* * * * * * * * * * * * * * * * * * * * * * * IN THE MATTER OF: WESTERN SKY FINANCIAL, L.L.C. ("Western Sky") MARTIN A. WEBB ("Webb") (collectively, "Respondents") * * * * * * * * * * * * * * * * * * * * * * * | * * * * * * * * * * * | NOTICE OF INTENT TO ISSUE NOTICE OF INTENT TO IMPOSE AND NOTICE OF RIGHT TO HEARING |
I. LEGAL AUTHORITY AND JURISDICTION
The Banking Commissioner (“Commissioner”) is charged with the administration of Part III of Chapter 668, Sections 36a-555 to 36a-573, inclusive, of the Connecticut General Statutes, “Small Loan Lenders”, and the regulations adopted thereunder (Sections 36a-570-1 to 36a-570-17, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”).
Pursuant to the authority granted by Section 36a-17(a) of the Connecticut General Statutes, the Commissioner, through the Consumer Credit Division of the Department of Banking (“Department”), has investigated the activities of Respondents to determine if they have violated, are violating or are about to violate the provisions of the Connecticut General Statutes or Regulations within the jurisdiction of the Commissioner.
Section 36a-17(a) of the Connecticut General Statutes provides, in pertinent part, that:
The commissioner, in the commissioner’s discretion, may, subject to the provisions of section 36a-21 and the Freedom of Information Act, as defined in section 1-200; (1) make such public or private investigations . . . within or outside this state, concerning any person subject to the jurisdiction of the commissioner, as the commissioner deems necessary to carry out the duties of the commissioner . . . .
Section 36a-52(a) of the Connecticut General Statutes provides, in pertinent part, that:
Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any provision of the general statutes within the jurisdiction of the commissioner, or any regulation . . . adopted . . . thereunder, the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt, or seven days after mailing or sending. Any such notice shall include: (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the general statutes, [or] regulations . . . alleged to have been violated; (4) a short and plain statement of the matters asserted; and (5) a statement indicating that such person may file a written request for a hearing on the matters asserted within fourteen days of receipt of the notice. If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice, unless the person fails to appear at the hearing. After the hearing, the commissioner shall determine whether an order to cease and desist should be issued against the person named in the notice. If the person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner shall issue an order to cease and desist against the person. No such order shall be issued except in accordance with the provisions of chapter 54.
Section 36a-50(a) of the Connecticut General Statutes provides, in pertinent part, that:
(1) Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, or any regulation . . . adopted . . . thereunder, the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending. Any such notice shall include: (A) A statement of the time, place, and nature of the hearing; (B) a statement of the legal authority and jurisdiction under which the hearing is to be held; (C) a reference to the particular sections of the general statutes, [or] regulations . . . alleged to have been violated; (D) a short and plain statement of the matters asserted; (E) the maximum penalty that may be imposed for such violation; and (F) a statement indicating that such person may file a written request for a hearing on the matters asserted not later than fourteen days after receipt of the notice.
(2) If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice unless such person fails to appear at the hearing. After the hearing, if the commissioner finds that the person has violated any such provision, [or] regulation, . . . the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by law, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner may, as the facts require, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person.
(3) Each action undertaken by the commissioner under this subsection shall be in accordance with the provisions of chapter 54.
