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FINDINGS OF FACT,
CONCLUSIONS OF LAW
FINDINGS OF FACT
|1.||On March 12, 2013, the Banking Commissioner (the “Commissioner”) issued a Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing (the “Original Order”) against CashCall, Inc. (also referred to herein as “Respondent”) (Dept. Ex. 17).|
|2.||The Original Order alleged that 1) CashCall, Inc. offered, via various media in Connecticut, including the Internet, unsecured consumer loans in amounts less than $15,000 with annual interest rates greater than 12%; 2) on or about March 1, 2012 and January 29, 2013 an unnamed Connecticut resident initiated contact with CashCall, Inc. via its website and received an e-mailed response; 3) on or about August 3, 2012, a second Connecticut resident, also unnamed, initiated contact with CashCall, Inc. via telephone and received a telephonic and e-mailed response; 4) from April 2011 to October 2012, CashCall, Inc. acquired consumer loans via assignment from an unnamed third party within three days of the making of such loans and charged to and received from Connecticut residents interest payments exceeding 12% on those loans; 5) CashCall, Inc. violated the antifraud provisions in Section 36a-53b of the Connecticut General Statutes in that its website failed to identify the third party and the website stated that all loans were made pursuant to CashCall, Inc.’s California lender license; 6) CashCall, Inc. violated Section 36a-555 of the Connecticut General Statutes by offering consumer loans, assisting Connecticut borrowers to obtain such loans, arranging those loans through a third party or acting as an agent for the third party while unlicensed; 7) CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes by charging and receiving interest at a rate greater than 12% on at least five Connecticut consumer loans in amounts of less than $15,000; and 8) CashCall, Inc. had been the subject of a September 10, 2012 civil action by the State of West Virginia (No. 08-C-1964) and a January 30, 2013 administrative action by the State of Washington Department of Financial Institutions.|
|3.||The Original Order directed CashCall, Inc. to cease and desist from violating Sections 36a-53b, 36a-55 and 36a-573(a) of the Connecticut General Statutes; to provide specified information to the Consumer Credit Division of the State of Connecticut Department of Banking within 14 days; and to make restitution of any sums obtained as a result of CashCall, Inc.’s violation of Section 36a-573(a) of the Connecticut General Statutes. The Original Order also provided that if CashCall, Inc. did not request a hearing or appear, the Order to Make Restitution and the Order to Cease and Desist would become permanent and the Commissioner could order that a civil penalty be imposed.|
|4.||On March 13, 2013, the Original Order was sent by registered mail, return receipt requested, to CashCall, Inc. at 1600 South Douglass Road, Anaheim, California 92806 and at P.O. Box 66007, Anaheim, California 92816. (Dept. Ex. 17)|
|5.||On March 29, 2013, Attorney Julian Dayal of Katten Muchin Rosenman LLP filed a special appearance on behalf of CashCall, Inc. and requested a hearing on behalf of Respondent.|
|6.||On April 4, 2013, the Commissioner issued a Notification of Hearing setting the hearing date for May 8, 2013 and appointing Cynthia Antanaitis as the Hearing Officer.|
|7.||On May 3, 2013, at the mutual request of counsel to the Department and counsel to the Respondent, the hearing was continued to June 19, 2013 to enable the parties to exchange witness lists and to enable Respondent to retain Connecticut counsel.|
|8.||On May 3, 2013, Dena L. Wood, Banking Department Manager at the State of Connecticut Department of Banking, wrote a letter to John Paul Reddam, President and CEO of CashCall, Inc. asking CashCall, Inc. to show compliance with the retention of CashCall, Inc.’s mortgage lender license (Dept. Ex. 24). The letter alleged that CashCall, Inc., in violation of Section 36a-490(c)(3) of the Connecticut General Statutes, had failed to promptly file with the Nationwide Mortgage Licensing System and Registry notification that the department had initiated administrative action on March 12, 2013. The letter also stated that CashCall, Inc. had violated Section 36a-17 of the Connecticut General Statutes by not producing the records required by the Original Order. Specifically, the letter alleged that, although CashCall, Inc. provided partial production of information on Connecticut loan activity on April 19, 2013, it did not provide copies of loan agreements and a list of all Connecticut residents who had been offered consumer loans by CashCall, Inc. The letter maintained that CashCall, Inc. was continuing to offer consumer loans in Connecticut in violation of the Original Order; that this fact, combined with violations of Sections 36a-490(c)(3), 36a-53b, 36a-555, 36a-573(a) and 36a-17 of the Connecticut General Statutes, failed to demonstrate the character and general fitness required of mortgage lender licensees under Section 36a-489(a)(1) of the Connecticut General Statutes; and that, on April 26, 2013, a Connecticut resident had received an e-mail from CashCall, Inc. encouraging the resident to call right now since, based on the information provided by the resident, the resident had a strong chance of being preapproved for a loan program.|
|9.||The May 3, 2013 letter authored by Dena L. Wood was received by Attorney Dayal, and CashCall, Inc. stipulated at the hearing that it received the May 3, 2013 compliance letter (tr. 75).|
|10.||Dan Baren, General Counsel of CashCall, Inc. testified that CashCall, Inc. did not respond to the May 3, 2013 compliance letter because “we had already complied with everything in there except with respect to the NMLS posting.” (tr. 176)|
|11.||On June 5, 2013, the Commissioner issued an Amended and Restated Temporary Order to Cease and Desist, Amended and Restated Order to Make Restitution, Amended and Restated Notice of Intent to Issue Order to Cease and Desist, Amended and Restated Notice of Intent to Impose Civil Penalty, Notice of Intent to Revoke Mortgage Lender Licenses [sic] and Notice of Right to Hearing (the “Amended Order”) against CashCall, Inc.|
|12.||The Amended Order mirrored the Original Order but added the following: 1) an allegation that Respondent violated the Original Order by soliciting Connecticut residents in e-mailed communications dated April 26, 2013 and May 16, 2013; 2) the date range relating to the timing of the assignment was expanded to February 2010 to March 2013 with 3,800 occasions referenced; 3) as of May 3, 2013, Respondent had failed to file notification of the Original Order with the Nationwide Mortgage Licensing System and Registry and had thus violated Section 36a-490(c) of the Connecticut General Statutes; 4) the alleged violation of Section 36a-573(a) was expanded to cover 3,800 consumer loans in amounts of less than $15,000 to Connecticut residents; and 5) the alleged violation of the Original Order, together with the alleged violations of Sections 36a-53b, 36a-555 and 36a-573(a) of the Connecticut General Statutes, would support the revocation of Respondent’s mortgage lender license in Connecticut.|
|13.||The Amended Order contained a Certification stating that, on June 6, 2013, the Amended Order was sent via certified mail, return receipt requested, to CashCall, Inc. at 1600 South Douglass Road, Anaheim, California and at P.O. Box 66007, Anaheim, California as well as to Julian Dayal, Esq., Dan Baren, General Counsel of CashCall, Inc., and Albert Peter Choi, Branch Manager of CashCall, Inc., 7125 Pollock Drive, Las Vegas, Nevada.|
|14.||Respondent received the Amended Order on or about June 10, 2013 (Dept. Ex. 1).|
|15.||The Cheyenne River Sioux Tribe was not named as a respondent in either the Amended Order or the Original Order.|
|16.||On June 19, 2013 an administrative hearing was held in the matter of CashCall, Inc. The Respondent was represented by Attorney Donn A. Randall, a member of the Connecticut bar, with pro hac vice status being granted to Attorneys Julian Dayal, Claudia Callaway and John Black of Katten Muchin Rosenman LLP.|
|17.||On June 19, 2013, after the hearing, the Hearing Officer e-mailed counsel to the Respondent and counsel to the department confirming that, in accordance with Section 36a-1-48 of the Regulations of Connecticut State Agencies, the Hearing Officer would give each side until July 19, 2013 to file the following supplemental evidence: 1) financial statement (to be provided by the Respondent) reflecting the Respondent’s current financial position; 2) technological document relevant to the accessing of Respondent’s website by witness Anne Cappelli (to be provided by Respondent); and 3) the contract between Respondent and Western Sky, together with any writing reflecting the termination of the relationship between the two (to be provided by Respondent).|
