A South Dakota-based payday lender and its California partner are to pay about $2 million under the terms of a settlement designed to address "abusive" lending and collection activities, the Department of Labor, Licensing and Regulation said Monday.
Regulators first placed a cease-and-desist order on Western Sky Financial, owner Martin Webb and related entities in 2011, after complaints from consumers about interest rates of up to 1,825 percent, well above the state cap, which ranges from 24 percent to 33 percent based on the size of the loan.
Payday loans are small, short-term loans that were meant originally to be repaid on the borrower's next payday. The loans are considered high-risk and carry higher interest rates as a result, but many states cap the rates to protect vulnerable borrowers.
In Maryland, Western Sky worked with California-based CashCall Inc. to make more than 1,200 of the small, short-term loans to residents between 2010 and early 2011 via the Internet or by phone, according to the state.
The settlement permanently bars the companies from doing business requiring a license in the state and cancels any debts still owed to Western Sky Financial and other Webb-owned entities, estimated to be more than $275,000, according to the DLLR.
Borrowers from Western Sky Financial also can apply for refunds on interest payments made above 24 percent per year from a $1.7 million account administered by Dahl Administration under the oversight of the Circuit Court for Baltimore City.
"Western Sky Financial and CashCall worked together to charge outrageous rates to vulnerable citizens in a time of great economic distress," said Mark Kaufman, Maryland's commissioner of financial regulation, in a statement. "They sought to structure around long-standing statutory prohibitions and to deny borrowers' protections to which they are legally entitled.
"I am proud that we were able to act aggressively and halt their lending activities in 2011, and now I am pleased that we can deliver meaningful redress to Marylanders who have been harmed," Kaufman said.
Efforts to reach company representatives through their attorneys were unsuccessful. Western Sky Financial, which was based on the Cheyenne River Sioux Reservation but not run by the tribe, had argued that its location made it exempt from state laws. The firm announced in September it would suspend operations "as a result of unwarranted overreach by state regulators."
CashCall remains involved in litigation brought by the state in 2009 on a separate, but similar, matter. The firm's owner, J. Paul Reddam, also was the owner of I'll Have Another, the horse that won the 2012 Preakness.
CashCall was sued in December by the federal Consumer Financial Protection Bureau, alleging the lender illegally tried to collect on some loans made over the Internet. CashCall and Western Sky have been subject to lawsuits in other states, including New York and Connecticut, where settlements also were announced this year.
"I applaud Commissioner Kaufman, Assistant Attorney General Tom Lawrie and their entire staff for their willingness to take prompt and aggressive action in a complex case involving multiple parties, tribal immunity and related issues," said Maryland Secretary of Labor Leonard J. Howie III in a statement. "Their prompt action limited damage in Maryland and sends a clear message to other potential lenders who may seek to flout Maryland law."