Arkansas Attorney General Dustin McDaniel's office is suing companies believed to have colluded to offer illegal payday loans online while claiming to be affiliated with a Native American tribe to avoid legal action.

McDaniel said Tuesday he filed a lawsuit in in an Arkansas Circuit Court against Western Sky Financial and other defendants, including CashCall Inc. WS Funding, Martin A. Webb and J. Paul Reddam. McDaniel’s lawsuit claims that the defendants offered payday loans with interest rates as high as 342%, violating Arkansas law.

Western Sky is an online lender that stopped funding loans last month amid rising legal battles with authorities in several states. That decision came as state and federal regulators clamped down on payday lending, an industry that operates under a patchwork of laws. These loans carry high interest rates and balloon payments, critics say.

The company is based in South Dakota and identifies itself as a tribal entity protected by sovereign immunity through the Standing Rock reservation.

But McDaniel said the company is not owned or operated by a tribe and doesn’t have immunity. The lawsuit states that CashCall and its subsidiaries run almost all of Western Sky’s operations.

Western Sky has been the subject of several lawsuits challenging its lending in states with strict usury laws that cap interest rates on loans. Many states have accused Western Sky of issuing online loans with interest rates as high as 340%. Just in the last month New York, Michigan and Georgia sued the company. The Federal Trade Commission filed a lawsuit against Western Sky in 2011, alleging illegal collection practices.

In August, Western Sky cited "unprecedented government interference" as the reason for a decision to lay off most of its employees in Timber Lake, S.D., as well as its decision to close its office in Eagle Butte, S.D.

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