The Consumer Financial Protection Bureau sued four online tribal lenders on Thursday for allegedly illegally collecting debts in 17 states where small-dollar installment loans are prohibited by state usury or licensing laws.
The CFPB claims the lenders — Golden Valley Lending Inc., Silver Cloud Financial Inc., Mountain Summit Financial Inc. and Majestic Lake Financial Inc. — also deceived consumers by collecting on debts that were not legally owed.
The lenders are all owned by the Habematolel Pomo Tribe, a federally recognized Native American tribe in Upper Lake, Calif. The tribe has roughly 300 members, but most of its online loan operations are conducted by call center employees in Overland Park, Kan., the CFPB said.
“We are suing four online lenders for collecting on debts that consumers did not legally owe,” CFPB Director Richard Cordray said in a press release. "We allege that these companies made deceptive demands and illegally took money from people's bank accounts. We are seeking to stop these violations and get relief for consumers."
The Habematolel Pomo Tribe did not immediately respond to a request for comment.
The CFPB alleged that the online tribal lenders charge interest rates that are high enough to violate usury laws in some states. Violating usury laws automatically renders the loans void, so the borrowers are not required to repay them, the CFPB said.
The tribal lenders also failed to disclose the annual percentage rates on loans in advertising to consumers. Instead, the lenders' websites simply state in fine print: “Complete disclosure of APR, fees, and payment terms are set forth in the loan agreement.”
The bureau said the lenders typically charge annual percentage rates of 440% to 950%. The lenders also charge borrowers a service fee of $30 for every $100 in principal outstanding plus 5% of the original principal amount, A consumer who borrows $800 would end up paying $3,320 for the loan over the course of 10 months, the CFPB said.
The agency said the lenders pursued consumers for payments even though the loans in question were void under state law and payments could not be collected.
The lenders also did not obtain licenses to lend or collect debts in some states. Failing to obtain a lender license makes the loans void as well, the CFPB said.
"The four lenders created the false impression that they had a legal right to collect payments and that consumers had a legal obligation to pay off the loans," the CFPB said.
The lawsuit, filed in U.S. District Court for the Northern District of Illinois, alleges the lenders violated the Truth in Lending Act and the Consumer Financial Protection Act.
The bureau is seeking monetary relief for consumers, civil money penalties and injunctive relief, including a prohibition on collecting on void loans against Golden Valley, Silver Cloud, Mountain Summit and Majestic Lake.
The CFPB is finalizing a payday lending rule that would institute new protections for payday loans, including a general requirement that lenders assess a borrower's ability to repay the loan.