|18.||On June 21, 2013, counsel to the department e-mailed the Hearing Officer and Respondent’s counsel, noting that the Respondent would also provide any objection to the interest amounts summarized on the Department’s exhibit 20, or alternatively supplement the record with a revised interest calculation.|
|19.||On July 17, 2013, counsel to the department electronically filed redacted versions of Department’s Exhibits 2 and 3 with the Hearing Officer. Counsel for the department noted that the department retained the original documents, with opposing counsel having copies of the originals.|
|20.||On July 19, 2013, counsel to the Department electronically filed the following additional evidence pursuant to Section 36a-1-48 of the Regulations of Connecticut Agencies: 1) Affidavit of Carmine Costa, including Exhibits A and B; and 2) Affidavit of Anne Cappelli, including Exhibits A through M.|
|21.||On July 19, 2013, Respondent’s counsel electronically filed supplemental documents with the Hearing Officer and opposing counsel. Respondent requested that the documents be given confidential treatment.|
|22.||On July 22, 2013, the Hearing Officer gave both sides until August 2, 2013 to review, rebut or object to evidence provided by the other.|
|23.||By letter dated August 2, 2013, the Hearing Officer accepted as Respondent’s post-hearing exhibits 1) the declaration of Ethan Post, including Exhibits A and B; 2) the October 28, 2010 Agreement for the Assignment and Purchase of Promissory Notes; and 3) the March 19, 2013 e-mail from CashCall General Counsel Dan Baren to Cheryl Bogue. In that letter, the Hearing Officer declined Respondent’s request to have the above documents, as well as department Exhibits 18, 19 and 20 be treated as confidential, noting that the Respondent had not isolated what particular elements in each document should be afforded confidential treatment, why they were confidential or the legal basis for confidentiality. The Hearing Officer added that respondent had raised no objection to the introduction of Exhibits 18, 19 and 20 during the hearing.|
|24.||On August 2, 2013, the department relayed via e-mail its rebuttal argument to Respondent’s July 19, 2013 post-hearing submission.|
|25.||By letter dated August 7, 2013, the Hearing Officer noted that, during the June 19, 2013 hearing, Attorney Randall, who is a member of the Connecticut bar, requested that non-Connecticut counsel also be permitted to represent the Respondent because of its “intimate knowledge of the business operations of CashCall.” (tr. 4) Attorney Serrano noted for the record that, under Section 36a-1-32(b) of the Regulations, Connecticut-admitted counsel would be required to sign all pleadings and papers filed in the proceeding and take full responsibility for supervising the conduct of the attorney. Attorney Randall replied, “I understand that obligation and I will undertake it.” (tr. 5). The Hearing Officer’s August 7, 2013 letter also stated that post-hearing written submissions were made electronically by both counsel to the Respondent and counsel to the department; that although Attorney Randall was copied in on the transmittal e-mailed communications, he did not initiate them nor did his signature appear on any of the filings; and that, instead, Attorney Dayal, who is not a member of the Connecticut bar, served as the Respondent’s point person with respect to the post-hearing submissions, with Attorney Randall not being cc’d on Attorney Dayal’s July 19, 2013 or August 2, 2013 letters to the Hearing Officer. The hearing Officer’s August 7, 2013 correspondence afforded Respondents’ counsel an opportunity to show cause why the grant of pro hac vice status should not be rescinded in light of their noncompliance with Section 36a-1-32(b) of the Regulations, and an opportunity to submit such curative filings as may be appropriate under the circumstances. The Hearing Officer called for a written response on or before 5:00 p.m. on Friday, August 16, 2013.|
|26.||On August 16, 2013, Attorney Randall responded to the Hearing Officer’s August 7, 2013 correspondence, indicating that he had communicated with Katten Muchin Rosenman LLP counsel regularly on the case and was requesting permission to submit curative filings nunc pro tunc. By e-mail dated August 27, 2013, the Hearing Officer acquiesced to Attorney Randall’s request, asked that curative filings be made within the next two weeks and emphasized that, going forward, compliance with Section 36a-1-32(b) of the Regulations was expected.|
|27.||On September 10, 2013 Attorney Randall filed a signed submission which was virtually identical to Respondent’s July 19, 2013 post-hearing submission, with the exception that the Declaration of Ethan Post was now styled as an Affidavit.|
|28.||By letter dated September 18, 2013, the Hearing Officer advised both sides that the record was closed on September 18, 2013. The Hearing Officer requested that briefs be filed by November 14, 2013.|
|29.||By e-mailed communications dated October 1, 2013 and October 17, 2013, Attorney Randall advised the Hearing Officer and opposing counsel that Attorneys Dayal, Black and Callaway had withdrawn from the case, and that Attorney Randall would continue to represent the Respondent. Executed Notices of Withdrawal were included in the electronic communications.|
|30.||On October 18, 2013, the Hearing Officer granted the October 1, 2013 motion of Attorney Donn A. Randall, counsel for the Respondent, to allow attorneys Katya Jestin and Neil M. Barofsky of Jenner & Block to appear pro hac vice.|
|31.||On November 14, 2013, counsel for the Respondent and counsel for the state filed briefs.|
|32.||On December 6, 2013, the Hearing Office granted the November 26, 2013 motion of Attorney Donn A. Randall, counsel for the Respondent, to permit Anthony S. Barkow of Jenner & Block to appear pro hac vice in connection with any additional matters relating to CashCall, Inc. at the administrative level.|
|33.||CashCall, Inc. is a California corporation formed on January 28, 2000 and having its principal office at 1600 South Douglass Road, Anaheim, California 92806 (Dept. Ex. 12).|
|34.||CashCall, Inc. has been licensed as a mortgage lender in Connecticut since November 5, 2010 (tr. 51-52; Dept. Ex. 11).|
|35.||The Nationwide Mortgage Licensing System or “NMLS” is a nationwide system for mortgage licensing and renewals (tr. 53).|
|36.||The NMLS identification number associated with CashCall, Inc.’s main office is 38512 (tr. 51-52).|
|37.||CashCall, Inc. has a Nevada branch office bearing NMLS number 27346 which is also licensed in Connecticut to perform mortgage loan activity (tr. 52).|
|38.||CashCall, Inc. has never been licensed as a small loan lender in Connecticut (tr. 38-39).|
|39.||According to NMLS information (Dept. Ex. 11), CashCall, Inc.’s consumer loan lending record referenced California and Iowa (tr. 170-171).|
|40.||CashCall, Inc.’s NMLS record listed Dan Baren (“Baren”), General Counsel, as its primary contact person (Dept. Ex. 11).|
|41.||Baren testified that “CashCall has about 13 consumer loan licenses” in various states and that, in some states, the same license covered both mortgage loans and consumer loans. (tr. 170)|
|42.||Baren testified that, while CashCall held an Iowa consumer loan license “it could make loans pursuant to that license. It just hasn’t. And the same with several other states. Missouri, for instance, New Mexico, Idaho. 13 total.” (tr. 171)|
|43.||On September 10, 2012, CashCall, Inc. was permanently enjoined from violating the West Virginia Consumer Credit and Protection Act, making loans in West Virginia without a license, making or collecting on usurious loans and collecting or attempting to collect excess charges (State of West Virginia ex rel. McGrow v CashCall, Inc. and J. Paul Reddam, Kanawi Cir. Ct., Civil Action No. 08-C-1964, Dept. Ex. 15).|
|44.||On January 30, 2013, the State of Washington Office of Administrative Hearings entered an Order Granting Department’s Motion for Partial Summary Judgment in the matter of CashCall, Inc. (Dept. Ex. 16). The Washington order revoked the Respondent’s Consumer Loan License based, in part, on violations of Washington’s usury laws (Dept. Ex. 16).|
Relationship Between Western Sky and CashCall
|45.||The third party to which the Original Order and the Amended Order allude was Western Sky Financial, LLC (see, e.g. comment of Attorney Dayal, tr. at 12)|
|46.||The Hearing Officer takes administrative notice that, according to South Dakota Secretary of State online records, 1) Western Sky Financial, LLC. was formed as a domestic limited liability company under SDCL Chap. 47-34A on May 15, 2009; 2) its initial member was PayDay Financial, LLC whose member was Martin A. Webb; and 3) its 2013 address of record was 612 E Street, PO Box 370, Timber Lake, South Dakota 57656-0370.|
