Delbert Services Corp., a Las Vegas-based collection agency, was one of three companies sued Monday over allegations of deceptive and abusive loan practices, a complaint released by the Consumer Financial Protection Bureau shows.
The bureau’s lawsuit alleges Delbert Services, WS Funding LLC and its parent company CashCall Inc. illegally debited consumer checking accounts for loans that were void, along with other practices.
Bureau director Richard Cordray said his agency sued CashCall for collecting money it had no right to take from customers.
“Online lending is rapidly growing and deserves ample regulatory attention,” Cordray said in a statement. “The (agency) will take action against online lenders and servicers that engage in unfair, deceptive or abusive practices.”
The Anaheim, Calif.-based online lender offers mortgage loans and refinance, personal loans and small-business loans through its website. In a statement Monday, attorneys with Jenner &Block in New York said CashCall will fight the charges in court.
“The charges against CashCall are without merit,” company attorneys Neil Barofsky and Katya Jestin said. “The CFPB’s charges today against CashCall fly in the face of Congress’ clear intent when it plainly and simply declared out of bounds any effort by the CFPB to impose rate caps.”
Barofsky and Jestin expected CashCall to be “vindicated.” They called the lawsuit an “affront to Indian tribes’ sovereign right to regulate their own economic affairs.”
Delbert Services, WS Funding and CashCall, are all owned by J. Paul Reddam. In April, Massachusetts consumer and banking officials ordered Delbert Services to stop taking payments on more than 100 allegedly illegal loans. Reddam is a philosophy professor-turned-businessman who gained fame last year when his horse, I’ll Have Another, won the Kentucky Derby and the Preakness Stakes, The Associated Press reported.
The bureau’s investigation began in late 2009 after CashCall and WS Funding entered into an agreement with Western Sky Financial, a South Dakota-based online lender.
Western Sky asserted that state laws did not apply to its business because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe. But this relationship with the tribe does not exempt Western Sky from having to comply with state laws when it makes loans over the Internet to consumers in various states, the bureau stated.
The online loans ranged from $850 to $10,000, and typically had upfront fees, lengthy repayment terms and annual interest rates from nearly 90 percent to 343 percent.
The bureau said many consumers signed agreements permitting loan payments to be debited from their bank accounts. The loans were then acquired by WS Funding and serviced by CashCall.
Delbert Services is at 7125 Pollock Drive. It was founded in 2008 and is licensed or has the authority to perform collections in 47 states, the company says on its website. The privately held business does not disclose in which states it does business.
In September, Western Sky stopped making loans and began closing its business after several states began investigations and court actions.
But CashCall and its collection agency, Delbert Services, have continued to take monthly installment payments from consumers’ bank accounts or have otherwise sought to collect money from borrowers.
The bureau’s investigation found that the high-cost loans violated licensing requirements or interest rate caps, or both, in at least eight states, including Arizona. Under state statutes, any obligation to pay such loans was rendered void or otherwise nullified wholly or partly by law.
The bureau’s complaint also seeks additional damages and civil penalties.
The federal agency, which was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act, also seeks to have the companies “adhere to all federal consumer financial protection laws.”