaged in deceptive practices prohibited by the CFPA.  In its defense, CashCall argued that it believed the loan agreements were enforceable, but this argument did not sway the Court because even a reasonable mistake of law is not typically a defense to liability.  Additionally, the founder, CEO, and sole owner of CashCall was held to be individually liable under the CFPA.  His reliance upon the advice of counsel was not considered an acceptable defense.

Weiner Brodsky Kider regularly represents lenders and servicers throughout the United States alleging violations of federal and state laws.