Consumer bureau sues online loan firm

The Consumer Financial Protection Bureau (CFPB) is filing a lawsuit against an online loan company for collecting money that borrowers did not owe.

The action against CashCall is the first that the consumer agency has taken against an online lending servicer for abusing consumers.

“Today we are making clear that you cannot avoid federal law simply because your activities take place online, where more and more lending is migrating,” CFPB Director Richard Cordray said, according to prepared remarks. “Pretending that a loan is due and must be repaid and taking funds from a consumer’s bank account, even where the loan is void under state law, is unfair, deceptive, and abusive, and it will not be tolerated by federal regulators.”

{mosads}“The bottom line is that the Internet is a convenient and desirable place for many consumers and companies to do business, but we cannot allow it to become the Wild West of unregulated and irresponsible lending,” he added. 

According to the CFPB’s charges, the California-based company entered into a deal with Western Sky Financial in 2009 that resulted in loans that violated a series of state laws limiting sky-high interest rates or mandating licensing standards.

The loans ranged from $850 to $10,000, but came with fees and interest rates that dramatically raised the amount that borrowers owed. One borrower took out $2,600, for instance, but ended up owing a total of about $13,840 over four years.

Some consumers had money taken directly from their bank accounts, similar to how payday loans operate.

According to the CFPB, CashCall’s loans violated laws in at least eight states.

Western Sky Financial stopped making loans and began to shut down after states began to take action, but CashCall has not.

CashCall did not immediately respond for a request for comment about the lawsuit.