Banking and Finance Law Daily Wrap Up, LOANS—New York, online lenders settle, (Jan 27, 2014)

By Charles A. Menke, J.D.

New York Attorney General Eric T. Schneiderman has announced a settlement with Western Sky Financial, LLC, CashCall, Inc., WS Funding, LLC, and their owners, Martin Webb and J. Paul Reddam, for violations of New York’s usury and licensed lender laws in connection with loans made over the Internet. "With this agreement, thousands of New Yorkers exploited by Western Sky and CashCall will get the relief they are owed,” Schneiderman said in a release announcing the settlement.

Lawsuit. Schneiderman’s office sued the lenders and owners in August 2013 for violations of New York’s usury laws (see Banking and Finance Law Daily, Aug. 12, 2013). New York’s civil usury law prohibits most non-bank lenders that are not licensed by the New York Department of Financial Institutions from charging more than 16 percent interest on small unsecured loans. Lenders that are licensed in New York cannot charge more than 25 percent under the state’s criminal usury laws.

Schneiderman alleged the companies charged annual interest rates ranging from ranging from 89 percent to more than 355 percent. Since 2010, the companies, which are located in South Dakota and California, made more than 18,000 loans to New York consumers, lending nearly $40 million in principal.None of the companies were licensed in New York.

Settlement terms. The companies and their owners agreed to pay $1.5 million in penalties under the terms of the settlement. In addition, the companies will cease all collections from New York consumers who have paid more than the principal of the loan and cease all collections of interest from all other New York consumers. A proposed order and judgment reflecting the settlement terms has been submitted to the court.

Settlement fund. The settlement agreement creates a settlement fund to distribute refunds to New York consumers who have paid more than the principal of their loan plus the legal interest rate of 16 percent. Eligible consumers will be notified within 90 days of the court’s approval of the settlement and asked to submit a claim.

The fund will be managed by Kenneth R. Feinberg of Feinberg Rozen LLP. Among numerous other appointments, Feinberg served as Special Master of the September 11th Victim Compensation Fund and as the Special Master for TARP Executive Compensation.
Companies: CashCall, Inc.; Western Sky Financial, LLC; WS Funding, LLC

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