NY Regulators Cap Payday Lending Case

The case against a South Dakota-based payday lending operation that charged illegal interest on loans is wrapping up in New York state where residents can now start filing refund claims, according to New York Attorney General Eric Schneiderman’s office.

More than $20 million could be distributed, depending on the number of consumers who make claims, and many borrowers will receive a refund of more than $1,000. The settlement included penalties totaling $1.5 million.

All borrowers who received loans from Western Sky Financial LLC and CashCall Inc. or any party collecting on their behalf more than the proceeds of the loan plus the legal interest rate of 16% are eligible for a refund, according to the AG's office.

Western Sky agreed last year to stop funding loans amid rising legal battles with authorities in several states. It previously cited "unprecedented government interference" as the reason for laying off the majority of its employees in Timber Lake, S.D. and its decision to close its office in Eagle Butte, S.D.

Last October, owner Martin A. Webb and Western Sky were among the defendants sued by Arkansas Attorney General Dustin McDaniel's office for allegedly to offer illegal payday loans online while claiming to be affiliated with a Native American tribe to avoid legal action.

Webb and his companies, including Western Sky, offered payday loans ranging from $300 to $2,525 to consumers across the U.S. and advertised on television and online, according to a Federal Trade Commission complaint. The defendants tried to garnish consumers' wages without a court order and sought to manipulate the legal system by forcing borrowers to appear before the Cheyenne River Sioux Tribal Court in South Dakota, which did not have jurisdiction over their cases. 

"Debt collectors cannot garnish consumers’ wages without a court order, and they cannot sue consumers in a tribal court that doesn’t have jurisdiction over their cases," said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. "Regardless of tribal affiliation, debt collectors must comply with federal law."

Webb and Western Sky last month were ordered to pay $967,740 to the U.S. Treasury to settle FTC charges of using unfair and deceptive collection tactics.

Schneiderman's office sued Western Sky and its affiliates last summer, accusing them of charging interest rates to New Yorkers that were more than 10 times the higher than the state’s interest rate limit of 16%.

“Thousands of New Yorkers who were the victims of exorbitant and illegal interest rates can receive meaningful relief through our settlement fund,” Schneiderman said in a release. “I encourage all those eligible to take full advantage of this program.”

The New York AG’s office has been cracking down on payday lenders in the past year.