North Carolina Attorney General Roy Cooper said Monday that his office has filed suit against payday lender Western Sky, joining several other states and a federal agency in one of the first major crackdowns on what they call illegal online lending.
State regulators have long argued that the company’s loans violate laws on how high interest rates can be set. Western Sky, however, has claimed it was exempt from the laws banning payday loans in North Carolina and other states because it is based in American Indian territory on the Cheyenne River Sioux Indian Reservation in South Dakota.
Payday loans are typically short-term, low-dollar loans that carry steep fees and interest rates that can exceed several hundred percent. They’ve been illegal in North Carolina for more than a decade.
Western Sky began advertising on television in North Carolina in 2010 and made loans to state residents through Western Sky’s website and through a 1-800 number.
Since then, more than 100 complaints flowed into the state attorney general’s office about the company, Cooper said.
Documents filed alongside the lawsuit show that a man in Albemarle said he took out a $1,500 loan to help cover some medical bills. A third of the total was withheld as an origination fee, he said, but he made nearly $200 payments for seven months. He was then told he still owed $1,600. “I feel that I have been deceived,” he told the attorney general’s office.
In the lawsuit, Cooper’s office argues that Western Sky should not be protected by its incorporation on a Native American reservation and says loans made to customers in North Carolina should be governed by the state’s interest rate cap.
“These oppressive loans often trap borrowers who can never get ahead even through they make payment after payment,” Cooper said on a conference call with reporters. “Getting these loans is like needing a life preserver and being thrown an anvil.”
He was joined on the call by Richard Cordray, head of the federal Consumer Financial Protection Bureau, which filed a lawsuit of its own against the company that funded Western Sky’s loans. The bureau said that the company, known as CashCall, used deceptive and abusive marketing practices. Cordray also said that the company attempted to collect on debts that weren’t valid, because they violated state interest rate laws.
The online payday lending industry has been under scrutiny by the fledgling regulator for months. New York’s Department of Financial Services has also pursued action against Western Sky and its related companies.
Under pressure, Western Sky laid off the majority of its workforce and stopped issuing loans in September. In a statement on its website, Western Sky said it was the victim of “unwarranted regulator overreach.”
Attempts to reach Western Sky for comment were unsuccessful.
“The bottom line is that the Internet is a convenient and desirable place for many consumers and companies to do business,” Cordray told reporters. “But we cannot allow it to become the Wild West of unregulated and irresponsible lending.”
Dunn: 704-358-5235; Twitter: @andrew_dunn
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