|47.||Post-hearing, Respondent filed as a supplemental exhibit a copy of an October 28, 2010 Agreement for the Assignment and Purchase of Promissory Notes (the “Assignment”). Exhibit A was missing from the filed exhibit.|
|48.||The Assignment predated CashCall, Inc.’s November 5, 2010 Connecticut licensure as a mortgage broker.|
|49.||The parties to the Assignment were Western Sky Financial, LLC as assignor and WS Funding, LLC, a subsidiary of CashCall, Inc., as assignee. J. Paul Reddam signed the Assignment on behalf of WS Funding, LLC, and Butch Webb executed the Assignment as Manager of Western Sky Financial, LLC.|
|50.||According to Chiara Gaussa of CashCall, Inc., “WS Funding is a California entity owned by CashCall.” (Dept. Ex. 4).|
|51.||J. Paul Reddam is also the president of CashCall, Inc. (Dept. Ex. 12)|
|52.||The record contains no evidence of common ownership or control between Western Sky Financial, LLC and either CashCall, Inc. or WS Funding, LLC.|
|53.||Michael Lentini is an Examiner in the Government Relations and Consumer Affairs Office of the Department of Banking.|
|54.||In a July 10, 2012 letter to Examiner Lentini, Elissa Chavez, Director of Fraud Prevention/Dispute Resolution at CashCall, Inc., represented to Examiner Lentini that “Western Sky is a wholly Cheyenne River Sioux Tribal Member owned business and is located and operates within the exterior boundaries of the Cheyenne River Indian Reservation. Western Sky loans are initiated, approved, issued and disbursed within the confines of the Cheyenne River Indian Reservation. Western Sky is licensed with the Cheyenne River Sioux Tribe.” (emphasis supplied) (Cappelli Post-hearing Affidavit, Ex. C)|
|55.||Elissa Chavez’s statement suggests that Western Sky Financial, LLC was owned by a member of the Cheyenne River Sioux Tribe rather than by the tribe itself.|
|56.||The Department included as Exhibit M to Anne Cappelli’s post-hearing Affidavit an archived web page, retrieved on July 15, 2013, from the site westernsky dot com. Exhibit M stated: “Western Sky Financial is owned wholly by an individual Tribal Member of the Cheyenne River Sioux Tribe and is not owned or operated by the Cheyenne River Sioux Tribe or any of its political subdivisions.”|
|57.||In a September 4, 2012 communication to Examiner Lentini, CashCall, Inc. represented that: “Western Sky is a wholly Cheyenne River Sioux Tribal Member owned business and is located and operates within the exterior boundaries of the Cheyenne River Indian Reservation. Western Sky loans are initiated, approved, issued and disbursed within the confines of the Cheyenne River Indian Reservation. Western Sky is licensed with the Cheyenne River Sioux Tribe.” (Dept. Ex. 3)|
|58.||In an April 15, 2013 letter from CashCall, Inc. to Examiner Lentini, CashCall, Inc. represented that: “Western Sky is licensed with the Cheyenne River Sioux Tribe.” (Ex. E to Cappelli post-hearing Affidavit).|
|59.||The record contains no independent evidence from the Cheyenne River Sioux Tribe showing that Western Sky Financial, LLC was licensed with the Cheyenne River Sioux Tribe or in what capacity.|
|60.||Pursuant to the Assignment (Respondent’s Post-hearing Ex. 2), Western Sky Financial, LLC assigned and sold some of its loans to WS Funding, LLC. Western Sky Financial, LLC warranted that no payments had been received on any of the assigned notes and that the balance due on each note was the same as the face amount of the note.|
|61.||In a post-hearing supplemental exhibit filed by Respondent (Respondent’s Post-hearing Ex. 3), Dan Baren, General Counsel of Respondent, represented in a March 19, 2013 e-mail to Cheryl Bogue that “we are going to stop purchasing Western Sky loans made to CT residents on Friday, March 22.”|
|62.||In addition to the Assignment, the record contains some testimony that CashCall, Inc. may have performed administrative support services for Western Sky Financial, LLC. Baren testified that, in handling incoming telephone calls, Western Sky would transfer the excess calls it was understaffed to handle “to a CashCall person for the express and only purpose of collecting the application and submitting it back to Western Sky, so that Western Sky can make the underwriting decision.” (tr. 187)|
The Assignment and Its Relationship to Connecticut Borrowers
|63.||The Original Order required that CashCall, Inc. provide the Consumer Credit Division of the State of Connecticut Department of Banking with “a list of all Connecticut residents who, on or after October 1, 2009, have been: (1) offered Consumer Loans by CashCall, Inc.; or (2) charged interest in excess of 12% by CashCall, Inc., on a Consumer Loan. For each Consumer Loan consummated by a Connecticut resident, such submission shall include: (a) A copy of each loan agreement specifying the amount and annual interest rate of the loan, and (b) a list of each Connecticut resident’s name and address and full itemization of payments made pursuant to the loan agreement, specifying the dates and amounts of such payments.” (Dept. Ex. 17)|
|64.||Anne Cappelli is a Principal Financial Examiner with the State of Connecticut Department of Banking (tr. 17)|
|65.||Examiner Cappelli testified that CashCall, Inc. provided a spreadsheet in response to the Original Order (tr. 63)|
|66.||The department created a spreadsheet, introduced as Exhibit 19, from data provided by CashCall, Inc. (tr. 66).|
|67.||Dan Baren, General Counsel for CashCall, Inc., testified that it appeared that the department-prepared spreadsheet introduced as Exhibit 19 “does accurately summarize the total amount of interest that was received” (tr. 69).|
|68.||Baren testified that all of the loans listed on Exhibit 19 were currently owned by CashCall, Inc. and purchased from Western Sky (tr. 172).|
|69.||Approximately 3,800 loans were listed on Exhibit 19 (tr. 186). With few exceptions, the borrowers listed on Exhibit 19 had a Connecticut address.|
|70.||The Annual Percentage Yield for the loans listed on Exhibit 19 ranged from approximately 89% to 335.32% (Dept. Ex. 19).|
|71.||The record contains no evidence that any of the borrowers listed on Exhibit 19 were members of the Cheyenne River Sioux Tribe.|
|72.||There is no evidence in the record that any of the borrowers listed on Exhibit 19 or any of the borrowers whose complaints were introduced into evidence went to the Cheyenne reservation to apply for, negotiate or enter into the loan agreement.|
|73.||Baren testified, and additional documentary evidence in the record bear this out, that CashCall, Inc. purchased the loans on Exhibit 19 from Western Sky “anywhere from three to seven” days following Western Sky’s origination of the loan (tr. 172)|
|74.||Baren testified that the majority of consumer loans originated by Western Sky in Connecticut were purchased by CashCall (tr. 173).|
|75.||Baren testified that the majority of unsecured loans originated by Western Sky and serviced by CashCall, Inc. “came from Western Sky’s television and radio advertising.” (Tr. 141)|
|76.||Would-be borrowers contacted Western Sky by telephone (see, e.g. Dept. Ex. 2)|
|77.||Examiner Cappelli testified that she was unaware of any Connecticut consumers who obtained a non-mortgage loan from CashCall, Inc. (tr. 99)|
|78.||Examiner Cappelli testified that all of the consumer complaints that were the subject of her testimony involved CashCall, Inc. as a servicer (tr. 104) and that none concerned unsecured loans made by CashCall, Inc. (tr. 104)|
Common Characteristics of the Western Sky Loan Agreements
Executed With Connecticut Borrowers
|79.||The Western Sky Loan Agreements introduced into evidence had common characteristics:|
Interest Rates Charged to Connecticut Borrowers on the
Western Sky Loans Assigned to CashCall, Inc.
|80.||The following chart provides a snapshot of certain Western Sky loan agreements that were the subject of a complaint referenced during the hearing as well as those included post-hearing as an exhibit to Examiner Cappelli’s Affidavit. Where the data was not evident from the loan agreement, it was compiled from CashCall, Inc.’s response to the complaint. [Web editorial note: Items not completed were described as "Not Provided" in original.]|
|81.||During his testimony, Baren alluded to “a third of the people” defaulting on the loans (tr. 173).|
|82.||Baren explained the unsecured loan interest rates in his testimony: “These are mostly payday customers who otherwise might be in a 600 or 700 or 800 percent APR. But I would agree to the naked eye someone outside of the sub prime lending industry, 139 does look high, yes.” (tr. 173)|
|83.||By contrast, Baren also testified that CashCall, Inc.’s mortgage rates are, on average, “in the three and half percent” range (tr. 134; also see CashCall Ex. 2).|
|84.||During his testimony, Baren added that CashCall, Inc. had received millions of dollars in interest since October 1, 2009 (tr. 173).|
|85.||The total amount of interest on Department Ex. 19 was approximately $5.5 million (tr. 65).|
Complaints Against CashCall, Inc.
