On April 27, the CFPB took action against four online lenders for deceiving consumers by collecting debts they were not legally owed. The bureau claims that the loans were offered under false pretenses that qualify as a violation of the Dodd-Frank Act’s restrictions on “unfair, deceptive, or abusive acts and practices.”
“We are suing four online lenders for collecting on debts that consumers did not legally owe,” said CFPB Director Richard Cordray. “We allege that these companies made deceptive demands and illegally took money from people’s bank accounts. We are seeking to stop these violations and get relief for consumers.”
Golden Valley Lending, Inc., Silver Cloud Financial, Inc., Mountain Summit Financial, Inc., and Majestic Lake Financial, Inc., are online installment loan companies in Upper Lake, Calif. Since at least 2012, Golden Valley Lending and Silver Cloud Financial have offered online loans of between $300 and $1,200 with annual interest rates ranging from 440 percent up to 950 percent. Mountain Summit Financial and Majestic Lake Financial began offering similar loans more recently.
According to the complaint, all four lenders claimed that they are owned by a California Indian tribe. However, the employees and supervisors of the lenders are located in a call center in Kansas.
The bureau’s allegations focused on the choice of law provision in the online loan agreement providing that the loans were “made and accepted” on “tribal lands” and thus “governed” by tribal law. Such tribal laws, however, are inconsistent with state laws applicable in the jurisdictions where the borrowers actually resided. The CFPB alleges that the four lenders could not legally collect on the debts because the loans were void under state laws governing interest rate caps or the licensing of lenders. The bureau alleges that efforts to collect on the loans when they were void is “unfair, deceptive and abusive” as a matter of law.
The enforcement action follows a decision by a Ninth Circuit of Appeals panel holding that tribal businesses must comply with the demands of the CFPB in its civil investigation process. The ruling upheld a lower court decision that found tribal businesses are covered under Dodd-Frank and that Congress didn’t exclude such businesses from being subject to investigation and enforcement actions by the CFPB.
The CFPB has been critical of online payday lending operations by Indian tribes since its inception. This action is part of ongoing efforts by the CFPB to monitor and enforce online lending.