The Consumer Financial Protection Bureau can proceed with a lawsuit against loan servicer CashCall Inc., a federal judge has ruled, thus rejecting the company's objection that the agency was trampling on states' rights.

The CFPB accused California-based CashCall, in a 2013 lawsuit, of violating the Consumer Financial Protection Act by allegedly collecting tens of millions of dollars in debt that was void under various state licensing and usury laws. The CFPB and four state attorneys general at that time announced a series of lawsuits against CashCall for alleged usury and deceptive collection practices through an affiliation with online lender, Western Sky.

The lawsuits were filed separately by the CFPB and attorneys general from Colorado, North Carolina, New Hampshire and Indiana. The attorneys general alleged CashCall exceeded respective state usury limits, while the CFPB claimed the company violated federal law banning "unfair and deceptive" acts. The CFPB specifically alleged that CashCall improperly collected payments through automatic account withdrawals for loans that were void. It became the first action the CFPB took against an online loan servicer.

The CFPB said at the time that CashCall and its subsidiary, WS Funding, entered into an agreement in late 2009 with Western Sky, a high-cost online lender under intense scrutiny from several state regulators. CashCall provided capital upfront for Western Sky's lending operations, and then would buy back the loans and assume servicing of them.

CFPB Director Richard Cordray said, in a press release, that online lending is rapidly growing and deserves ample regulatory attention.   

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.