|86.||Baren testified that CashCall, Inc. had received approximately 14 complaints from Connecticut customers regarding Western Sky Loans that CashCall had purchased (tr. 156-157).|
|87.||The department also introduced several complaints involving CashCall, Inc. as assignee of Western Sky Financial, LLC (see Dept. Ex. 2, 3, 5, 6, 7, 8 and 14) and complaints attached to post-hearing Affidavit of Anne Cappelli). By and large, these complaints focused on the loans’ interest rates.|
|88.||None of the complainants appeared or testified at the hearing. Therefore, the hearing officer focused on the actual loan documentation (where provided) and CashCall, Inc.’s undisputed responses to the complaints.|
|89.||In attempting to resolve a dispute, the complaints establish a pattern of CashCall, Inc. calling for accelerated repayment of the debt in full.|
|90.||At least two Connecticut borrowers received mailers from CashCall, Inc. (Ex. E and F to Cappelli post-hearing Affidavit). The first, sent to an East Hampton, Connecticut borrower who took out a loan in 2012, announced: “Welcome to CashCall. Congratulations on your new loan with CashCall, Inc. Enclosed is some information about your loan as well as information on how to contact us and where to send in extra payments.” The mailer did not reference Western Sky Financial, LLC. The second, sent to a Danbury, Connecticut borrower who took out a loan in January 2013, elaborated “Welcome to CashCall. CashCall was recently assigned your loan for servicing.”|
|91.||Post-assignment, Connecticut borrowers would receive a written communication from CashCall, Inc. advising them that their Western Sky Financial, LLC loans had been assigned to CashCall, Inc. That communication generally provided that: “We wish to assure you that the terms and conditions of your Promissory Note and Disclosure Statement will not change in any way, except for the fact that you will now be making all of your payments, including your first payment, to CashCall.” (see, e.g. Dept. Ex. 2)|
|92.||In at least two instances, a representative of CashCall, Inc. offered to modify the interest rate on the Western Sky loan. See, e.g., Cappelli Affidavit, Ex. C (offering Meriden, Connecticut borrower an opportunity to reduce interest rate to 25%); Dept. Ex. 6 (offering Stratford, Connecticut borrower an opportunity to reduce the borrower’s interest rate from 69% to 47% and extend the maturity date from August 1, 2015 to November 1, 2019, with no reference to Western Sky Financial, LLC).|
|93.||The interest rate modifications proposed by CashCall, Inc. to the two Connecticut borrowers were well above 12 percent.|
CashCall, Inc. Web Pages
|94.||The department introduced as Exhibit 10 several website pages for CashCall, Inc. Summarized below are the features of Exhibit 10. While the introduced pages describe CashCall, Inc.’s secured and unsecured lending activity, none refers to CashCall, Inc.’s servicing activities on behalf of Western Sky Financial, LLC.|
Cashcallmortgage dot com/LandingPage.aspx
|95.||The first (cashcallmortgage dot com/LandingPage.aspx) was retrieved on November 27, 2012 and is headed “CashCall – Personal and Mortgage Loans that fit your lifestyle. Apply Online Now!” This combination page, dealing with both personal and mortgage loans, was not a secure site.|
|96.||The page contained the following statement: “Consumer Loans Get Thousands in Your Bank Account in a Day!” (followed by a Learn More link). Juxtaposed against this statement was a reference to “Mortgage Loans No Closing Costs Incredibly Low 3.50% 30 Year Fixed Rate 3.50% APR” (followed by a Learn More link).|
|97.||Although the bottom of this combination page stated that “All loans made pursuant to Dept. of Corporations Finance Lenders Law License #603-8780”, neither California or any other state was identified on the page.|
|98.||The page contained no disclaimer stating that the loans were limited to residents of specific, enumerated states.|
|99.||The page contained no information on the interest rates for personal (versus mortgage) loans.|
|100.||The page contained no reference to Western Sky Financial, LLC.|
Cashcall dot com/Home.aspx
|101.||This page, retrieved on November 27, 2012, is headed “Loans that fit Your Lifestyle” and explains that: “[W]e offer a quick and convenient application process so you can get the money you need, when you need it, even if you don’t have perfect credit. Apply Now.”|
|102.||The page provides a space for the user to type in his or her first name, last name, e-mail address and telephone number, adding that, if the form is completed, “We’ll call you.” The page contains a caveat indicating that “By clicking the Submit button, I expressly consent to receiving any live or prerecorded telephone call, including to my wireless phone, regarding loan options for CashCall.”|
|103.||Under the header “How Does CashCall work?”, the page asks the user to “Just complete our short online application, and receive an answer in minutes. It doesn’t get any easier than this!”|
|104.||While the page indicates that “All loans made pursuant to California Department of Corporations Finance Lenders Law License #603-8780”, this language only addresses California authority to make the loans. The page does not contain any disclaimer stating that the loans were limited to residents of specific, enumerated states – only that they were authorized in California.|
|105.||In requesting that users complete an online application, the page does not mention the interest rates associated with personal loans.|
|106.||The page contained no reference to Western Sky Financial, LLC.|
Cashcall dot com/AboutUS.aspx
|107.||Retrieved on November 27, 2012 this page is headed “California locals, helping Californians.”|
|108.||The page indicates that CashCall, Inc. was founded in 2003 and that it is headquartered in Anaheim, California.|
|109.||The page described CashCall, Inc.’s business as offering “high-interest-bearing, unsecured term loans to qualified borrowers who typically use the loans for one-time purchases and debt consolidation. These loans of up to $25,000 are processed entirely over the Internet, phone and fax, and funds are wired into the borrower’s bank account typically within 24 hours. CashCall Personal Loans are a good alternative to Payday Loans for borrowers. While interest rates are high, they are typically much lower than those of payday lenders, and CashCall Personal Loans have the potential to help customers rebuild their credit score by making payments on time.”|
|110.||The page contained no specific interest rate disclosures or any comparative data supporting CashCall, Inc.’s claims that its interest rates were “typically much lower than those of payday lenders.”|
|111.||Although the page referenced CashCall, Inc.’s California Department of Corporations Finance Lenders license, there was no disclaimer indicating that the loans were limited to residents of specific, enumerated states.|
Cashcall dot com/HowItWorks.aspx
|112.||Retrieved on November 27, 2012, this page provides information on how to start the loan application process:|
|113.||The page contains no disclaimer indicating that the loans were limited to residents of specific, enumerated states.|
Cashcall dot com/Rates/CurrentRates.aspx
|114.||Retrieved on November 27, 2012, this page states that CashCall, Inc.’s “lowest rates and higher loan products are reserved for customers with excellent credit.” According to the site, loan proceeds range from a high of $25,000 (with an APR of 35.87%) to a low of $2,600 (with an APR of 139.22%), with each loan having a $75 loan fee.|
|115.||The page does not disclose that customers with “excellent credit” would probably qualify for loans having a much lower rate than 35.87% from competing lenders or that the quoted rates present issues under state usury laws.|
|116.||Although the page states that all loans are made pursuant to CashCall, Inc.’s California Department of Corporations Finance Lenders license, there is no disclaimer indicating that the loans were limited to residents of specific, enumerated states.|
Cashcall dot com/ContactUs.aspx
|117.||This page indicates that 1) the user may apply for a loan by phone (866-590-2274 (24 hours 7 days a week); 2) there are separate numbers and times to speak to a customer service representative or a collections service representative or a recovery representative; 3) loan approval documents may be faxed to 949-225-4699; and 4) the address for general inquiries is CashCall, Inc. 1600 S. Douglass Rd. Anaheim CA 92806. The page provides no separate mailing address for complaints, but only instructs the user to click a link.|
|118.||Although the page states that all loans are made pursuant to CashCall, Inc.’s California Department of Corporations Finance Lenders license, there is no disclaimer indicating that the loans were limited to residents of specific, enumerated states.|
CashCall, Inc.’s Position on Advertising
|119.||CashCall, Inc. introduced as CashCall Ex. 3 a June 14, 2013 Declaration by John Fuller who stated that he was the partner and president of Kovel/Fuller, a marketing and brand management firm in California. John Fuller stated that Kovel/Fuller placed media advertising for CashCall, Inc. and had done so since 2003. The Declaration stated that: “Since 2008, no CashCall radio or TV ads related to non-mortgage consumer loans have aired on stations or outlets located outside of California. Since 2008, none of CashCall’s advertising related to non-mortgage consumer loans (including TV, radio, internet and print advertising) has been directed to non-California consumers.” “Since 2008, no CashCall e-mail advertising has been directed to consumers residing outside of California.”|
