CFPB Tests the Limits of Tribal Lending Immunity With Cash Call Case
On December 16, 2013, the Consumer Financial Protection Bureau filed suit against Cash Call, Inc., WS Funding, LLC, Delbert Services Corporation and J. Paul Reddam (collectively “Cash Call”), alleging that the extremely high interest rates charged by Cash Call on short term loans are unfair, deceptive and abusive because the interest rates charged are illegal in some states where the borrowers reside.
Defendants’ counsel has charged that the suit is an attempt to circumvent the Dodd-Frank law’s prohibition of the CFPB from setting interest rate caps. Yet, the suit does not request that the court set any maximum interest rates that can be charged, it only requests that the court invalidate or alter the loans based on existing state laws.
This case is also notable for its attack on a lender who claims protection due to its affiliation with a Native American tribe. Federal law exempts such tribes from complying with certain state laws, and the CFPB has limited authority to regulate such tribes. As a result, many short-term lenders have set up affiliations with such tribes in the hope of benefitting from these legal protections.
In the Cash Call case, Western Sky Financial, LLC, which originates consumer installment loans and is not a defendant in the case, is allegedly owned by a member of the Cheyenne River Sioux Indian Reservation. However, Western Sky Financial is not owned or operated by any tribe. According to the CFPB complaint, Western Sky Financial asserts that loans made in its name are subject only to the laws of the Reservation. Western Sky Financial immediately assigns its loans to Cash Call and WS Funding, and Delbert Services engages in loan servicing and collection of those loans. All of the corporate Defendants are allegedly owned by Reddam. The Defendants in the Cash Call case all apparently rely on the relationship of the owner of Western Sky Financial to the Reservation to immunize their activities from state laws.
Thus, the Cash Call case raises the question of whether mere membership of the owner of a high interest rate short-term lender in a Native American tribe is enough to provide legal immunity from CFPB action to those who do business with that lender. If the CFPB prevails in this case it will be one step closer to eliminating tribal protection of predatory lending practices.