$15.3 Million Settlement over Predatory Lending

Richmond, VAAn alleged purveyor of predatory lending is facing a settlement in excess of $15 million following protracted litigation lasting years and involving various interpretations pertaining to whether, or not the defendant(s) claims to immunity from state laws were legal, or justified.

Most states have laws governing the amount of interest a lender can charge for a loan – rules that are historically enforceable given the previous landscape of storefront lenders that existed prior to the advent of internet banking, and internet lending.

The latter, according to pundits has overtaken the storefront sector, making it harder for regulators to enforce rules. This has led to a proliferation of predatory lending suffered by consumers in need of a payday loan, or a car title loan.

With car title loans, a consumer in need of cash and with equity in a vehicle is eligible for short-term loans, many of which feature exorbitant interest rates that also bring with them risks to the consumer of losing the vehicle if the predatory lending loan is put into default for whatever reason. Plaintiffs filing a car title loan lawsuit have alleged that various lenders have claimed vehicles used as collateral for a car title loan, selling the vehicles off and returning far less to the consumer after retaining proceeds that exceed the original value of the loan.

Purveyors of payday loans have been known to charge exorbitant interest rates and help themselves to borrower’s bank accounts, to which they have gained access.

The $15.3 million settlement noted above, recently granted judicial preliminary approval, concludes litigation against defendant John Paul Reddam, who is alleged to have created various enterprises such as Delbert Services Corp. and CashCall Inc. in a bid to market what have been alleged to be illegal loans – and to collect from same – while circumventing consumer fraud statutes.

The alleged fraud is intertwined with the relationship of Delbert with Western Sky Financial LLC, an online lender that asserted immunity under ownership by a member of the Cheyenne River Sioux Tribe, and as such was not required to operate within the laws of the state, or so the defendants claimed.

Plaintiffs in the predatory lending lawsuit asserted that Western Sky was not a tribal entity at all, but rather a legal entity created under the laws of South Dakota in 2009.

The Commonwealth of Virginia intervened in the lawsuit, alleging that defendants collected interest on loans that ran as high as 230 percent – a level that remains illegal under the laws of the state.

“Online lenders are quickly becoming a new source of high-interest, financially risky loans,” said Virginia Attorney General Mark R. Herring, in a statement released February 3rd. “Unfortunately, like payday and car title loans before them, these small dollar loans issued online often come with exorbitant interest and fees that can trap a borrower in a cycle of debt. This is the largest settlement my Predatory Lending Unit has secured against an online lender. I’m glad we’re going to be able to get some relief to consumers who were harmed and I hope this settlement sends a clear message that we will not allow lenders to deceive, defraud, or illegally abuse Virginians.”

Predatory lending, payday loans and vehicle title loans are often intertwined through the use of similar tactics aimed at defrauding the consumer from money illegally.

Vehicle title loans – and resulting vehicle title lawsuits – are oft-used sources for quick cash by consumers who have built up equity in their vehicles. It has been determined that more than one million Americans took out car title loans in 2013 alone.

It has been alleged by many a plaintiff bringing a car title loan lawsuit, that lenders charge predatory interest rates as high as 500 percent per annum on short-term loans with a vehicle as collateral. Were the borrower to default on the loan by even a few days, vehicles are often repossessed and sold. Plaintiffs have alleged repayments they received did not reflect the value of the car less the outstanding amount of the vehicle title loan.

According to the official news release from the Commonwealth of Virginia, CashCall is permanently barred from violating the Virginia Consumer Protection Act and from charging more than 12 per cent annual interest on its loans without qualifying for a usury law exception.

The civil settlement is in the form of a Stipulated Final Judgment and Order that has been filed with the US District Court for the Eastern District of Virginia, Richmond Division. The settlement was filed in coordination with a pending Virginia class action settlement in the same court and the order is expected to be entered at the time the court approves the final class settlement.