|120.||John Fuller’s Declaration did not explain what specific role Kovel/Fuller played in website design and development or what measures, if any, Kovel/Fuller undertook to ensure that CashCall, Inc.’s web presence did not result in loan inquiries or transactions by nontargeted users.|
|121.||Baren testified that, in the last 5 years, no Connecticut consumer ever obtained a non-mortgage loan from CashCall’s website or through CashCall’s 800 number (tr. 140-141).|
|122.||Baren testified that “[t]he only borrowers that we have where CashCall was the lender that came through what I call the CashCall channel, be it the CashCall website and 800 number are California.” (tr. 142)|
Interaction With the CashCall, Inc. Website by Department Personnel
|123.||Both the Original Order and the Amended Order alleged, as a factual matter, that 1) on or about March 1, 2012 and January 29, 2013 a Connecticut resident inquired about consumer loans using CashCall, Inc.’s online form and, in response, Respondent e-mailed the Connecticut resident to discuss consumer loans and offered to complete the resident’s application over the phone; and 2) on August 3, 2012, a second Connecticut resident asked about consumer loans via the telephone number on CashCall, Inc.’s website.|
|124.||Based on the dates and the described conduct, the only evidence in the record relating to such interaction with the CashCall, Inc. website involved Examiner Cappelli and Carmine Costa.|
|125.||Carmine Costa is an employee of the Department of Banking.|
|126.||Carmine Costa did not testify at the hearing.|
|127.||There is a factual dispute between CashCall, Inc. and the department concerning whether Costa and Cappelli focused on obtaining a loan by clicking the “Apply Now” button (as the Respondent contends) or whether communications with CashCall, Inc. were initiated by completing a separate online form.|
Interaction With the CashCall, Inc. Website by Carmine Costa
|128.||In a post-hearing filed Affidavit, Carmine Costa stated that, the morning of August 3, 2012, he had filled out a form on CashCall’s website to receive more information on its loan products, that he had inserted his first name, last name, e-mail address (carmine.costa at ct.gov) and the phone number 860-240-8207; that, in reply, he had received a voice mail message from “Patrick” at CashCall; that Patrick’s message indicated that Costa’s “application for a loan” had come across Patrick’s desk; that Patrick wished to assist Costa in completing the application; and that Patrick had requested that Costa call him back at 714-221-3478. In his Affidavit, Costa also indicated that he had called Patrick back at approximately 11:24 a.m., and that Patrick then stated that, to obtain a loan, Costa would need to be 21 years old, possess a valid ID and have a bank account. Costa stated in his Affidavit that he told Patrick that he was from Manchester, Connecticut. Costa also stated that Patrick encouraged him to seek a higher loan amount, such as $2,600 because the origination fees as a percentage of the loan would be lower. When Patrick asked for Costa’s Social Security number to pull a credit report, Costa stated that he would back Patrick back. Costa stated in his Affidavit that Patrick did not mention Western Sky or WS Funding.|
|129.||In his Affidavit, Costa also indicated that he had received a telephone call from Brad Martinez of CashCall. The Affidavit did not provide any details on the substance of that phone call.|
|130.||On August 3, 2012 at 11:40 a.m., Bradley E. Martinez, Senior Loan Representative at Cashcall, e-mailed Carmine Costa. The subject line of the message was “Personal Loan.” In the e-mail, Martinez acknowledged that he had just spoken with Costa “in regards to your loan application. Please provide me with the following information and I will get you pre-approved for a personal loan ASAP . . . Date of birth - Home address - Social security number - Employer - Monthly gross income - Direct deposit?” (Dept. Ex. 13). Beneath Martinez’s name were the words “License CA-DOC #222810.”|
|131.||In reality, 222810 is the NMLS identification number for Bradley E. Martinez and is not a California license number for either Martinez or CashCall.|
|132.||At the hearing, the Hearing Officer asked counsel to the department whether the department would be calling Costa as a witness. Counsel to the department replied, “I could.” (tr. 111) Costa, however, ultimately did not testify at the hearing.|
|133.||Neither Bradley E. Martinez nor Patrick of CashCall appeared or testified at the hearing.|
|134.||Examiner Cappelli testified that she had no knowledge concerning any information provided after the August 3, 2012 e-mail (tr. 97).|
|135.||Ethan Post identified himself in a post-hearing Affidavit as the principal architect and leader developer of CashCall, Inc.’s Information Technology Department.|
|136.||Post did not appear or testify at the hearing.|
|137.||In the post-hearing Affidavit filed by Ethan Post, Post stated that an Internet submission was made on August 3, 2012 at 8:07 a.m. PST; that the person making the submission identified himself as Carmine Costa and provided an e-mail address of carmine.costa at ct.gov and a telephone number of 860-240-8207. Post maintained that Costa had selected California as his state of residence on the drop down menu, and characterized the submission as “an application.” Post also maintained that the loan agent who later communicated with Costa regarding Costa’s application necessarily had knowledge that Costa entered California as his residence.|
|138.||No individual who worked in the loan operations department or call center of CashCall, Inc. appeared or testified at the hearing.|
Interaction With the CashCall, Inc. Website by Examiner Cappelli
|139.||Anne Cappelli is a Principal Examiner with the State of Connecticut Department of Banking. Cappelli has been employed by the department for 25 years (tr. 17).|
|140.||On March 1, 2012 at 12:33 pm, David Ngo, Senior Loan Agent with CashCall, Inc., e-mailed Examiner Cappelli. The subject line of the message was “Western Sky/Cash Call Application Assistance. In the message, Ngo wrote, “I was following up with you regarding the loan application that you are currently working on online for Cash Call. It appears that your application timed-out over the internet, so I was just following up to see if you had any questions or to see if you would like me to complete your application over the phone. When you get a chance, please give me a call at 949-223-1992.” (Dept. Ex. 13)|
|141.||In a post-hearing Affidavit filed by Ethan Post, Post stated that an Internet submission was made on March 1, 2012 at 9:07 a.m. PST; that the person making the submission identified herself as Anne Cappelli and provided an e-mail address of anne.cappelli at ct.gov. and a telephone number of 860-240-8200. Post maintained that Cappelli had selected California as her state of residence on the drop down menu, and characterized the submission as “an application.”|
|142.||The telephone number for Cappelli provided in the Post Affidavit was different from the telephone number in the Cappelli affidavit for the March 1, 2012 activity. Both phone numbers, however, began with a Connecticut area code (860).|
|143.||No evidence was provided concerning the ability of CashCall’s system to flag area codes that were not associated with California.|
|144.||The Cappelli affidavit stated that, on or about March 1, 2012, Cappelli had filled out “a form” on CashCall’s website to receive more information on its loan products, and had included her first and last names, e-mail address (anne.cappelli at ct.gov) and telephone number (860-240-8206).|
|145.||In her affidavit, Cappelli claimed that clicking the “apply” button on the website did not work because she only received a pop up message that “your home state is not supported.”|
|146.||Baren testified that “[b]ack in 2008 when we set up the existing website we put up a firewall to ensure that nobody outside of California could possibly submit a loan application through CashCall. We initiated a drop-down menu . . . After you click the apply now, all 50 states are listed. The only one that works is California. If you hit California you’re taken to the first page of an application where you start entering information. If you hit any other state . . . Connecticut, Massachusetts, Nevada, it says your state is not supported, and that’s the end of the road for that application. You can’t go farther.” (tr. 128, 139)|
|147.||The post-hearing Affidavit of Ethan Post stated that, since November 2008, the website cashcall dot com “only allowed users who select California as their state of residency to submit information in connection with a loan application. Users who select any state other than California are notified that their state is not supported. All non-California users are thus unable to submit any information or proceed with an application.”|
|148.||Baren testified that loans were not made to residents of the states that were not supported (tr. 128).|
|149.||Baren testified that, had Cappelli been successful in submitting an online loan application, “the first thing we would have asked her to do is to send in her California driver’s license” and that it was impossible for a Connecticut consumer to obtain a non-mortgage loan through CashCall’s website without a California driver’s license (tr. 154).|
|150.||On March 5, 2012 at 6:02 a.m., Cappelli e-mailed Ngo, asking “What other information would you need from me to proceed with the loan process?” The e-mail was signed “Anne Cappelli State of Connecticut Phone: 860.240.8206 Fax: 860.240-8215.”|
