Western Sky Financial, a high-cost online lender that recently came into the crosshairs of New York authorities, said Tuesday that 94 of its employees have lost their jobs as a result of its decision to suspend operations.
In a news release, the company lashed out at state regulators that have accused Western Sky of operating illegally. The company, which was based on the Cheyenne River Indian Reservation in South Dakota, maintains that it is not subject to state laws because of tribal sovereignty.
"I'm deeply saddened that so many members of the Cheyenne River Sioux tribe have had their lives turned upside down because of regulators and bureaucrats thousands of miles away," Butch Webb, the company's founder, said in the news release.
The news release stated that Western Sky was suspending its operations because of an "effort by state regulators to pressure and intimidate banks, other financial institutions and payment processing services into choking off business with online lenders like Western Sky."
In its TV ads, Western Sky touted its loans as a way to escape the treadmill of debt that often traps payday loan borrowers. But consumer advocates say the company's installment loans, which sometimes had annual percentage rates in excess of 300%, were no more consumer-friendly than the 15-day loans made by payday stores.
New York Financial Services Superintendent Benjamin Lawsky cracked down on Western Sky and 34 other online lenders by warning more than 100 banks last month to stop doing business with them and cut them off from the electronic payments system. Since then, at least nine of the companies have halted operations, though some of the firms say the shutdown is temporary.
Also last month, New York Attorney General Eric Schneiderman filed suit against Western Sky, accusing the firm of violating the Empire State's cap on interest rates. Officials in Maryland and Georgia have also sued Western Sky.
A Western Sky spokesman said in an email that state officials "lack the authority to regulate legal commerce engaged by members of the Cheyenne River Sioux Tribe on the Cheyenne River Indian Reservation."
But even among so-called tribal lenders that maintain they are not subject to state laws, Western Sky has found itself isolated in recent weeks. Lenders that belong to the Native American Financial Services Association, a trade group, are owned and controlled by tribes, says Barry Brandon, the organization's executive director. By contrast, he adds, Western Sky was owned and operated by a single individual, Webb, who is also a member of a tribe.
"Those types of business models cause me grave concern," Brandon says. "We were pleased that they were shutting down."
Also named in state lawsuits against Western Sky was CashCall, a California company founded by J. Paul Reddam, who previously ran the subprime mortgage lender Ditech.
CashCall, whose onetime spokesman was the late television actor Gary Coleman, purchased loans from Western Sky within three to five days of their origination, according to the suit filed by Georgia officials. That arrangement allowed CashCall to get around state interest rate caps, state officials have said
In an emailed statement, Reddam lamented Western Sky's demise but did not comment on how the firm's shutdown would affect CashCall.
"I am deeply saddened by the imminent negative impact that the illegal and misguided multi-state assault on Western Sky will have on the many hardworking Native American employees on the reservation who depend on their Western Sky jobs to support themselves and their loved ones," Reddam said.
Western Sky said Tuesday that it will maintain a limited staff as it seeks to resolve its legal issues.