Consumer Law & Policy Blog

CFPB Wins a Round Against CashCall

On Wednesday of this week, a federal district court in California handed the Consumer Financial Protection Bureau a victory in its lawsuit against consumer lender CashCall. The court's ruling grants the CFPB partial summary judgment on its claim that CashCall committed deceptive acts in violation of the Consumer Financial Protection Act by collecting illegal interest charges from its customers. The court's decision rejects CashCall's "tribal model" of lending, in which it sought to evade the application of state usury laws by using a company based on the Cheyenne River Sioux Reservation to originate its loans and claiming that tribal law, not state law, governed the loans.

In its ruling, the district court held that although the loans were purportedly made by the tribal company (Western Sky) and then sold to CashCall, the true lender was CashCall, because under the arrangement between the companies, it was CashCall's money that was at risk. Thus, the court held, there was no basis for applying tribal law to the loans because the loan transactions bore no substantial relationship to the tribe. State usury laws therefore applied. Under those laws, the loans' interest rates, with APRs well into the triple digits, were illegal. And, the court ruled, telling consumers they were obligated to pay illegal interest is a deceptive act under federal law. The court also held CashCall's founder personally liable for the violations.

The CashCall/Western Sky shenanigans have produced a mountain of litigation, including state enforcement actions and a number of decisions addressing the purported requirement in loan agreements that borrowers have to make any claims through tribal arbitration processes (which don't even exist). The CFPB's victory may be a step toward finally resolving the issues raised by CashCall's actions. However, CashCall has litigated the case vigorously and may well appeal once there is a final judgment in the case. Yet to be determined by the trial court are remedies for the violations. 

No Soap: FDA Finally Acts on Antibacterials

Health advocates have been saying for years that consumers shouldn’t use antibacterial soaps. Yet manufacturers have continued to put antibacterial agents into liquid soaps, to the extent that for a while it was hard to find products on store shelves that didn’t contain them. Now the Food & Drug Administration has finally gotten the message. The FDA today issued a final rule prohibiting use of some common antibacterial agents in soaps and body washes, as well as a consumer update entitled, “Antibacterial Soap? You Can Skip It—Use Plain Soap and Water.” It’s good news that the FDA has taken this step. The bad news is that it took the agency almost 40 years to do it, and in the meantime these products became entrenched in the marketplace, and Americans were exposed to them in massive quantities.

Court costs make poverty worse and more enduring

Writing in today's New York Times, Erik Eckholm explains in Court Costs Entrap Nonwhite, Poor Juvenile Offenders that

Fines, fees and restitution mandates are levied on juvenile offenders to varying degrees in every state, a new national survey of these practices has found. The effects are greatest on the poor and racial minorities, creating a two-tiered system of justice, according to the report, published by the Juvenile Law Center, a legal aid and advocacy group in Philadelphia. * * * A new analysis of juvenile cases in the Pittsburgh area found that unrealistic fines and fees contribute to recidivism and have an unequal effect on nonwhite offenders. Nonwhite offenders owed more on average than white offenders at the time their cases were closed, said Alex R. Piquero, a criminologist at the University of Texas at Dallas and an author of the study, which will be published in the journal Youth Violence and Juvenile Justice. Even accounting for the severity of offenses, those who owed the most were more likely to be rearrested.