|151.||On March 5, 2012 at 9:42 am, Ngo responded by e-mail to Cappelli, asking, “Did you ever complete and submit the online application? If not, go ahead and give me a call when you get a chance and I can complete the application for you over the phone. At that time, I would be able to see what you have completed so far and would be able to advise you of what additional information I would need.”|
|152.||The record contains no evidence concerning whether it would be possible to override an online application block by completing a loan application over the telephone.|
|153.||The Cappelli affidavit did not cover the March 5, 2012 communications with David Ngo at CashCall.|
|154.||Cappelli’s next related interaction or attempted related interaction with CashCall occurred over 10 months later.|
|155.||Dept. Exhibit 13 includes a January 29, 2013 at 4:44 a.m. e-mail, which appears to be a web form submission, from www_CCC-ANA-PWS-03 at cashcall.com to info at cashcall.com. The subject line read “Contact Us” and the body read: “Name: Anne Sponzo, Email Address: anne.cappelli at ct.gov, Phone: 860-240-8206, SSN: , Account Number: , Comment: I had just placed a request for a loan and believe someone tried to contact me. I was on another line. Are you able to provide a $500.00 [sic] to me? I live in CT and did no [sic] know if you offered loans in this state, since I could not pull it up on your website?”|
|156.||In her post-hearing Affidavit, Cappelli confirmed the nature of this communication as involving a web submission.|
|157.||In a post-hearing Affidavit filed by Ethan Post, Post stated that an Internet submission was made on January 29, 2013 at 4:31 a.m. PST; that the person making the submission identified herself as Anne Cappelli and provided an e-mail address of anne.cappelli at ct.gov and a telephone number of 860-240-8206. Post maintained that Cappelli had selected California as her state of residence on the drop down menu and characterized the submission as “an application.”|
|158.||Dept. Exhibit 13 also consists of a January 29, 2013 at 4:59 p.m. e-mail from info at cashcall dot com to Cappelli. The subject line of the message was “Contact Us.” The message read, “Dear Customer, Thank you for your correspondence. Please contact one of our loan agents at 866-590-2274 to get information on our loan products” and was signed by Nikki Carmody, Customer Concerns Representative.|
|159.||In her affidavit and testimony, Cappelli indicated, on or about January 30, 2013, she called 866-590-2274 (tr. 45). Cappelli’s affidavit did not describe the substance of any communications with CashCall as a result of that communication.|
|160.||Examiner Cappelli testified that she could not recall whether she identified herself as a Connecticut resident when she telephoned CashCall, Inc. (tr. 98)|
|161.||Dept. Exhibit 22 consists of an April 26, 2013 e-mail to Anne Cappelli from Robert Araya at cashcall.com. The subject line read “Please Read – IMPORTANT. “WELCOME!” The message stated, “My name is Robert Araya. I have been assigned to help you finish your loan application. Your loan application is still pending and may expire soon. Please give me a call right now. DON’T WAIT! Get your money today! Don’t risk getting this loan application expired. Based on the information that you have already provided, it does seem that you have a STRONG CHANCE of being PREAPPROVED for a loan program, please give me a call (949-973-9596. I am Available right now! Please Reply ***STOP*** To be removed from from [sic] email list.” Robert Araya identified himself as a CashCall Sr. Loan Agent.|
|162.||Dept. Exhibit 21 consists of a May 16, 2013 e-mail from Robert Araya at Cashcall.com. The subject line of the message was “Call Me to Finish Your Loan – Important.” In the message, Araya stated, “Welcome! My name is Robert Araya. I have been assigned to help you finish your loan application. Your loan application still pending and may expire soon. Please give me a call right now. DON’T WAIT! Get your money today! Don’t risk getting this loan application expired. Based on the information that you have already provided, it does seem that you have a STRONG CHANCE of being PREAPPROVED for a loan program, please give me a call (949) 973-9596. Thank you for your interest in obtaining a personal loan. I am Available right now! Please Reply ***STOP*** To be removed from from [sic] email list.” The message was signed Robert Araya, Sr. Loan Agent, Cashcall, 1600 South Douglass, Anaheim CA 92806.|
|163.||Dept. Exhibits 21 and 22 appear to be automatically generated e-mail messages.|
|164.||Examiner Cappelli testified that she did not ultimately obtain a loan from CashCall, Inc. (tr. 88, 91, 93, 99).|
|165.||Neither Senior Loan Agent David Ngo nor Senior Loan Agent Robert Araya appeared or testified at the hearing.|
Updating of NMLS Record by CashCall, Inc.
|166.||On May 6, 2013, CashCall, Inc. uploaded to the NMLS system information on the Commissioner’s March 12, 2013 Original Order.|
|167.||Baren admitted that he had “basically dropped the ball” in not uploading information on the March 12, 2013 Original Order sooner (tr. 156).|
CONCLUSIONS OF LAW
Jurisdiction and Procedure
|1.||The Commissioner has jurisdiction over the licensing and regulation of mortgage lenders, brokers and loan originators pursuant to Part I of Chapter 668, Sections 36a-485 to 36a-534a, inclusive, of the Connecticut General Statutes, and jurisdiction over the licensing and regulation of small loan lenders pursuant to Part III of Chapter 668, Sections 36a-555 to 36a-573, inclusive, of the Connecticut General Statutes. The Commissioner also is charged with administering Sections 36a-570-1 to 36a-570-17, inclusive, of the Regulations of Connecticut State Agencies.|
|2.||The notices provided by the Original Order and the Amended Order issued by the Commissioner against Respondent comported with the requirements of Section 4-177(b) of Chapter 54 of the Connecticut General Statutes.|
|3.||The Commissioner complied with the requirements of Section 4-182(c) of Chapter 54 of the Connecticut General Statutes.|
|4.||The Original Order and the Amended Order complied with the requirements of Section 36a-52(a) [cease and desist order] of the Connecticut General Statutes.|
|5.||The Amended Order complied with the provisions of Section 36a-51(a) [revocation action] of the Connecticut General Statutes.|
|6.||The Original Order and the Amended Order complied with the provisions of Section 36a-50(a) [civil penalty] of the Connecticut General Statutes.|
|7.||The Original Order and the Amended Order complied with the requirements of Section 36a-50(c) [restitutionary remedy] of the Connecticut General Statutes.|
|8.||The Respondent received notice of the hearing, and through its appearance through four attorneys at the June 19, 2013 hearing, had the opportunity to present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner. In addition, Respondent had additional time post-hearing to provide supplemental evidence and argument and/or informally resolve the pending matter with the Consumer Credit Division of the Department of Banking.|
Alleged Violation of Section 36a-555 of the Connecticut General Statutes
|Section 36a-555 of the Connecticut General Statutes provides, in part, that:|
The Amended Order contains two factual allegations relating to the alleged violation of Section 36a-555: 1) From at least March 2012 forward, CashCall, Inc. offered, via various media in Connecticut, including the Internet, unsecured consumer loans in amounts less than $15,000 with annual interest rates of greater than 12%; and 2) CashCall, Inc.’s website offered those loans to consumers, not excluding Connecticut residents, by soliciting such consumers.
CashCall, Inc.’s business was multi-faceted. It is and was a Connecticut licensed mortgage lender; it performed loan servicing activities on behalf of Western Sky Financial, LLC in conjunction with an assignment and servicing agreement involving its subsidiary, WS Funding; and it also hosted a website which provided information on its unsecured lending activities.
CashCall, Inc.’s performance of loan servicing activities for Western Sky Financial, LLC, would not, without more, rise to the level of brokering or assisting borrowers in Connecticut to obtain loans, arranging loans through a third party or acting as an agent for a third party since there is insufficient evidence in the record that CashCall, Inc. took proactive steps to perform these functions. Rather, the record indicates that the services that CashCall, Inc. performed pursuant to the agreement with Western Sky Financial, LLC occurred after Western Sky Financial, LLC had funded the loans in question.
Baren testified that, in handling incoming telephone calls, Western Sky would transfer the excess calls it was understaffed to handle “to a CashCall person for the express and only purpose of collecting the application and submitting it back to Western Sky, so that Western Sky can make the underwriting decision.” This statement and additional details regarding CashCall, Inc.’s “back office” function, however, were not fleshed out during the hearing or corroborated by additional evidence. Footnote 4 to Respondent’s brief attempts to “correct” Baren’s testimony by providing a two page description of how CashCall, Inc.’s support functions worked. However, the purported facts set forth in Footnote 4 were not brought out at the hearing and, for that reason, cannot be considered. In addition, no evidence was presented at the hearing that CashCall, Inc. was an alter ego of Western Sky Financial, LLC.
