Opinion Columns & Blogs

Editorial: High-interest lenders fight any regulation hard, understandably

In yet another reminder of the failings of California’s anti-usury laws, the federal Consumer Financial Protection Bureau – and not California – has sued an Anaheim-based lender that charges borrowers annual interest of as much as 343 percent.

The Consumer Financial Protection Bureau, created by President Barack Obama and Congress in the wake of the 2008 crash, sued CashCall Inc., alleging that the online lender engaged in unfair practices, including debiting consumer checking accounts for loans that were void.

The suit names CashCall and a subsidiary, WS Funding LLC, and a Nevada collection agency, Delbert Services Corporation, a Nevada collection agency.

The suit says the loans violated anti-usury laws in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina.

California is not one of the eight.

In 2009, CashCall entered into an arrangement with a South Dakota-based online lender, Western Sky Financial, which was based on an Indian reservation and owned by a Cheyenne River Sioux tribal member. Western Sky claimed its status as a tribal business exempted its loans from state laws – a claim the feds contest.

CashCall and Western Sky made hundreds of thousands of loans nationwide in amounts of between $850 and $10,000. The annual percentage rates ranged from 89.7 percent to 342.9 percent.

California law limits interest on loans of $300 or less. But the state’s law imposes no interest-rate cap on loans by licensed lenders of $2,500 or more, a result of lenders’ shrewd lobbying and campaign donations.

In an indication of the industry’s clout, one of CashCall’s lawyers is Neil Barofsky, a former federal prosecutor.

Barofsky went through the revolving door to a Manhattan law firm in September, after serving as the Treasury Department’s inspector general for the Troubled Asset Relief Program from 2008 to 2011. Barofsky says the suit violates a provision of the Dodd-Frank law that created the Consumer Financial Protection Bureau.

The industry fights any regulation. It’s not hard to see why.

The federal lawsuit points out that a consumer borrowing $2,600 would pay $13,840 over a 47-month term of the loan. A consumer borrowing $10,000 would pay $62,453 over the 84-month term.

The eight states cited in the suit limit high-interest loans in one way or another. Arkansas, for example, has a constitutional provision barring all contracts with interest rates of more than 17 percent. California leads the nation in many areas. On the question of usury, however, California could take a lesson from Arkansas.