16
Jul

Federal Govt. Sues Western Sky, Butch Webb & CashCall -Cheyenne River Sioux Tribe’s Sovereign Status as a Shield

By Jer Ayles-Ayler at Trihouse. A portion of the class action lawsuit filed: (Link to entire filing available below):

Plaintiff Sonja Curtis is a resident of Texas and applied for a loan from Western Sky in that state. Ms. Curtis borrowed $5,000 from Western Sky on August 8, 2011. The loan
carried an APR of 116.73 % and a fee of $75.00. Finance charges on the loan are $36,172.61 for a total payment of$41,172.61 on a $5,000 loan. She has paid approximately $5,737.34 in interest and $4.12 in principal to Defendants to date.

Plaintiff Chad Martin Heldt is a resident of Minnesota and applied for a loan from Western Sky in that state. Mr. Heldt borrowed $9,925 from Western Sky on April 24, 2013. The loan carried an APR of 89.68 % and a fee of $75.00. Finance charges on the loan are $52,676.49 for a total payment of $62,601.49 on a $9,925 loan. He has paid approximately $891.82 in interest and principal to Defendants to date.

Plaintiff Christi W. Jones (nee Trusevich) is a resident of Texas and applied for a loan from WesternSky in that state. Ms. Jones borrowed $2,525 from Western Sky on July 19, 2011. The loan carried an APR of 139.13 % and a fee of $75.00. Finance charges on the loan are $11,441.37 for a total payment of $13,966.37 on a $2,525 loan. She has paid approximately $3,635.07 in interest and $45.20 in principal to Defendants to date.

Plaintiff Cheryl Annette Martin is a resident of Virginia and applied for a loan from Western Sky in that state. Ms. Martin borrowed $1,500 from Western Sky on December 30, 2011. The fee on the loan was $500, and so Ms. Martin received $1,000. The loan carried an APR of233.91 %. Finance charges on the loan are $3,768.98 for a total payment of $4,768.98 on a $1,000 loan. She has paid approximately $1,616.47 in interest and $179.53 in principal to Defendants to date.

Defendant Payday Financial, LLC (“Payday Financial”) does business as Lakota Cash and Big Sky Cash. It is a limited liability company chartered under the law of the state of South Dakota as an ordinary business entity. Its principal place of business is 612 E Street, Timber Lake, South Dakota. Upon information and belief, Payday Financial caused the State of South Dakota to charter defendant Western Sky Financial and has served as the managing member of the entity. Payday Financial advertises and offers its loans to Minnesota, Texas, Virginia and other consumers through Internet web sites including www.lakotacash.com. Payday Financial transacts business in South Dakota, Minnesota, Texas, and all other states in which it offers consumer loan products. The Lakota Cash website describes the company as follows:

 http://www.lakotacash.com (accessed June 12, 2013). The typical visitor to the website is an African American female between the ages of 18 and 34, with children, and income of less than $50,000 per year, and no college education. See https:llwww.quantcast.comllakotacash.com (accessed June 24, 2013). On February 9, 2011, Defendant Webb filed a Statement of  Dissociation stating that Defendant PayDay Financial, LLC is dissociated from Defendant  Western Sky Financial, LLC.

Defendant Western Sky Financial, LLC, is a South Dakota limited liability company with its principal place of business at 612 E Street, Timber Lake, South Dakota Western Sky advertises and offers loans to consumers by television advertisement and through a website accessible at www.westernsky.com.

Defendant Martin A. “Butch” Webb resides in South Dakota. Webb is the owner and president of Payday Financial and the owner of Western Sky. He is the registered agent of Payday Financial, Great Sky, Western Sky, Red Stone, Management Systems, 24-7 Cash, Red River, and High Country. Webb is the organizer, managing member, and registered agent of Financial Solutions.

Defendant CashCall is a California corporation with principal place of business at 1600 S. Douglass Road, Anaheim, California. CashCall is engaged in the business of making or arranging high-interest loans to consumers over the Internet and then servicing the loans it made or arranged. On information and belief, CashCall has arranged with the Lending Defendants (or entities affiliated with them) to process the loans from their inception or otherwise purchase loans made by the Lending Defendants shortly after they are made, or to receive the loans for collection or servicing. Upon information and belief, CashCall is aware of the terms of the loan agreements, including its exculpatory clause, and approved of those terms.

Defendant CashCall owns or operates the web servers used by the Lending Defendants to market and form the loan agreements. Upon information and belief, CashCall operates and/or funds WS Funding, which is the entity that provides the money the Lending Defendants use to fund consumer loans.

The relationship between the Lending Defendants and defendant CashCall IS close. All three entities host their public websites on TW Telecom servers based in Corona, California. Both websites became active on the TW Telecom servers within one day of each other. The servers run the same operating system and web serving software.

The websites cross-market each other. The site located at www.westernsky.com (which is owned by defendant Payday Financial, Inc.) includes keywords “Gary Coleman cash call” and “Gary Coleman cash loans”-referring to a 2007 ad-campaign run by defendant Cash Call that featured actor Gary Coleman.

The Lending Defendants use a website application co-developed by defendant CashCall and Cogility Software to manage the loan process. Upon information and belief, the CashCall system used by the Lending Defendants is comprehensive and includes: underwriting and decision-making, employment verification process, management of incoming voided checks and pay stub faxes through a fax queue, digital certificate generation, document creation, web­ based tools for loan agents and administrator[s], access to loan account information, security services, e-mail generation, loan servicing, and phone system configuration and interface requirements.