The next question is whether CashCall, Inc. “offered” unsecured loans in Connecticut through its website or any other electronic means. On its face, the website indicates that the first step to obtaining a loan from CashCall, Inc. is to either call 866-590-cash or, alternatively, fill out an online form and have CashCall, Inc. call you. The form does not require a physical address but only a telephone number. By submitting the form, the user consents to receiving any live or prerecorded telephone call for CashCall. As an apparent alternative to initiating contact by telephone, the website also permits the user to click on a separate “Apply Now” button. Nowhere is the consumer advised that the only way he or she can obtain a loan is to click the “Apply Now” button. Indeed, the “Contact Us” page invites would-be borrowers to apply by phone.
CashCall, Inc. argues that it is not offering unsecured loans to Connecticut residents because clicking the “Apply Now” button results in a drop-down menu and a “Not Supported” computer system message when Connecticut is selected from the menu. CashCall, Inc. also maintains that since there is no evidence in the record that any Connecticut resident obtained an unsecured loan from CashCall, Inc. directly, no “offer” was made. The fact that an offer or business solicitation was unsuccessful, however, does not make a communication any less of an offer.
Although CashCall, Inc. claims to have installed a firewall to prevent Connecticut residents from using the Apply Now drop down menu, CashCall, Inc. was remiss in otherwise restricting what on its face is a generic website. None of the pages contains a disclaimer that unsecured loans may only be made to residents of specified states. Moreover, although Baren claimed in his testimony that only those individuals who provided a California driver’s license would be loan candidates, the website contains no such restriction. In fact, the website uses the driver’s license requirement to prove that the applicant is at least 21 years old – not to establish where the applicant resides (“Provide proof that you are at least 21 years of age with a valid form of ID such as a driver’s license.”) Thus, aside from the nonfunctioning (for Connecticut) Apply Now button, CashCall, Inc. did not dissuade website visitors from applying for unsecured loans based on their residency but held itself out as being able to provide unsecured loans without restriction.
When department employees Cappelli and Costa filled out a separate online form, CashCall, Inc. representatives initiated contact with them by telephone and e-mail. CashCall, Inc.’s position appears to be that the representatives (both Senior Loan Agents) believed Cappelli and Costa were California residents. CashCall, Inc. maintains that this is the case even though both Costa and Cappelli provided a Connecticut area code and an e-mail address bearing the State of Connecticut domain name. In fact, Cappelli’s March 5, 2012 e-mail was signed “Anne Cappelli State of Connecticut.” It is hard to fathom why CashCall, Inc.’s senior loan officials would persist in believing that Costa and Cappelli were from California (as Respondent contends) when the communications were from the State of Connecticut’s governmental domain, the telephone numbers bore a Connecticut area code and Cappelli added the words “State of Connecticut” to the body of her March 5, 2012 e-mail. In addition, a third Senior Loan Agent sent e-mail messages to Cappelli’s State of Connecticut e-mail account following the entry of the Original Order exhorting her to “Get Your Money Today” since there was a “strong chance” she would be preapproved for a loan.
Therefore, since CashCall, Inc. extended loan offers through its unrestricted website and through e-mailed communications to State of Connecticut employees at their State of Connecticut e-mail accounts, CashCall, Inc. violated Section 36a-555(2) of the Connecticut General Statutes.
The applicability of Section 36a-555(2) to out-of-state lenders was confirmed in an opinion by the State of Connecticut Attorney General who concluded that because 36a-555 was amended in 2009 to “expressly” cover small loans offered to Connecticut consumers “through any method, including, but not limited to, mail, telephone, Internet or any electronic means,” it applied to out-of-state small loan lenders using these methods to make small loans to in-state consumers."
Alleged Violation of Section 36a-573(a)
|Section 36a-573(a) states that:|
The Amended Order alleged that CashCall, Inc. charged and received interest at a rate greater than 12% on at least 3,800 consumer loans to Connecticut residents in amounts less than $15,000, and that, in so doing, CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes.
It is beyond dispute that the Western Sky loans which were the subject of complaints introduced into evidence and the Western Sky loans listed on Department Exhibits 19 and 20 bore interest rates well in excess of 12%. Equally clear, CashCall, Inc. received interest on those loans. Therefore, CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes. In addition, on at least two occasions, CashCall, Inc. attempted on its own to negotiate a loan modification in excess of the 12% interest cap with Western Sky borrowers located in Connecticut.
Significantly, as a licensed mortgage lender in Connecticut, CashCall, Inc. had a responsibility to comply with Connecticut law governing all aspects of its business operations – including the statutory interest rate cap. The fact that it did not do so reflects adversely on its character and fitness to operate in the lending industry.
Alleged Violation of Section 36a-53b
|Section 36a-53b of the Connecticut General Statutes provides, in pertinent part, that:|
The Amended Order alleged that CashCall, Inc. violated Section 36a-53b by 1) failing to identify a third party (i.e. Western Sky) as the entity making consumer loans in Connecticut when offering such loans to Connecticut residents, and 2) stating on its website that all loans were made pursuant to its California lender license, when in fact such loans in Connecticut are not made pursuant to such license.
The record is not clear on the factual context in which CashCall, Inc. failed to identify a third party as the maker of the loans, and therefore the claim based on this factual predicate cannot stand. Indeed, each loan agreement identified Western Sky Financial, LLC as the lender.
Similarly, it is unclear from the record whether CashCall, Inc.’s website was a vehicle for would-be borrowers to obtain unsecured and/or mortgage loans exclusively from CashCall, Inc. or whether those borrowers would also be introduced to Western Sky via the website. From a reading of the website, it would appear that the former is true, particularly since Western Sky Financial, LLC maintained its own website. In addition, there is no evidence, testimonial or otherwise, that any prospective borrower sought or was directed to Western Sky as a result of the prospect’s interaction with CashCall, Inc.’s website. Each of the loan agreements specifically referenced Western Sky Financial, LLC as the maker of the loan. If there was any consumer confusion it might have been because Western Sky Financial, LLC did not fully disclose the identity of CashCall, Inc. However, that is not the department’s claim. Consequently, there is insufficient evidence to establish a violation of Section 36a-53b based upon a failure to identify Western Sky Financial, LLC as the originator of the loans.
Next, the fact that the CashCall, Inc. website stated that loans were made pursuant to CashCall, Inc.’s California license does not imply that the California license authorized loans in all states. (It should also be noted that the Landing Page only references the “Dept. of Corporations Finance Lenders Law” – without any mention of California.) A reasonable would-be borrower, bent on obtaining a quick, short-term loan, would probably not give the statement a second thought. What would have been more meaningful to the would-be borrower is a disclaimer that CashCall, Inc. was not authorized or licensed to make loans in States X, Y and Z. Therefore, the reference to CashCall, Inc.’s California license does not in and of itself establish a violation of Section 36a-53b of the Connecticut General Statutes.
Section 36a-53b also proscribes material omissions. The web pages introduced into evidence may contain omissions that would have been material to would-be borrowers in deciding whether to pursue a loan through CashCall, Inc.: 1) if CashCall, Inc.’s unsecured lending was indeed limited to California residents, the pages contain no statement that the loans were limited to residents of specific, enumerated states; 2) the interest rates associated with personal loans were not consistently disclosed; 3) there was no comparative data supporting CashCall, Inc.’s claims that its interest rates were “typically much lower than those of payday lenders”; 4) CashCall, Inc. neglected to state that customers with “excellent credit” would probably qualify for loans having a much lower rate than 35.87% from competing lenders or that the quoted rates present issues under state usury laws; and 5) in representing that CashCall, Inc. unsecured loans would have the potential to help customers rebuild their credit score by making payments on time, CashCall, Inc. failed to disclose the default rate on the loans and the resulting adverse impact on a borrower’s credit score.
The Amended Order, however, did not allege that Respondent made material omissions of the type described in the preceding paragraph, and therefore such omissions cannot support a finding that Respondent violated Section 36a-53b.
However, such lack of disclosure would be relevant to Respondent’s business practices, and, by extension, it character and fitness to conduct lending activity.
Alleged Violation of Section 36a-490(c)
|Section 36a-490(c) of the Connecticut General Statutes provides, in part, that:|
CashCall, Inc. clearly violated Section 36a-490(c) of the Connecticut General Statutes by waiting approximately two months after the Original Order was issued to amend its NMLS record to disclose the existence of the Original Order. It was only after the department issued its May 3, 2013 compliance letter that CashCall, Inc. undertook to comply with the provision.