II. MATTERS ASSERTED
| 1. | Western Sky is a South Dakota limited liability company with an address at 612 E Street, Timber Lake, South Dakota. |
| 2. | At all times relevant hereto, Webb has been the sole owner, member and registered agent of Western Sky. |
| 3. | From at least February 2010 to March 2013, Western Sky offered, via various media in Connecticut, including television, radio and Internet, unsecured consumer loans in amounts less than $15,000 with annual interest rates of greater than 12% (“Consumer Loans”). |
| 4. | Western Sky’s website at www.westernsky.com offered Consumer Loans to consumers, not excluding Connecticut residents, by soliciting such consumers to “Apply Now” or to call 866-SKY-1224. In addition, Western Sky advertised Consumer Loans via television commercials that aired on several channels in Connecticut, prompting Connecticut residents to visit Western Sky’s website or to call 877-SKY-1224 to receive up to $10,000 the next day. |
| 5. | From February 2010 to March 2013, Western Sky made at least 3,800 Consumer Loans to Connecticut residents. The leads for the vast majority of these loans came from Western Sky’s television and radio advertising in Connecticut. |
| 6. | For each Consumer Loan, Connecticut residents entered into a “Western Sky Consumer Loan Agreement” (“Agreement”) with Western Sky agreeing to pay interest at rates ranging from 89.68% to 355.27% on loans in amounts of $700 to $10,000. Such Agreements were electronically signed by Connecticut residents via the Internet. Shortly thereafter, loan amounts, less origination fees, were electronically deposited into the Connecticut residents’ bank accounts. |
| 7. | Western Sky originated Consumer Loans according to lending criteria agreed upon with a third-party and its subsidiary (collectively, “Third-Party”). Pursuant to agreements between Western Sky and Third-Party, Third-Party agreed to purchase all the Consumer Loans meeting this criteria, be responsible for all collection efforts on the Consumer Loans, reimburse Western Sky the costs of its network maintenance and repair, and indemnify Western Sky for all costs arising or resulting from administrative, civil and criminal claims associated with such transactions. |
| 8. | Third-Party purchased most Consumer Loans three to five days after origination by Western Sky, and from March 2010 to April 2013, Third-Party collected and received interest payments totaling approximately $5 million on approximately 3,800 Consumer Loans made to Connecticut residents. |
| 9. | At no time relevant hereto was Western Sky or Webb licensed as a small loan lender in Connecticut, nor are they exempt from such licensure requirements. |
| 10. | Western Sky has been the subject of numerous consumer complaints received by the Department concerning its Consumer Loan activity. Most Connecticut residents complain of the exorbitant interest rates charged on the loans and their inability to pay off the principal amount of the loans. For example, one resident complained of the Agreement requiring payments totaling over $62,000 on a loan received in an amount less than $10,000. |
| 11. | Since 2011, numerous states, including Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts, Nevada, New York, Oregon, Pennsylvania and Washington, have initiated administrative and civil actions against Western Sky and Webb alleging deceptive acts and practices, unlicensed lending and violations of state interest rate caps. |
| 12. | Most recently, Western Sky announced via its website that effective September 3, 2013, it will stop funding loans. |
III. STATUTORY BASIS FOR ORDER TO CEASE
AND DESIST AND IMPOSITION OF CIVIL PENALTY
Section 36a-555 of the Connecticut General Statutes provides, in pertinent part, that:
No person shall (1) engage in the business of making loans of money or credit; (2) make, offer, broker or assist a borrower in Connecticut to obtain such a loan; or (3) in whole or in part, arrange such loans through a third party or act as an agent for a third party, regardless of whether approval, acceptance or ratification by the third party is necessary to create a legal obligation for the third party, through any method, including, but not limited to, mail, telephone, Internet or any electronic means, in the amount or to the value of fifteen thousand dollars or less for loans made under section 36a-563 or section 36a-565, and charge, contract for or receive a greater rate of interest, charge or consideration than twelve per cent per annum therefor, unless licensed to do so by the commissioner pursuant to sections 36a-555 to 36a-573, inclusive. . . .
Section 36a-573 of the Connecticut General Statutes provides, in pertinent part, that:
(a) No person, except as authorized by the provisions of sections 36a-555 to 36a-573, inclusive, shall, directly or indirectly, charge, contract for or receive any interest, charge or consideration greater than twelve per cent per annum upon the loan, use or forbearance of money or credit of the amount or value of . . . (2) fifteen thousand dollars or less for any such transaction entered into on and after October 1, 1997. . . .
(b) The provisions of subsection (a) of this section shall apply to any loan made or renewed in this state if the loan is made to a borrower who resides in or maintains a domicile in this state and such borrower (1) negotiates or agrees to the terms of the loan in person, by mail, by telephone or via the Internet while physically present in this state; (2) enters into or executes a loan agreement with the lender in person, by mail, by telephone or via the Internet while physically present in this state; or (3) makes a payment of the loan in this state. As used in this subsection, “payment of the loan” includes a debit on an account the borrower holds in a branch of a financial institution or the use of a negotiable instrument drawn on an account at a financial institution, and “financial institution” means any bank or credit union chartered or licensed under the laws of this state, any other state or the United States and having its main office or a branch office in this state.
(c) Whenever it appears to the commissioner that any person has violated the provisions of subsection (a) of this section or offered a loan that violates the provisions of subsection (a) of this section, the commissioner may investigate, take administrative action or assess civil penalties . . . in accordance with the provisions of sections 36a-50 and 36a-52.