None of the Defendants is owned, operated, or chartered by the Tribe.

FACTUAL BASIS 

The Lending Defendants offer high interest rate unsecured consumer loans of $300 to $10,000 through Internet websites, including to individuals throughout Minnesota,
Texas, and Virginia. The APR on the loans range from approximately 89.68 % to 342.86 %. The Lending Defendants have offered such loans since at least mid-2007. Upon information and belief, Defendant CashCall has entered into agreements with the Lending Defendants to collect debts and service the loans made by the Lending Defendants.

Consumers who require a payday loan from Defendants visit one of several websites run by the Lending Defendants. Consumers apply for a loan through an online form or by calling a toll-free telephone number.

Defendants quickly provide money to the consumer. Shortly thereafter the Lending Defendants transfer the loan note to Defendant CashCall. In essence, the Lending
Defendants act as a broker of Cash Call loans under the guise ofan American Indian Internet loan company.

If a consumer does not pay back a loan on time, Defendants attempt to collect the debt. Among other things, Defendants make negative reports to credit bureaus, call consumers multiple times per day, contact consumers’ employers, and engage in other aggressive-and often intimidating-tactics.

All Defendants knew or should have known that the loans they made to Plaintiffs and the class contained interest rates that are unenforceable because they violate Minnesota, Texas, and Virginia usury statutes.

Defendants inform consumers-including Plaintiffs and members of the class-­that the Indian Commerce Clause of the United States Constitution bars application of their
states’ laws. But the Indian Commerce Clause provides no such immunity-it narrowly grants the United States Congress the authority to “regulate Commerce … with the Indian tribes.” U.S. Const. Art.! § 8. It does not state, as Defendants would have consumers believe, that American Indians are free to violate state laws without repercussion.

Notably, the Lending Defendants refuse to offer loans to members of the Tribe or to residents of South Dakota where the tribe is located.

All consumers must sign a loan agreement form to indicate they accept the terms ofthe loan. There is a reasonable question of whether a consumer sees the entire term of the loan or arbitration clause before they accept the loan.

The loan agreement includes, among other things, the following statements:
This Loan Contract is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation. By executing this Loan Agreement, you, the borrower, hereby acknowledge and consent to be bound to the terms of this Loan Agreement, consent to the sole subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court, and that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or its
interpretation.

Governing Law. This Agreement is governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Cheyenne River Sioux Tribe. We do not have a presence in South Dakota or any other states of the United States. Neither this Agreement nor Lender is subject to the laws of any state of the United States of America.

The loan agreement takes a “belt and suspenders” approach to depriving consumers of their state law rights. The agreement also contains an arbitration provision that requires, among other things:
“Arbitration shall be conducted in the Cheyenne River Sioux Tribal Nation by a panel of three Tribal Elders and shall be conducted in accordance with the Cheyenne River Sioux Tribal Nation’s consumer rules and the terms of this Agreement.”

The document continues:
“THIS ARBITRATION PROVISION IS MADE PURSUANT TO A TRANSACTION INVOLVING THE INDIAN COMMERCE CLAUSE OF THE CONSITITUTION OF THE UNITED
STATES OF AMERICA, AND SHALL BE GOVERNED BY THE LAW OF THE CHEYENNE RIVER SIOUX TRIBE.”

Further, “The arbitrator will apply the laws of the Cheyenne River Sioux Tribal Nation and the terms of this Agreement.”

Contrary to the representations of the Lending Defendants in the loan agreement, there is no such thing as arbitration in the Cheyenne River Sioux judicial system. Further, “Cheyenne River Sioux Tribal Nation’s consumer rules” do not exist. In response to a request for information regarding the Tribe’s arbitration procedure, a Tribal MediatorlMagistrate stated, “the Cheyenne River Sioux Tribe, the governing authority does not authorize Arbitration as defined by the American Arbitration Association (AAA) here on the Cheyenne River Sioux Reservation located in Eagle Butte, SD 57625.” (Exhibit A.)

The “belt and suspender approach” of placing exclusive jurisdiction of disputes with the Cheyenne River Sioux Tribe, but at the same time, requiring arbitration pursuant to
nonexistent arbitration rules, creates a conflict within the loan agreement. This dispute cannot simultaneously be subject to the jurisdiction of the Cheyenne River Sioux Tribe judicial system and a panel of non-judicial arbitrators who are chosen solely by the Defendants and who are members of the Tribe. This violates the Federal Arbitration Act. (Exhibit 8.)

Brought to you by Payday Loan Industry and Payday Loan University

Link to the actual filing: http://turtletalk.files.wordpress.com/2013/07/heldt-complaint.pdf

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Comments ( 6 )
  • Frank M. says:

    CashCall and Western Sky are much too greedy. There is a limit, even for our industry. Why push these rates to the very limit of intolerance? I’m going into the e-cig business…

  • fd says:

    Charging 116.73% on a $5,000 loan is just asking for trouble – for both the customer and the lender. While I believe the customer should be responsible for their actions, underwriting a loan at that rate and (possibly) no ability to pay is just stupid on the lenders part.

    It will be these cases that will drive the industry to the fringes of lending.

  • JT says:

    Those are some pretty hefty fees; even to a “loan shark” like me. This is really getting ugly. Seems to me, for the majority of us, it’s best to pick your state, get a license and work hard. I make some really good money in Texas and in California with my few stores. And, I don’t have to lose sleep at night or give all my profits to lawyers.

    JT

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