CFPB regulations are known to cause concern to even the most conservative
financial services provider, but to make matters worse, a recent Federal
Court decision has raised issues which are crucial to your lending/collecting/servicing business.
Historically, in order for a plaintiff to establish liability for fraud,
they had to provide evidence that the misrepresentations or inaccuracies
made during solicitation of clients were intentional. But according to
the outcome of a recent lawsuit wherein the CFBP alleged that a financial
services provider committed “Unfair Deceptive, Abusive Acts or Practices”
(“UDAAP”), it appears that defendants can now be held liable
even if the misrepresentations were made unintentionally and the defendant
acted in good faith.
In a case that has been dragging on since 2014, the CFPB’s motion
for partial summary judgment was granted on August 31, 2016, pursuant
to a finding that CashCall, Inc. (“CashCall”) engaged in deceptive
acts and practices as outlined under UDAAP.
The lawsuit stems from CFPB allegations that CashCall entered into agreements
with Western Sky Financial (“Western Sky”), a financial institution
that is sponsored and licensed by the Cheyenne River Sioux Tribe (“CRST”)
to conduct lending operations on sovereign reservation lands in South
Dakota. Western Sky operated a call center on the reservation, employing
over 100 individuals.
Western Sky originated consumer loans under laws regulated by the CRST,
and not subject to state laws. CashCall then entered into arrangements
to directly purchase loans made by Western Sky and fund loans with CashCall
assets. Their methods called for loans to be immediately sold to CashCall
after origination, with CashCall collecting payments and taking collection
actions against delinquent accounts.
The CFPB alleged that CashCall collected payments on the Western Sky loans
by creating the impression to consumers that they were servicing CRST
regulated contracts. The CFPB also claimed that because the impression
set by CashCall was patently false, it was meant to mislead consumers.
The federal district court agreed, and found that CashCall had indeed
engaged in misleading and deceptive practices with Western Sky customers.
The Court did not allow CashCall to rely on sovereign tribal law and completely
ignore applicable state laws. By servicing CRST loans, the CFPB asserts
that CashCall gave consumers the impression that CRST law bound them to
make payments even though CashCall owned the loans. The CFPB further argued
that CachCall is not entitled to tribal protections and therefore cannot
use those protections to protect it from the consequences of its deceptive
practices under federal law.
Ultimately, the Court determined that CashCall misled consumers by making
them believe that they were required under CRST laws to repay the loans;
and even if the representations were made under a mistaken belief that
the information was true and correct, that was not a viable defense and
could not shield CashCall from liability.
The Court did not consider the possibility that CashCall believed it was
working under CRST law or that somehow it was exempt from abiding by state
law. Unfortunately, CashCall did not provide the Court with evidence of
its true intentions, but suffice it to say the Court was unwilling to
make an assumption of ignorance. As such, CashCall’s intentions
were not a considered or weighed by the Court prior to making its decision.
The case sets a dangerous precedent for other lenders doing business under
third-party contracts, and leaves behind several landmines for financial
services providers acting in situations where aspects of the law may be
unclear to their organization. It also opens the door to potential consumer
litigation which can now be based simply upon an allegation of deceptive
practices without the requirement that plaintiffs prove there was an ‘intent
This decision establishes a broad legal precedent regarding the evidence
necessary (or lack of evidence) to establish the existence of deceptive
practices, and could ultimately expose financial institutions to legal
challenges from consumers seeking to bypass contractual obligations by
arbitrarily and capriciously claiming they were misled.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
for more information.