| 1. | Western Sky’s engaging in the business of making loans without obtaining the required license, as more fully described in paragraphs 3 through 11, inclusive, of the Matters Asserted, constitutes violations of Section 36a-555(1) of the Connecticut General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Section 36a-50(a) of the Connecticut General Statutes. Section 36a-50(a) of the Connecticut General Statutes authorizes the Commissioner to impose a civil penalty upon Western Sky in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. |
| 2. | Western Sky’s making or offering Consumer Loans to borrowers in Connecticut, as more fully described in paragraphs 3 through 11, inclusive, of the Matters Asserted, constitutes violations of Section 36a-555(2) of the Connecticut General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Section 36a-50(a) of the Connecticut General Statutes. Section 36a-50(a) of the Connecticut General Statutes authorizes the Commissioner to impose a civil penalty upon Western Sky in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. |
| 3. | Western Sky’s acting as an agent for Third-Party without obtaining the required license, as more fully described in paragraphs 7 through 9, inclusive, of the Matters Asserted, constitutes violations of Section 36a-555(3) of the Connecticut General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Section 36a-50(a) of the Connecticut General Statutes. Section 36a-50(a) of the Connecticut General Statutes authorizes the Commissioner to impose a civil penalty upon Western Sky in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. |
| 4. | Western Sky’s contracting for interest at a rate greater than 12% on at least 3,800 Consumer Loans to Connecticut residents in amounts less than $15,000, as more fully described in paragraphs 5, 6, 9 and 11of the Matters Asserted, constitutes violations of Section 36a-573(a) of the Connecticut General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes. Section 36a-50(a) of the Connecticut General Statutes authorizes the Commissioner to impose a civil penalty upon Western Sky in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. |
| 5. | As the sole owner and member of Western Sky, Webb indirectly contracted for interest at a rate greater than 12% on at least 3,800 Consumer Loans made by Western Sky to Connecticut residents in amounts less than $15,000, as more fully described in paragraphs 2, 5, 6, 9 and 11 of the Matters Asserted, constitutes violations of Section 36a-573(a) of the Connecticut General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes. Section 36a-50(a) of the Connecticut General Statutes authorizes the Commissioner to impose a civil penalty upon Webb in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. |
IV. NOTICE OF INTENT TO ISSUE ORDER TO CEASE AND DESIST,
NOTICE OF INTENT TO IMPOSE CIVIL PENALTY
AND NOTICE OF RIGHT TO HEARING
WHEREAS, the Commissioner has reason to believe that Western Sky has engaged in acts or conduct which forms the basis to issue an order to cease and desist pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes;
AND WHEREAS, the Commissioner has reason to believe that Webb has engaged in acts or conduct which forms the basis to issue an order to cease and desist pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes and impose a civil penalty pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes.
NOW THEREFORE, notice is hereby given to Western Sky that the Commissioner intends to issue an order requiring Western Sky to CEASE AND DESIST from violating subdivisions (1), (2) and (3) of Section 36a-555 and Section 36a-573(a) of the Connecticut General Statutes and impose a CIVIL PENALTY upon Western Sky as set forth herein, subject to Western Sky’s right to a hearing on the allegations set forth above.
FURTHER, notice is hereby given to Webb that the Commissioner intends to issue an order requiring Webb to CEASE AND DESIST from violating Section 36a-573(a) of the Connecticut General Statutes and impose a CIVIL PENALTY upon Webb as set forth herein, subject to Webb’s right to a hearing on the allegations set forth above.
A hearing will be granted to each Respondent if a written request for a hearing is received by the Department of Banking, Consumer Credit Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following each Respondent’s receipt of this Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing as set forth in Sections 36a-50(a) and 36a-52(a) of the Connecticut General Statutes. This Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing shall be deemed received on the earlier of the date of actual receipt, or seven days after mailing or sending. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If any Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a hearing officer and sets the date of the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on November 20, 2013, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes, unless either Respondent fails to appear at the requested hearing. At such hearing, each Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If Western Sky does not request a hearing within the time period prescribed or fails to appear at any hearing, the Commissioner will issue an order that Western Sky cease and desist from violating subdivisions (1), (2) and (3) of Section 36a-555 and Section 36a-573(a) of the Connecticut General Statutes and may order a civil penalty in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation be imposed upon Western Sky.
If Webb does not request a hearing within the time period prescribed or fails to appear at any hearing, the Commissioner will issue an order that Webb cease and desist from violating Section 36a-573(a) of the Connecticut General Statutes and may order a civil penalty in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation be imposed upon Webb.
Dated at Hartford, Connecticut
this 23rd day of September 2013.
________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 24th day of September 2013, the foregoing Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Western Sky Financial, L.L.C. and Martin A. Webb, 612 E Street, Timber Lake, South Dakota 57656, certified mail no. 70020860000215459908; and Western Sky Financial, L.L.C. and Martin A. Webb, P.O. Box 370, Timber Lake, South Dakota 57656, certified mail no. 70020860000215459915.
________/s/_________
Stacey L. Serrano
Prosecuting Attorney