A class-action lawsuit against collection agency Delbert Services Corp., a Las Vegas-based firm working for online tribal lender Western Sky Financial, can proceed after a federal appeals court reversed a lower court’s decision that the dispute must be arbitrated.

The lawsuit, filed in 2014, sought damages against Delbert Services, an agency that collected overdue loans issued by Western Sky and a related loan servicing company, CashCall Inc. The lawsuit said Western Sky, an online lender, was trying to evade liability with dubious assertions of sovereign immunity based on its claimed affiliation with a Native American tribe. 

Last month, in a related case, a federal judge ruled the Consumer Financial Protection Bureau can proceed with a lawsuit against CashCall and rejected the company’s argument that the CFPB was trampling on states’ rights.

The CFPB had 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 the time announced a series of lawsuits against CashCall for alleged usury and deceptive collection practices through the affiliation with 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, which already was under 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.

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. 

The company is owned by a Cheyenne River Sioux tribal member and operates on the tribe’s South Dakota reservation.  

In 2013, the company 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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