Brown et al vs. CashCall, Inc. (available in PACER), an Amended Complaint filed this past Friday in the Middle District of North Carolina, sheds a lot of detail on how CashCall operates.
Although payday lending was no longer legal in North Carolina after 2004, some lenders have continued to do business here. According to the complaint, CashCall and its partner Western Sky made loans to North Carolina consumers from 2009 to 2013. They did so by claiming that Western Sky was part of the Cheyenne River Sioux Tribe and thus immune from North Carolina state law. But the plaintiff's attorneys call this subterfuge, as Western Sky is not owned or operated by the Cheyenne River Sioux.
The plaintiff's attorneys allege that CashCall pays the operating expenses, provides the capital, and services the loans.
In the text of the complaint, the personal stories of North Carolina borrowers illustrate the impact of their business practices. Here are a few of those instances:
- CashCall arranged a 48-month loan to Thomas Brown, a disabled veteran from Kernersville, North Carolina. The loan bore an interest rate of 139 percent. In all, he was obligated to pay $13,985.87 in return for $2,525. Brown believed he would be able to satisfy the principal balance in one month. But the hard truth was that Brown could not afford the loan. According to the filing, CashCall automatically debited against deposits paid to Brown from his military disability benefit. Eventually, Brown had to forego paying utilities and pull back on buying groceries in order to remain current on his loan.
- Monica Johnson, a resident of Winston-Salem, made a total of $13,985.87 in payments to satisfy a loan of $2,525.
- Melinda Long, a resident of Wake Forest, North Carolina, received a loan from Western Sky for $1,000. When Long learned that payday loans were no longer legal in North Carolina, she asked CashCall for a copy of the contract. CashCall did not comply. Long then engaged the Office of the North Carolina Attorney General. Subsequently, the AG's office informed Western Sky that the loan was not valid. As such, the AG requested that Cash Call cease all efforts at collection. Cash Call ignored that order. Cash Call continued to debit her account. At the same time, Cash Call pressured Ms. Long to modify her debt.
- Elizabeth Jackson applied for a loan at a time when she was struggling to pay her son's medical bills. Her son had served in the Marine Corps for 11 years, but he had to retire when he developed bone cancer. Her son moved in with her after leaving the Marine Corps base. Ms. Jackson applied for and received a loan of $1,000. Although the North Carolina AG ordered Western Sky to cease collecting on the debt in 2012, the company continued to debit her account.
In some cases, CashCall sold the rights to illegal loans to third-party debt collectors, even though the AG had already served notice that their contract was not enforceable.
CashCall even had the nerve to report the debt as unpaid to credit reporting agencies.
There were several loan options. According to the complaint, these were the terms of five of their products:
The most disturbing part is that CashCall would continue to debit accounts after the North Carolina Attorney General had stepped in to say that their contracts were invalid and the associated debts no longer collectible.
Poorly Written Arbitration Agreements
But CashCall wasn't just trying to illegally collect on loans that were made in a state where such loans were illegal. They weren't very careful when they wrote their mandatory arbitration clauses, either. This is an excerpt from one iteration of their arbitration clause:
You agree that any Dispute, except as provided below, will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.
Unfortunately for CashCall, the author of that text failed to verify that the Cheyenne River Sioux had consumer dispute rules governing arbitration. That was an error. The Cheyenne River Sioux do not have consumer dispute rules governing arbitration.
Someone at CashCall noticed this error. By July 2012, the loan contracts had new language which indicated that any dispute would have to be settled by one of several arbitrators. But the new contract never removed the old arbitration language. Thus, one section required arbitration in one setting, whereas another section said something entirely different. The AG's complaint describes this as a "fatal contradiction."