Basis for Revocation
|Section 36a-494 of the Connecticut General Statutes provides, in part, that:|
|Section 36a-489(a)(1) of the Connecticut General Statutes explains that:
(1) The commissioner shall not issue an initial license for a mortgage lender . . . unless the commissioner, at a minimum, finds that: . . . (C) the applicant demonstrates that the financial responsibility, character and general fitness of the applicant . . . are such as to command the confidence of the community and to warrant a determination that the applicant will operate honestly, fairly and efficiently within the purposes of sections 36a-485 to 36a-498f, inclusive, 36a-534a and 36a-534b . . . .
|The record indicates that CashCall, Inc. violated Sections 36a-555 and 36a-490(c) of the Connecticut General Statutes. In addition, and of more significance, CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes thousands of times by receiving interest well in excess of 12% in conjunction with its business activities involving unsecured loans. This fact, combined with other state sanctions entered against CashCall, Inc. for alleged violations of state usury laws, does not inspire confidence that CashCall, Inc. will abide by Connecticut law for the benefit of Connecticut borrowers. CashCall, Inc. argues that, because the allegations concern unsecured lending and did not arise in conjunction with its mortgage business, the Commissioner would be overreaching in revoking CashCall, Inc.’s mortgage license. The Commissioner rejects this argument (see, Crescent Investment Co. v. Commissioner of Banking and Insurance of the State of New Jersey, 103 N.J. Super. 11 (1968).|
CashCall, Inc.’s Special Defenses
CashCall, Inc. asserts that 1) Webb is a member of the Cheyenne River Sioux Tribe; 2) because Webb is a member of the tribe, Western Sky Financial, LLC enjoys the privileges of tribal membership; 3) as assignee, CashCall, Inc. steps into the shoes of Western Sky Financial, LLC; and 4) therefore, the department cannot enforce against CashCall, Inc. what it could not enforce against Western Sky Financial, LLC.
This argument is attenuated at best. In Puyallup Tribe, Inc. v. Department of Game, 433 U.S. 165, 171, 172, the United States Supreme Court held that the sovereign immunity doctrine does not immunize individual tribal members. Puyallup was cited with approval in State of Colorado ex rel. Suthers v. Western Sky Financial LLC and Martin A. Webb (D. Col., Case No. 11 CV 638, 4/15/12) wherein the court held that “Webb, as an enrolled member of the Tribe, is not individually entitled to immunity, nor does his membership in the Tribe confer such immunity upon Western Sky.” The court also concluded that Western Sky’s conduct did not involve the regulation of Indian affairs on an Indian reservation.
Similarly, in State ex rel. Suthers v. Western Sky LLC, 845 F.Supp. 2d 1178, 1182 (D. Colo. 2011), the court held that Western Sky’s conduct did not involve the regulation of Indian affairs on a reservation, observing that: “The borrowers do not go to the reservation in South Dakota to apply for, negotiate or entered into loans. They apply for loans in Colorado by accessing defendants’ website. They repay the loans and pay the financing charges from Colorado; Western Sky is authorized to withdraw the funds electronically from their bank accounts; and the impact of the allegedly excessive charges was felt in Colorado.”
There is no evidence in the record that any Connecticut resident went to the Cheyenne River Sioux Reservation to apply for or negotiate a loan. Insofar as the Western Sky loans were concerned, the record suggests that the application and repayment process was done electronically as was the case in Suthers. And certainly, the impact of the high interest charges was deeply felt in Connecticut by borrowers who could ill afford such charges.
In considering a motion to remand in State of Missouri ex rel. Koster v. Webb et al. (D. Mo., Case No. 4:11-cv-01237-AGF, 3/27/12), the court concluded that “Webb, as an enrolled member of the Tribe, is not individually entitled to immunity, nor does his membership in the Tribe confer such immunity upon the Lending Companies [including Western Sky Financial LLC]” and that, as an enabling provision, the Indian Commerce Clause does not completely preempt state law.
Even if Western Sky Financial, LLC were an Indian tribe (which it is not), courts have held that Internet lending does not constitute on-reservation activity (see, e.g., Otoe v. Missouria Tribe of Indians et al. v. New York State Department of Financial Services (SDNY, 9/30/13, Case No. 13-CV-5930-RJS) [consumers not on a reservation when they apply for a loan, agree to the loan, spend loan proceeds or repay those proceeds with interest nor do they travel to tribal land].
There is no evidence in the record that Western Sky Financial, LLC – let alone CashCall, Inc. – was an Indian tribe or that the Cheyenne River Sioux Tribe sanctioned or was otherwise involved with these loans. In fact, no document was introduced evidencing any license that Western Sky Financial, LLC had with the tribe. The Cheyenne River Sioux Tribe did not intervene in these proceedings or ask to file an amicus brief. Although the tribe’s perspective is not included in the record, on August 13, 2013, the Native American Financial Services Association (“NAFSA”), an organization dedicated to preserving the sovereignty of Native American tribes and whose membership consists of federally recognized tribes issued this release: “Western Sky Loans does not operate under tribal law or abide by tribal regulatory bodies and is not wholly-owned by a federally-recognized tribe.” On December 16, 2013, NAFSA issued another release which stated: “CashCall does not abide by these consumer-friendly practices, is not an enterprise wholly owned by a federally-recognized tribe, is not regulated by a tribal regulatory lending authority, does not operate according to tribal law, and breaks the covenants meant to benefit tribal governments and their members.” (see release at mynafsa dot org) . . . .
Neither CashCall, Inc. nor Western Sky Financial, LLC could legally claim the immunity extended to an Indian tribe. To conclude otherwise would do a disservice to legitimate Native American lending operations. In its brief, CashCall, Inc. claims that the Commissioner, in issuing the Amended Order, is attempting to “regulate a reservation” (Respondent’s brief at 20). This argument misconstrues the Commissioner’s action. The Commissioner was attempting to regulate California-based CashCall, Inc.’s unsecured lending activity and the exorbitant interest rates charged and/or received by CashCall, Inc.
Therefore, CashCall, Inc.’s tribal immunity defense must fail.
Lest anyone erroneously believe that the extraordinary interest rates charged and/or received by CashCall, Inc. would have been permissible from a Native American perspective, the case of Capital Loan Corporation v. Platero et al. (2000 CP-cv-001) may provide some insight. There, the District Court of the Navajo Nation (New Mexico) was presented with three unsecured loans for $200, $100 and $500. The APR on the loans was 191.31%, 233.76% and 89.62% respectively. Finding the interest rates unconscionable, the court remarked, “these loans certainly appear to be an ‘unconscionable bargain’ which is ‘one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other’ [citation omitted]. Are these interest rate agreements ones are freely made? The court takes judicial notice of the very high poverty rates in the Navajo Nation and the smallness of these loans indicate need by the borrowers. The court also wonders what fair and honest lender would charge interest rates from 89.63% to 233.76%. This court cannot enforce that kind of agreement.”
|Having read the record, I hereby ORDER, pursuant to Sections 36a-50, 36a-51, 36a-52 and 36a-494 of the Connecticut General Statutes that::|
|So ordered at Hartford, Connecticut||______/s/__________|
|this 4th day of February, 2014.||Howard F. Pitkin|
On February 4, 2014, this Order
was sent electronically and hand delivered
to Stacey Serrano, Esq., counsel to the
Department, and sent electronically
as well as by certified mail,
return receipt requested, to
Respondent’s counsel of record
at the following addresses:
Donn A. Randall, Esq.
Bulkley, Richardson and Gelinas, LLP
125 High Street
Oliver Street Tower – 16th Floor
Boston, Massachusetts 02110
Certified Mail No. 7012 3050 0002 1692 6354
drandall at bulkley.com
Katya Jestin, Esq.
Jenner & Block
919 Third Avenue
New York, New York 10022-3908
Certified Mail No. 7012 3050 0002 1692 6361
kjestin at jenner.com
Neil Barofsky, Esq.
Jenner & Block
919 Third Avenue
New York, New York 10022-3908
Certified Mail No. 7012 3050 0002 1692 6378
nbarofsky at jenner.com
Anthony S. Barkow, Esq.
Jenner & Block
919 Third Avenue
New York, New York 10022-3908
Certified Mail No. 7012 3050 0002 1692 6385
abarkow at jenner.com