Payday Lenders Overcharged NY Borrowers
Three lending companies and their owners have reached an agreement with the state in a lawsuit over their alleged violation of the state’s lending laws.
Attorney General Eric T. Schneiderman announced last Friday, Jan. 24, that his office has reached a settlement agreement 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 personal loans they made over the Internet.
Under the terms of the settlement, the companies and their owners will cease collecting interest on outstanding loans made by Western Sky to New York consumers, provide refunds to New York borrowers who have paid back more than the principal of their loan plus the legal interest rate of 16 percent, and pay $1.5 million in penalties.
The companies charged New Yorkers annual rates of interest ranging from 89 percent to more than 355 percent. These interest rates far exceed the maximum rate allowed under New York law, which is limited to 16 percent for most lenders not licensed by the state. None of the companies that were sued were licensed in New York.
“With this agreement, thousands of New Yorkers exploited by Western Sky and CashCall will get the relief they are owed,” said Schneiderman. “As individuals in New York and across the country continue to face tough economic times, we must keep up the fight against those who exploit and scam them. Illegal collectors and lenders, in particular, must pay a price for their behavior and pay back the New Yorkers they harmed.”
Under the terms of the settlement, Western Sky, CashCall, and related companies will modify all outstanding loans Western Sky made to New York consumers. 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. In all, the settlement could provide more than $35 million in debt relief to New Yorkers. A proposed order and judgment reflecting the terms of the settlement has been submitted to the court.
The settlement also creates a settlement fund, managed by Ken Feinberg of Feinberg Rozen LLP, 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. Consumers who are eligible for a refund will be contacted by the fund administrator within 90 days of the court’s approval of the settlement and asked to submit a claim.
Respondents are also required to stop their illegal lending practices and stop lending to people in the State of New York until they comply with New York State law and are properly licensed. The parties will also pay a penalty of $1.5 million to the Attorney General’s office.
The companies, located in South Dakota and California, targeted vulnerable New Yorkers through television and internet advertising that promised “fast cash” to consumers in urgent need of money. The companies took advantage of these customers by charging extremely high interest rates that were above New York State’s usury caps.
For example, consumers who received loans of $1,000 were charged an interest rate of more than 234 percent, and had to repay as much as $4,942 in interest and principal over just two years.
New York borrowers who questioned the legality of these loans were falsely told by the companies that New York law did not apply. Some consumers were also targeted with deceptive debt collection calls in further violation of New York law.
Since 2010, the companies have made more than 18,000 loans to New York consumers, lending nearly $40 million in principal.
Many who fall victim to shortterm, high interest rate loans are individuals with rising debt and few financial alternatives. These people are least able to secure traditional forms of credit. New York State has some of the toughest lending laws in the nation. New York’s civil usury law prohibits most non-bank lenders that are not licensed by New York State from charging more than 16 percent interest on small unsecured loans.
Lenders that are licensed by New York cannot charge more than 25 percent under New York’s criminal usury laws. Lenders that set up shop out of state, overseas, or on tribal lands in an attempt to evade state regulation are still subject to New York laws when lending to New York consumers.
New York consumers that have questions about the agreement can call the Attorney General’s Consumer Helpline at 1-800-771-7755.
The case was handled by Assistant Attorneys General Jordan Adler and Clark Russell, under the supervision of Bureau of Consumer Frauds and Protection Chief Jane M. Azia and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.
