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Leaf Home arrow The News arrow North East News arrow Payday Lender Agrees to Fine, Refunds
Payday Lender Agrees to Fine, Refunds
Written by Administrator   
Saturday, 25 January 2014

Payday Lender Agrees to Fine, Refunds
Western Sky to Pay $1.5 Million in Pact With New York
By Andrew R. Johnson
Jan. 23, 2014

 Online lender Western Sky Financial LLC has agreed to pay a $1.5 million fine and refund interest payments to borrowers under an agreement reached with New York Attorney General Eric Schneiderman.

Mr. Schneiderman had accused the Timber Lake, S.D., firm, along with affiliates CashCall Inc. and WS Funding LLC, of charging triple-digit interest rates, a violation of New York's lending laws.

The settlement, which comes amid a multistate crackdown on "payday" lenders offering short-term, high-rate loans over the Internet, requires the firms to stop collecting interest on loans to residents and refund to borrowers any interest above the 16% state limit, which could result in as much as $35 million in relief for New York consumers, a spokesman for Mr. Schneiderman's office said Thursday.

"As individuals in New York and across the country continue to face tough economic times, we must keep up the fight against those who exploit and scam them," Mr. Schneiderman said. "Illegal collectors and lenders, in particular, must pay a price for their behavior."

An attorney for Western Sky declined to comment.

In addition to targeting the lenders, authorities have probed traditional banks over the role they play in providing payment processing and other services to the lenders.

Mr. Schneiderman sued Western Sky and its affiliates in August, alleging the loans violated a state law limiting interest on certain types of loans at 16%. The companies have made more than 18,000 loans to New York residents totaling about $40 million. Annual interest rates on the loans ranged from 89% to more than 355%, he alleged.

Western Sky, which has been targeted by Colorado, Maryland, Georgia and other states, had tried to dismiss New York's suit, arguing it was immune from state action because its owner, Martin "Butch" Webb, is affiliated with an American Indian tribe and operated the business on tribal reservation land in South Dakota.

In September, Western Sky had said it ceased lending, citing efforts "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."

As more states have banned these payday loans, lenders have set up shop over the Internet, arguing they aren't subject to the states' requirements because they don't have physical storefronts located there.

To get around such loopholes, regulators have homed in on outside companies, including banks and payment processors, that help facilitate loan payments.

New York Department of Financial Services Superintendent Benjamin Lawsky in August sent letters to more than 100 banks, urging them to cease processing payments on these loans taken out by customers. Some online lenders have complained that some banks have stopped offering such services.

The Justice Department this month reached a $1.2 million settlement with a small North Carolina bank, Four Oaks Fincorp Inc., over allegations the bank processed more than $2 billion in transactions for a payment processor that enabled fraudulent payday-lending transactions, a Ponzi-type scheme and Internet gambling.

The lender didn't admit or deny wrongdoing and said it agreed to the settlement to "void a lengthy and protracted legal fight."

Darren Kaplan, a lawyer in New York, last year filed several consumer lawsuits against banks, alleging they have enabled online lenders to skirt state interest-rate laws by originating customer-loan payments on their behalf.

"We went after the banks because without the banks this industry would be finished," Mr. Kaplan said.

Vincent S. Vaughn III, an Easton, Pa., resident, said he took out a $1,000 loan from Western Sky in 2012 after seeing a television advertisement for the company. At the time, he said he was told he would pay a total of $1,500 over the life of the loan. About eight months later, he received an update saying he owed a much larger amount despite making payments on time.

"I saw a commercial and I got duped," Mr. Vaughn, 27 years old, said.

The lender continued to deduct loan payments from his checking account, so Mr. Vaughn contacted his bank, Capital One Financial Corp. COF -1.36% , and requested it cancel the payments. The move worked, and Capital One refunded him one of the loan payments as well as several overdraft fees that had resulted from the payments, he said.

A spokeswoman for Capital One said that under the bank's policy, it will block future payment transactions from a payday lender upon customer request.

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