New York regulators have reached a settlement with Western Sky Financial LLC, CashCall Inc., WS Funding LLC and their owners, Martin Webb and J. Paul Reddam, for violating the state's usury and licensed lender laws in connection with personal loans they made over the Internet.

In the settlement, announced by New York Attorney General Eric Schneiderman's office, the companies and their owners will stop collecting interest on outstanding loans made by Western Sky to New York consumers, provide refunds to borrowers who paid back more than the principal of their loan plus the legal interest rate of 16 percent, and pay $1.5 million in penalties.

In December, the Consumer Financial Protection Bureau and attorneys general from Colorado, North Carolina, New Hampshire and Indiana announced a series of lawsuits against CashCall, described as a California-based online loan servicer for deceptive collection practices through its affiliation with Western Sky.

 

In New York, regulators accused the companies of charging consumers annual rates of interest ranging from 89 percent to more than 355 percent. These interest rates exceed the maximum rate allowed under New York law, which is limited to 16 percent for most lenders not licensed by the state.

Consumers who received loans of $1,000, for example, were charged an interest rate of more than 234%, and had to repay as much as $4,942 in interest and principal over just two years. None of the companies sued were licensed in New York.

Under the settlement, Western Sky, CashCall and related companies will modify all outstanding loans Western Sky made to New York consumers. The companies will cease all collections from New York consumers who have paid more than the principal of the loan, and cease all collections of interest from all other New York consumers. In all, the settlement could provide more than $35 million in debt relief to New Yorkers. A proposed order and judgment reflecting the terms of the settlement has been submitted to the court.

The settlement also creates a settlement fund, managed by Ken Feinberg of Feinberg Rozen LLP, to distribute refunds to New York consumers who have paid more than the principal of their loan plus the legal interest rate of 16 percent. Consumers who are eligible for a refund will be contacted by the fund administrator within 90 days of the court’s approval of the settlement and asked to submit a claim.

Respondents also are required to stop their illegal lending practices and stop lending to people in the State of New York until they comply with New York State law and are properly licensed. The parties will pay a penalty of $1.5 million to the Attorney General’s Office.

The companies, located in South Dakota and California, targeted consumers through television and internet advertising that promised "fast cash" to consumers in urgent need of money.  

New York borrowers who questioned the legality of these loans were falsely told by the companies that New York law did not apply. Some consumers were also targeted with deceptive debt collection calls in further violation of New York law.

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