Loans at 950% Interest?!?!?!
Consumers secure $500 million settlement against tribal lender
A class of consumers has asked a Virginia federal judge to approve a $500 million settlement with a Native American tribe (Habematolel Pomo of Upper Lake) in a lawsuit over short-term loans charging interest rates as high as 950%. The rates charged violated state rate caps in states where the consumers reside.
According to Monday’s motion, the settlement includes $450 million in debt cancellation and the creation of a $39 million common fund which will be distributed to class members who previously repaid unlawful amounts on their loans.
As part of the settlement, tribal officials will first eliminate the balance on any outstanding loans, and tribal officials have agreed to cease all collection activity and not sell, transfer, or assign any outstanding loans for collection.
The suit involved four lenders — Golden Valley Lending, Silver Cloud Lending, Majestic Lake Financial, and Mountain Summit Financial — all operated by Habematolel Pomo and all accused of charging usurious interest rates.
In fact, these companies were the subject of a suit brought by the Consumer Financial Protection Bureau (CFPB) in 2017.
At that time, the CFPB noted:
Since at least 2012, Golden Valley Lending and Silver Cloud Financial have offered online loans of between $300 and $1,200 with annual interest rates ranging from 440 percent up to 950 percent. Mountain Summit Financial and Majestic Lake Financial began offering similar loans more recently
At the time of that suit, then-Director of the CFPB Richard Cordray said:
“We are suing four online lenders for collecting on debts that consumers did not legally owe,” said CFPB Director Richard Cordray. “We allege that these companies made deceptive demands and illegally took money from people’s bank accounts. We are seeking to stop these violations and get relief for consumers.”
Even Mainstream Banks Want in on the Payday Predator Action
Most people associate payday loans — whether through storefronts or online operations — with shady business dealings and legalized loan sharking. Often, these fast-credit, small-dollar lenders are the last resort for low-income people facing a financial emergency.
By the same token, the perception of FDIC-backed banks is that while they may not offer loans in this market of desperation, they do conduct business in a way that is at least somewhat fair and reasonable. After all, they’re answering to a federal regulator.
However, a new report from Pew suggests that a handful of FDIC-supervised banks are acting just like payday predators — offering out their services in so-called “rent-a-bank” schemes in order to charge rates from 90–200% on small dollar loans.
In the report, Pew explains how banks get away with these schemes:
Rent-a-bank partnerships have resulted in loans that carry annual percentage rates that typically range from the 90s to the low 200s — rates that are much higher than what banks usually charge or that the laws of many borrowers’ states permit. But banks have pre-emption authority, meaning they can issue loans under their home state’s banking laws even if the loans’ interest rates are not allowed under the borrower’s state consumer credit laws.
Who are these rogue banks? NCLC exposes them:
Consumer advocates are aware of “six rogue banks fronting for high-cost non-bank consumer lenders, enabling loans up to 225% APR that are illegal for the non-bank lender to make directly.” Four of the banks are chartered in Utah: FinWise Bank, Capital Community Bank, First Electronic Bank and Transportation Alliance Bank (TAB Bank). The letter also cites Republic Bank & Trust of Kentucky and Lead Bank of Missouri. The high-cost lenders using banks to launder their loans include EasyPay Finance, Elevate Credit, OppLoans, the installment loan brand of the payday lender CashNetUSA, and the auto title lender LoanMart, among others.